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The new merit order: The viability of energy-only electricity markets with only intermittent renewable energy sources and grid-scale storage

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  • Antweiler, Werner
  • Muesgens, Felix

Abstract

What happens to the merit order of electricity markets when all electricity is supplied by intermittent renewable energy sources coupled with large-scale electricity storage? With near-zero marginal cost of production, will there still be a role for an energy-only electricity market? We answer these questions both analytically and empirically for electricity markets in Texas and Germany. What emerges in market equilibrium is the 'new merit order'. Our work demonstrates that as long as free entry and competition ensure effective price setting, an efficient new merit order emerges in electricity markets even when the grid is completely powered by intermittent sources with near-zero marginal costs. We find that energy only markets remain viable and functional.

Suggested Citation

  • Antweiler, Werner & Muesgens, Felix, 2024. "The new merit order: The viability of energy-only electricity markets with only intermittent renewable energy sources and grid-scale storage," Ruhr Economic Papers 1064, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:282991
    DOI: 10.4419/96973235
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    References listed on IDEAS

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    Cited by:

    1. Tom Brown & Fabian Neumann & Iegor Riepin, 2024. "Price formation without fuel costs: the interaction of elastic demand with storage bidding," Papers 2407.21409, arXiv.org.

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    More about this item

    Keywords

    Renewable energy; energy storage; electricity markets;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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