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Global Assessment of the Merit-Order Effect and Revenue Cannibalisation for Variable Renewable Energy

37 Pages Posted: 2 Dec 2020 Publication Status: Review Complete

See all articles by Krista Halttunen

Krista Halttunen

Imperial College London - Centre for Environmental Policy

Iain Staffell

Imperial College London - Centre for Environmental Policy

Raphael Slade

Imperial College London - Centre for Environmental Policy

Richard Green

Imperial College Business School

Yves-Marie Saint-Drenan

MINES ParisTech

Malte Jansen

Imperial College London - Centre for Environmental Policy

More...

Abstract

The rapid growth of wind and solar power has been a major driver for decarbonisation worldwide. They tend to reduce wholesale electricity prices, both the time-weighted average (the merit‑order effect) and their own output-weighted average (price cannibalisation).  Whilst these effects have been widely observed, most previous studies focus on single countries.  Here, we compare 37 electricity markets across Europe, North America, Australia and Japan and explore variations between them.Merit-order and cannibalisation effects are observed in nearly all countries studied. However, only in Germany, Spain, Poland, Portugal, Denmark and California can renewable output explain more than 10% of variation in wholesale electricity prices. The global average merit‑order effect is €0.68±€0.54 /MWh per percentage point increase in variable renewable energy penetration, and this falls with higher penetration. Revenues captured by wind farms decrease by 0.23% (€0.16 /MWh) for each percentage point increase of wind penetration and by 1.94% (€0.90 /MWh) for solar PV.

Suggested Citation

Halttunen, Krista and Staffell, Iain and Slade, Raphael and Green, Richard and Saint-Drenan, Yves-Marie and Jansen, Malte, Global Assessment of the Merit-Order Effect and Revenue Cannibalisation for Variable Renewable Energy. Available at SSRN: https://ssrn.com/abstract=3741232 or http://dx.doi.org/10.2139/ssrn.3741232
This version of the paper has not been formally peer reviewed.

Krista Halttunen

Imperial College London - Centre for Environmental Policy ( email )

United Kingdom

Iain Staffell

Imperial College London - Centre for Environmental Policy

United Kingdom

Raphael Slade

Imperial College London - Centre for Environmental Policy ( email )

United Kingdom

Richard Green

Imperial College Business School ( email )

Tanaka Building
South Kensington
London, London SW7 2AZ
United Kingdom

Yves-Marie Saint-Drenan

MINES ParisTech ( email )

60 boulevard Saint Michel
Paris, 75272
France

Malte Jansen (Contact Author)

Imperial College London - Centre for Environmental Policy ( email )

United Kingdom

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