What is the merit order?
The merit order ranks power plants by their short-run marginal cost — cheapest first. The grid dispatches plants in that order until demand is met.
How it sets the price
- Renewables and nuclear sit at the bottom: near-zero marginal cost.
- Gas, coal and oil stack on top, in rising cost order.
- The last plant needed to meet demand sets the market price for everyone.
This is why a little extra demand on a tight day can lift the price sharply: it pulls in a far more expensive plant at the margin.
The takeaway
More cheap renewables shift the whole curve right, lowering the clearing price — the core mechanism behind the “merit-order effect”.