The Merit Order Effect of Czech Renewable Energy

We assess the impact of photovoltaic power plants and other renewable sources on the
electricity supply curve in the Czech Republic. The merit order effect is estimated as the
elasticity of electricity spot price with respect to change in supply of electricity from
renewable sources. Data for the Czech electricity spot market from 2010 to 2015 are
analyzed as this is the period with the steepest increase in a renewable generation
capacity. The effect is estimated separately for solar and other renewable sources. We
find a significant difference between these two groups. Our results show that based on
hourly, daily and weekly data energy produced by Czech solar power plants does not
decrease electricity spot price, creating double cost to the end consumer. However, the
merit order effect based on averaged daily and weekly data is shown to exist for other
renewable sources excluding solar (mainly water and wind). This contributes to the
conclusion that the Czech renewables policy that prefers solar to other renewable
sources may be considered as suboptimal.