Powering Europe - European Wind Energy Association

uncertainties. Moreover, results should not be directly
compared to recent literature, which usually estimate
the short-term price effects of wind power. Here the
market is not always in equilibrium and actual price
differences and the merit order effect might therefore
be very different.
Moreover, the study estimates the volume merit order
effect referring to the total savings brought about due
to wind power penetration during a particular year. Assuming
that the entire power demand is purchased at
the marginal cost of production, the overall volume of
the MOE has been calculated at €41.7 billion/year.
But this should not be seen as a purely socio-economic
benefit. A certain volume of this is redistributed
from producer to consumer because decreased prices
mean less income for power producers. Currently, only
the long-term marginal generation which is replaced
by wind has a real economic benefit, and this should
be contrasted to the public support for extended wind
power generation.
The scenarios were developed so that the modelling
analysis could show the effect of the additional wind
capacities on future power prices. For this reason,
the main difference between the two scenarios is the
amount of wind capacity. All other renewable sources
and capacities have been kept at 2008 levels in both
scenarios. Hence, there is no future capacity increase
assumed for bio-energy, solar or geothermal energy resources.
This, however, does not reflect a very realistic
market development. A higher renewable share
would influence the abatement costs to reach the defined
CO2 emissions cap. Indirectly, this would also
influence investment decisions in conventional fossilbased
technologies, especially in the Reference scenarios.
However, it is difficult to estimate the outcome
on the merit order effect. Lower emission levels and
hence lower carbon prices might also lead to coal power
becoming more cost-efficient. This might counteract
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the effect of renewables on emissions. It is therefore
recommended that these impacts be studied in a
more thorough sensitivity analysis with the help of a
quantifying modelling tool.
The sensitivity analysis resulted in an increase of the
merit order effect by €1.9 /MWh when fossil fuel prices
(gas, coal and oil) are increased by 25%. In the
High fuel price case, wind power makes the power
price drop from €87.7/MWh in the Reference scenario
to €75/MWh in the Wind scenario. Comparing the
resulting merit order effect in the High fuel case of
€12.7/MWh to the Base case results of €10.8/MWh,
the 25% higher fuel price case gives a merit order effect
that is 17.5% higher.
The study showed that fuel prices have a major influence
on power prices and marginal cost levels. The
merit order effect has been mostly explained by the
difference in the technology capacity and generation
mix in the various scenarios, especially the differences
in the development and utilisation of coal and gas
power technologies. Investigating fuel price differences
is therefore highly relevant. However, even stronger
impacts on the merit order effect might be observed
by changing the relative price differences of gas and
coal price levels.
The study proved that carbon market assumptions
and especially the resulting carbon price level will be
a very important variable for the future power market
and its price levels. Regarding the sensitivity of the assumed
GHG emissions reduction target, the analysis
illustrated higher equilibrium prices for the 30% reduction
case than for the 20% reduction base case.
However, the results of the sensitivity analysis do very
much depend on the assumptions for future abatement
potential and costs in all EU ETS sectors, as well
as in the industrial sectors.
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