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.


Related Article:

Renewable Energy & Natural Gas powered Electricity Grids

Originally published at JBS News by John Brian Shannon John Brian Shannon

Clean and Clean-Burn: Energy, the way it should be

Planetary energy graphic courtesy of Perez and Perez.
Planetary energy graphic courtesy of Perez and Perez.

Of all the energy that is available to us, solar energy is by far the most available and the most evenly distributed energy resource on planet Earth.

Wind and Solar + natural gas = Synergy

  • Solar is available all day every day. But not at night.
  • Wind is available day and night, but it can produce variable power levels as the wind blows over the landscape.
  • Meanwhile, offshore wind turbines produce constant power, spinning at constant speeds for years at a time — except when an operator locks the blades during large storms or during the annual maintenance inspection.

Both solar power and wind power face varying levels of ‘intermittency‘ — which requires the use of ‘peaking power plants‘ or ‘load-following’ power plants — to meet total demand.

‘Catch my Fall’ — All electrical power generators are inter-dependent

How electricity grids use different power generators to meet total and constantly changing electricity demand.

In the case of renewable energy, the negatives include some variability in the total output of solar power or wind power generation due to temporary cloud cover or storms. At such times, natural gas-fired generation can ramp-up to cover any shortfall.

Note: This is a common and daily energy grid practice whether renewable energy is involved or not. Some gas-fired power plants are called peaking power plants which quickly ramp-up to meet output shortfalls. In fact, peaking power plants (which are almost always gas-fired) were created to meet temporary shortfalls — and were in widespread use long before renewable energy ever hit the market.

Also in the case of renewable energy, another negative is that the Sun disappears at night and solar panels stop contributing to the grid. And unless you have offshore wind turbines to make up the shortfall, onshore wind turbines may fall short of total demand. So at night, you need reliable power to make up shortfalls in primary generation.

Note: This is a common and daily energy grid practice whether renewable energy is involved or not. To cover this situation load-following power plants were designed to meet larger output shortfalls. In fact, load-following power plants were created to meet larger, daily, shortfalls — and were in widespread use long before renewable energy ever hit the market.

In the case of natural gas, the negative is that gas is subject to wild price swings, thereby making gas-fired generation very expensive. Which is why it evolved into peaking power plants, less often in the load-following role and almost never as a baseload power generator.

The other negative associated with natural gas is of course, the fact that gas turbines put out plenty of CO2. That we can deal with. Unlike coal, where the CO2 portion of the airborne emissions are almost the least of our worries — as coal emissions are loaded with toxic heavy metals, soot and other airborne toxins.

How can we deal with the CO2 emitted by gas-fired peaking power plants?

As gas-fired peaking power plants typically fire up anywhere from a couple of dozen hours annually, to a few hours of every day (usually to cover the additional load of many air conditioners suddenly switching on during hot summer days, for example) we aren’t talking about a whole lot of CO2.

Carbon Capture and Sequestration (CCS) of gas-fired CO2 emissions via tree planting

  • Peaking power plants operate for a few hours per year. We’re not talking that much CO2.
  • Load-following power plants operate for many hours per year. More CO2.

But still, each mature tree absorbs (a low average of) 1 ton of CO2 from the atmosphere and keeps it in storage for many decades. Some trees, like the ancient Sequoia trees in California, are 3700 years old and store 26 tons of CO2 each!

And, as anyone who has worked in the forest industry knows; Once that first planting hits maturity (in about 10 years) they will begin dropping their yearly seeds. Some trees like the cottonwood tree produce 1 million seeds annually for the life of the tree. American Elm trees set 5 million seeds per year. More trees. Always good.

It’s an easy calculation: “How many tons of CO2 did ABC gas-fired power plant output last year?”
Therefore: “How many trees do we need to plant, to cover those emissions?”

Simply plant a corresponding number of trees and presto! gas-fired generation is carbon neutral

By calculating how many tons each gas-fired peaking plant contributes and planting enough trees each year to cover their CO2 contribution, it could allow them to become just as carbon neutral as solar panels or wind turbines.

The total number of trees that we would need to plant in order to draw gas-fired peaking power plant CO2 emissions down to zero would be a relatively small number — per local power plant.

By calculating how many tons each gas-fired load-following power plant contributes and planting enough trees annually to cover their CO2 contribution they too could become just as carbon neutral as solar panels or wind turbines. Many more trees, but still doable and a simple solution!

The total number of trees that we would need to plant in order to draw gas-fired load-following power plant CO2 emissions down to zero would be a much larger number. But NOT an impossible number!

So now is the time to get kids involved as part of their scholastic environmental studies, planting trees one day per month for the entire school year.

Let the peaking and load-following power plants contribute the tree seedlings as part of their media message that the local gas-fired power plant is completely carbon neutral (ta-da!) due to the combined forces of the gas power plant operator, the natural carbon storage attributes of trees, and students.

Up to one million trees could be planted annually if every school (all grades) in North America contributed to the effort — thereby sequestering an amount of CO2 equal to, or greater than, all gas-fired generation on the continent.

It’s so simple when you want something to work. Hallelujah!

Baseload, peaking, and load-following power plants

Historically, natural gas was too expensive to used in baseload power plants due to the wildly fluctuating natural gas pricing and high distribution costs, but it is in wide use around the world in the peaking power plant role, and less often, in the load following power plant role.

Renewable energy power plants can be linked to ‘peaking’ or ‘load-following’ natural gas-fired power plants to assure uninterrupted power flows.

Peaking power plants operate only during times of peak demand.

In countries with widespread air conditioning, demand peaks around the middle of the afternoon, so a typical peaking power plant may start up a couple of hours before this point and shut down a couple of hours after.

However, the duration of operation for peaking plants varies from a good portion of every day to a couple dozen hours per year.

Peaking power plants include hydroelectric and gas turbine power plants. Many gas turbine power plants can be fueled with natural gas or diesel. — Wikipedia

Using natural gas for baseload power

Natural gas has some strong points in its favour. Often it is the case that we can tap into existing underground gas reservoirs by simply drilling a pipe into naturally occurring caverns in the Earth which have filled with natural gas over many millions of years. In such cases, all that is required is some minor processing to remove impurities and adding some moisture and CO2 to enable safe transport (whether by pipeline, railway, or truck) to gas-fired power plants which may be located hundreds of miles away.

It is the natural gas market pricing system that prevents gas from becoming anything other than a stopgap energy generator (read: peaking or load-following) and almost never a baseload energy generator.

Let’s look at local solutions to that problem.

Waste-to-Fuels

Several corporations are working with local governments to find innovative ways to capture landfill gas to produce electricity from it.

Increasingly, landfills are now installing perforated pipes underground which draw the landfill gas (so-called ‘swamp methane’) to an on-site processing facility. It is a low-grade gas which is then blended with conventional natural gas to create an effective transportation or power generation fuel.

Waste Management Industries is a global leader in the implementation of this technology, using its own landfills and municipal landfills across North America to produce over 550 megawatts of electricity, enough to power more than 440,000 homes. This amount of energy is equivalent to offsetting over 2.2 million tons of coal per year. Many more similar operations are under construction as you read this.

Aquatera gives us another great example of how to turn a mundane landfill site into a valuable and clean Waste-to-Fuel resource.

Durban, South Africa, a city of 3.5 million people, has created a huge Waste-to-Fuel landfill power plant that provides electricity to more than 5000 nearby homes.

Durban Solid Waste (DSW) receives 4000 tons of trash per day which produces some 2600 cubic metres of gas daily.

The GE Clean Cycle Waste-to-Fuel power plant arrives in 4 large shipping containers, and once connected to the gas supply pipeline it is ready to power nearby buildings and to sell surplus power to the grid.

One GE Clean Cycle Waste-to-Fuel power plant unit can generate 1 million kWh per year from waste heat and avoid more than 350 metric tons of CO2 per year, equivalent to the emissions of almost 200 cars.

Blending Conventional Natural Gas with Landfill Gas

As conventional natural gas is expensive (and much of the cost is associated with transportation of the gas over long distances) when we blend it 50/50 with landfill gas, we drop the cost of the gas by half. Thereby making blended natural gas (from two very different sources) more competitive as a power generation fuel.

By blending conventional natural gas 50/50 with landfill gas; We could produce baseload power with it — but more likely than that, we could use it to produce reasonably-priced load-following or peaking power to augment existing and future renewable energy power plants — rather than allow all that raw methane from landfills to escape into the atmosphere.

Best of Both Worlds — Renewable Energy and Natural Gas

Partnering renewable energy with natural gas in this way allows each type of power generator to work to their best strength — while countering negatives associated with either renewable energy or natural gas.

Renewable power generation and lower cost natural gas can work together to make coal-fired electrical power generation obsolete and accelerate progress toward our clean air goals.

Related Articles:

new lens scenario
Royal Dutch Shell ‘New Lens Scenarios’
Our latest scenarios explore two possible versions of the future seen through fresh ‘lenses’ to take us to the year 2100.

BP Energy Outlook 2035
BP Energy Outlook 2035
This edition updates our view of the likely path of global energy markets to 2035.