Merit Order Ranking favours Renewable Energy

by John Brian Shannon | Reposted from JBS News

What is Merit Order ranking?

Merit Order is a ranking system used by electric utilities to choose the most cost-effective electricity to add to the grid at any given moment.

Thanks to the magic of computerization, microprocessors make thousands of decisions per day based on parameters set by the utility company to help the utility to make the highest profits — based on ‘the spread’ — the difference between what they pay energy producers (the wholesale price) and the price they charge their customers (the retail price).

Most utility companies have Merit Order ranking control rooms similar to this one where decisions are made about which power producer will contribute to the grid. Microprocessors make the instant decisions while humans are present to oversee operations and plan ahead.
Most utility companies have Merit Order ranking control rooms similar to this one where decisions are made about which power producer will contribute to the grid. Microprocessors make the instant decisions while humans are present to oversee operations and plan ahead.

The cheapest electricity on a per kilowatt per hours basis (kW/h) is always solar and wind power which has a merit order ranking of 0 (Merit Order 0) which makes wind and solar the automatic default for utility companies that take every bit of it they can get — and only then do they add power to the grid from the number 1 ranked energy source (Merit Order 1) which in the United States, is coal.

Coal would still be the default energy producer as it was for decades, but because coal has a fuel cost attached to it while solar and wind power don’t, coal ranks lower on the merit order ranking scale. Other electricity generators hold different positions on the merit order ranking scale, with natural gas ‘peaking power plants’ the absolute last choice for utility companies because the per kW/h cost of electricity generated by natural gas gas peaking power plants is so high compared to other energy producers.

The German Merit Order ranking system offers an easy explanation

In the German example, electricity rates are determined hourly and customers are charged the corresponding hourly rate.

For our purposes to explain merit order ranking, this works well. In Germany electricity rates drop by up to 40% during the hours in which solar or wind are active, and this is what Merit Order ranking is all about; Using the cheapest available electricity FIRST — and then filling the gaps with more expensive electrical power generators after all the solar and wind capacity is brought online.

Solar and wind electricity in Germany are rated at Merit Order 0 making them the default for utility companies as they meet their daily demand.

Once all of the available solar and wind capacity is online, only then are, (1) nuclear, (2) coal, and (3) natural gas, ramped up to meet the daily German demand curve.

NOTE: In the U.S. the normal Merit Order rankings are; default (0) for solar and wind, (1) coal, (2) nuclear, (3) hydropower, and (4) natural gas, although this order can change in some parts of the United States, depending which types of energy are produced in a given region.

Still using the German example; The Fraunhofer Institute found – as far back as 2007 – that as a result of the Merit Order ranking system – solar power had reduced the price of electricity on the EPEX exchange by 10 percent on the average, with reductions peaking at up to 40 percent in the early afternoon when the most solar power is generated.

Here’s how the Merit Order works

All available sources of electrical generation are ranked by their marginal costs, from cheapest to most expensive, with the cheapest having the most merit.

The marginal cost is the cost of producing one additional unit of electricity. Electricity sources with a higher fuel cost have a higher marginal cost. If one unit of fuel costs $X, 2 units will cost $X times 2. This ranking is called the order of merit of each source, or the Merit Order.

Using Merit Order to decide means the source with the lowest marginal cost must be used first when there is a need to add more power to the grid – like during sunny afternoon peak hours.

Using the lowest marginal costs first was designed so that cheaper fuels were used first to save consumers money. In the German market, this was nuclear, then coal, then natural gas.

But 2 hours of sunshine cost no more than 1 of sunshine: therefore it has a lower marginal cost than coal – or any source with any fuel cost whatsoever.

So, under the Merit Order ranking of relative marginal costs, devised before there was this much fuel-free energy available on the grid, solar always has the lowest marginal cost during these peaks because two units of solar is no more expensive than one. — Susan Kraemer

It’s as simple as this; With no fuel costs, solar and wind cost less.

Although solar and wind are expensive to construct initially (but not as expensive as large nuclear power plants, large coal power plants, or large hydro-electric dams) there is no fuel price to pay, no weather-related price spikes, fuel transportation costs, fuel supply disruptions, or lack of rainfall to factor into the final electricity price.

As solar panel and wind turbine prices continue to drop thereby encouraging more solar and wind installations, we’ll hear more about Merit Order ranking.

Only solar, wind, hydro-electric and nuclear power have a predictable kW/h price every day of the year. Coal, home heating fuel and natural gas, do not. And that’s everything to energy producers and their customers, the utility companies.

Although energy companies and utilities were slower than consumers to embrace renewable energy, some are now seeing benefit for their business model and henceforth, things will change.

Buckle up, because big changes are coming to the existing utility business model, changes that will benefit energy producers, energy consumers and the environment.


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FORD Exec: Emission Controls Make Cars Unaffordable

Reposted from JBSNews.com

Ford of Europe CEO Jim Farley believes evermore costly emission control technology could eventually make cars unaffordable for most consumers

Vehicle emission regulators in Europe “need to consider affordability, or risk creating an elitist industry where cars are only attainable by the wealthy.” — Farley told the Financial Times

The obvious conclusion to draw from Ford’s position is that FUELS must become several orders of magnitude cleaner. And with today’s technology, that is entirely possible.

Ford Mustang in Europe
Ford Mustang in Europe. Image courtesy of Ford Motor Company.

(1) In South Africa, SASOL has been taking the dirtiest grade of coal (brown coal) and turning it into one of the cleanest burning fuels on the planet since 1950.

Cars in South Africa only require minimal emission controls due to the extremely clean burning petrol which has a minimum blend of 30% CTL fuel (Coal-to-Liquids)

During hot summer days with their higher pollution levels (from coal-fired power plants, from marine shipping and from rail) SASOL simply increases the CTL percentage in its fuel — neatly countering the air quality problem in South African cities.

It should be said that CTL blended fuel is easier on petrol powered engines than conventional petrol.

(2) Brazil uses biofuel sourced from sugar cane and now that they are collecting the bagasse (stems, leaves, roots) of the sugar cane, instead of burning it in the fields, it is a quantum leap forward for the environment.

Ethanol from sugar cane dramatically lowers CO2 tailpipe emissions compared to conventional petrol, and the next growing season ‘eats’ every bit of the CO2 that was produced and then comes out of those Brazilian tailpipes. (Two crops per year in Brazil, growing plants eat a lot of CO2)

It parallels the normal CO2 recycling of Earth ecosystems.

Again it is the case that ethanol blended fuel from sugarcane is easier on petrol powered engines than conventional petrol.

(3) Finally, if major polluting nations like the U.S., China, Europe and Japan, legislate a switch to E15 in 2020, then to E50 throughout the 2020’s, and E85 after that, the air, especially in our cities will become increasingly cleaner.

Yet again! It is the case that biofuel fuel blends are easier on petrol powered engines than conventional petrol.

Until all cars are electric vehicles (or in later decades when Hydrogen fuelled vehicles become economically viable) all of our effort should be going into making fuels cleaner and dropping some emission controls for petrol cars — except for the obvious, like Crankcase Ventilation (CCV) and those that serve to lower emissions during engine warm-up.

Petrol powered cars are here to stay whether some like it or not. But we need to put the focus on making vehicle fuels cleaner as we’ve long ago reached the point of diminishing returns on vehicle emission controls.

by John Brian Shannon

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