Why (baseload) generators are terrified of solar [View all]

[kristopher]

Last edited Sat Apr 14, 2012, 05:08 PM - Edit history (1)

Why generators are terrified of solar
By Giles Parkinson on 26 March 2012

Here is a pair of graphs that demonstrate most vividly the merit order effect and the impact that solar is having on electricity prices in Germany; and why utilities there and elsewhere are desperate to try to reign in the growth of solar PV in Europe. It may also explain why Australian generators are fighting so hard against the extension of feed-in tariffs in this country.

The first graph illustrates what a typical day on the electricity market in Germany looked like in March four years ago; the second illustrates what is happening now, with 25GW of solar PV installed across the country. Essentially, it means that solar PV is not just licking the cream off the profits of the fossil fuel generators – as happens in Australia with a more modest rollout of PV – it is in fact eating their entire cake.






Both graphs were published last week on the website Renewables International, and were sourced from EPEX, the European power price exchange. The first graph, from 2008, shows peaking power prices rising to around €60/MWh and staying there for most of the day, with some visible peaks around noon and the early evening – the size of which would depend on the temperature and the usage.

The second graph shows a brief leap to €65/MWh around 9am, before the impact of solar PV takes hold – erasing the midday peak entirely and leaving only a smaller one in the evening. The huge bite out of day-prices is also a bite out of fossil fuel generators’ earnings and profits. Note that the average peak price in the second graph is barely higher than the baseload price.

Deutsche Bank solar analyst Vishal Shah noted in a report last month that EPEX data was showing solar PV was cutting peak electricity prices by up to 40 per cent ...

http://reneweconomy.com.au/2012/why-generators-are-terrified-of-solar-44279

The "merit-order effect"
Electricity produced under a FIT law can help to reduce the average cost of electricity by affecting the wholesale price. Because renewable electricity must be purchased before other sources, the size of the remaining demand to be purchased on the spot market is reduced. Under the "merit order" principle, plants with the lowest costs are used first to meet demand, with more costly plants being brought on line later if needed. The most expensive conventional power plants are therefore no longer needed to meet demand. If the FIT tariff (or price) is lower than the price from the most expensive conventional plants, then the average cost of electricity decreases, and this is called the ‘merit-order effect’. This decrease was estimated to be about € 5 billion in Germany in 2006.

http://www.worldfuturecouncil.org/index.php?id=425

Energy Policy Volume 36, Issue 8, August 2008, Pages 3086–3094
The merit-order effect: A detailed analysis of the price effect of renewable electricity generation on spot market prices in Germany
Frank Sensfußa, , , Mario Ragwitza, Massimo Genoeseb, 1,
a Fraunhofer Institute for Systems and Innovation Research, Breslauer Str. 48, 76139 Karlsruhe, Germany
b Institute for Industrial Production, Universität Karlsruhe (TH), Hertzstr. 16, 76187 Karlsruhe, Germany
Received 18 January 2008. Accepted 25 March 2008.


Abstract
The German feed-in support of electricity generation from renewable energy sources has led to high growth rates of the supported technologies. Critics state that the costs for consumers are too high. An important aspect to be considered in the discussion is the price effect created by renewable electricity generation. This paper seeks to analyse the impact of privileged renewable electricity generation on the electricity market in Germany. The central aspect to be analysed is the impact of renewable electricity generation on spot market prices. The results generated by an agent-based simulation platform indicate that the financial volume of the price reduction is considerable. In the short run, this gives rise to a distributional effect which creates savings for the demand side by reducing generator profits. In the case of the year 2006, the volume of the merit-order effect exceeds the volume of the net support payments for renewable electricity generation which have to be paid by consumers.

http://www.sciencedirect.com/science/article/pii/S0301421508001717