PV magazine covers our report on merit order effect
PV MAGAZINE, 4 February 2015
Henri Gouzerh and Nicolas Gourvitch proposed a method to quantify the merit order effect of solar PV in Germany, France, Italy, Austria and Switzerland for the period 2007-2013.
They calculated the savings for power purchasers generated by the decrease in electricity spot market prices observed when solar PV plants feed electricity into the grid. PV magazine is referring to this study in the below article.
European PV implementation has lowered prices by 3%
A new report makes the claim that the implementation of PV across Europe has led to a downward shift in electricity prices of 3 per cent.
The report, released by PV pressure group The Becquerel Institute in association with renewable energy financial advisor firm Green Giraffe and using data from GeoModel Solar, claims that the rise of PV has led to ‘significantly lower electricity prices’ in recent years. Titled Quantitative Analysis of the Merit Order Effect from Photovoltaic Production in Key European Countries, the report attempts to make the case that without PV production that the electricity market price in Germany, Austria, France, Switzerland, and Italy would have been 3 percent higher on average.
A statement on the Becquerel Institute’s website states, “The impact of PV on electricity prices introduces many questions on the future profitability of utilities under existing framework conditions, and even more the question of the future competitiveness of PV installations selling on the electricity markets. The conclusions of this study should be carefully analyzed: They show that the cost of PV electricity for the community could be reduced but also that the question of ensuring the profitability of most players during the energy transition will be the key of further PV development in Europe.”
However, careful analysis of the assumptions made in putting together the study indicate that the conclusions may be erroneous. Correlation may not be causation.
Firstly, the report assumes that any fall in electricity prices is entirely related to the implementation of PV. But there has been a steady and well-documented fall in oil prices in recent months. According to data obtained by the BBC, the price of oil has fallen from $110 a barrel to less than $50 since June.
Further assumptions are made about what even constitutes the price of electricity. Early on the report, the authors confess to making a ‘heavy assumption’ through only using market prices. There, they write, “Since only market prices were available the authors had to assume that all the electricity consumed is traded on the day-ahead market. This is a heavy assumption but traded volumes in European day-ahead markets have increased significantly over the last years, fluctuating above 40% since 2010 and reaching 52% of total electricity consumption in Q1 2013. Such assumption can further be justified by the fact that the mechanics of the day-ahead market are, in the long run, internalised in all the other contracts (long term purchase agreements, futures market…).”
The report also makes no reference to those that generate solar for their own use. “Thanks to the conjunction of these assumptions,” they write, “it appears reasonable to assume that all electricity (and therefore solar) produced is fed into the grid and consumed (no self-consumption, no export or import).”
In conclusion, the Becquerel Institute posted, “[The results] show that the cost of PV electricity for the community could be reduced but also that the question of ensuring the profitability of most players during the energy transition will be the key of further PV development in Europe. Considering solar PV energy only, this analysis does not embrace and quantify the total real effect, on a given electricity market, of introducing additional renewable electricity – mainly PV and Wind – in the generation mix of that market.”
The conclusions of the report, despite its limitations, should be considered as progress towards understanding the definite environment and economic benefits of renewable energy across Europe.