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The merit-order effect in the Italian Power Market: the impact of solar and wind generation on national wholesale electricity prices

Alessandra Cataldi (), Stefano Clo () and Pietro Zoppoli

No 9, Working Papers from Department of the Treasury, Ministry of the Economy and of Finance

Abstract: Italy promoted one of the most generous renewable support schemes worldwide which resulted in a high increase of solar power generation. We analyze the Italian day-ahead wholesale electricity market, finding empirical evidence of the merit-order effect. Over the period 2005-2013 an increase of 1 GWh in the hourly average of daily production from solar and wind sources has, on average, reduced wholesale electricity prices by respectively 2.3 €/MWh and 4.2 €/MWh and has amplified their volatility. The impact on prices has decreased over time in correspondence with the increase in solar and wind electricity production. We estimate that, over the period 2009-2013, solar production has generated higher monetary savings than wind production, mainly because the former is more prominent than the latter. However, in the solar case, monetary savings are not sufficient to compensate the cost of the related supporting schemes which are entirely internalized within end-user tariffs, causing a reduction of the consumer surplus, while the opposite occurs in the case of wind.

Keywords: Renewables; electricity price; merit-order effect; feed-in tariff; Italian wholesale power market (search for similar items in EconPapers)
JEL-codes: Q41 Q42 Q48 (search for similar items in EconPapers)
Pages: 23
Date: 2014-12
New Economics Papers: this item is included in nep-ene, nep-eur and nep-reg
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Journal Article: The merit-order effect in the Italian power market: The impact of solar and wind generation on national wholesale electricity prices (2015) Downloads
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