The Merit Order determines the sequence in which power plants are used for electricity generation. This article provides insight into how this order influences electricity prices and the role different energy sources play in the process.
The Merit Order dictates that the cheapest energy sources, such as solar and wind power, are utilized first. If the total electricity demand is not met, more expensive power plants are gradually added. The electricity price is set by the most expensive power plant still required—often gas-fired plants. All energy providers receive this uniform price for their electricity, regardless of their actual production costs.1
The following graphic illustrates six power plants sorted in the Merit Order based on their generation costs. They are activated one by one to meet electricity demand, with the last power plant determining the final electricity price.
Further information#
- Learn more about how this ensures efficiency and how prices are linked to CO2 costs: EPEX SPOT: Basics of the Power Market