Title: An empirical study of the merit order effects in the Texas energy market via quantile regression

Authors: Mary Rudolph; Paul Damien; Jay Zarnikau

Addresses: LBJ School of Public Affairs, University of Texas in Austin, USA ' McCombs School of Business, University of Texas in Austin, B6500, 78712, USA ' Department of Economics, University of Texas in Austin, 1, University Place, 78712, USA

Abstract: The merit order effect is the tendency for non-dispatchable renewable energy generation (wind and solar), or baseload generation (nuclear) to lower wholesale market prices by shifting supply curves. To better quantify real-time pricing, this paper examines how the merit order effects vary with the level of wholesale electricity prices in all the eight zones that comprise the Electric Reliability Council of Texas (ERCOT). To accomplish this goal, the merit order effects due to nuclear, wind and solar energy resources are quantified. This research finds that when wind generation increases by 10%, median prices ($/MWH) in the North region of ERCOT decline by 1.47%, 1.04% and 1.24% for hours 3 am, 11 am and 4 pm, respectively. The corresponding decline in median prices in the West region is 1.86%, 1.34% and 1.73%. These impacts vary considerably within ERCOT. Using these, and attendant findings, policy implications from the analysis are discussed.

Keywords: energy prices; kurtosis; real time prices; skewness; renewable energy.

DOI: 10.1504/IJAOM.2021.10044541

International Journal of Advanced Operations Management, 2021 Vol.13 No.3, pp.258 - 274

Received: 18 Nov 2020
Accepted: 16 Jan 2021

Published online: 24 Jan 2022 *

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