Modeling the Merit Order Curve of the European Energy Exchange Power Market in Germany

An updating study concerning the analysis and modeling of the European Energy Exchange power market in Germany is urgently called for due to the dramatic transformations of the market in recent years. Based on careful data research, this paper provides a consolidated and detailed view concerning the development of the market and its mechanisms. This paper proposes a new analytical model of the merit order curve of the market. The model is designed to capture the occurrences of negative prices. It considers fuel prices and CO2 prices, and by taking into account the structural changes of the market such as the increasing energy in-feed from renewable sources and the moratorium of nuclear power plants in Germany, the model is robust to these changes of market fundamentals. The proposed merit-order-curve model constitutes a critical component in realistic fundamental models for the European Energy Exchange power market.