Annual Newsletter

How Power Plant try to improve their Merit Order Rating

Economic dispatch and optimal power flow becomes the basis for MOR whether it is on
procurement side from grid or from the generation side to the grid. Economic Despatch
means the process of allocating generation levels to the generating units in the mix, so that
the system load is supplied entirely and most economically.
Now a day in case of power procurement from the
grid Merit-Order-Rating is also followed due to which the fossil fuel operated plants get
lesser schedule, if there is more availability of power from the renewable sources. Due to
the higher availability of renewable, the coal fired plants has to operate at lower loads and
has been restricted to a limit of 55% of the Full-load which is termed as Technical minimum
of the unit. The Technical minimum limit can reduce below 55% as there is more injection of
renewable in the grid and increasing day by day at higher pace. So, it has become essential
for the Station to fulfil the grid demand economically i.e the unit which is more efficient in a
station should have more merit over other. The unit which has lower cost of generation
should be given higher share in generation.

The Merit order adhere to the principle that cheaper available power is
procured and distributed at any given point of time so that the consumer is not required to
pay for power at avoidably excess cost through optimization of its generation resources on
an economic basis and ensure customers are provided electricity supply on a least cost
basis. This is accomplished through Merit Order Dispatch. Under a merit order dispatch
system, generation is dispatched based upon price, taking into account the operational
constraints on the units, the quality and quantity of fuel, and also the hydrology available in
the year for hydro stations as well as provisions of power purchase agreements.

Merit order dispatch relies on the short-run marginal cost associated with the operation of
each generation unit as being the basis for dispatch. Short-run marginal costs are generally
defined as the variable cost of the generation unit, which are typically the unit’s fuel cost
and variable operation and maintenance expense. For generation plants, capital related
expenditures, depreciation, labour cost, taxes, etc. are considered fixed costs. Fixed costs,
as the name implies, are fixed, and will not increase or decrease relative to the dispatch of a
particular unit. Therefore, economic optimization of generating station would dictate
dispatch based upon the variable cost of its generation sources.

Based upon the marginal or variable cost of each unit of generation or purchase pursuant to
a power purchase agreement, generation is ranked from lowest cost to highest cost. This
ranking establishes the “real-time”, daily merit order “stack” according to which the utility
will dispatch its generation in order to meet its load requirements. Similarly, in the event
the utility must “back down” its generation requirements, the merit order stack provides
the economic basis in which the units are to be cut back. The utility will cut back those units
in order of highest variable cost to lowest variable cost.

So, due to the competitive market the plants are following the merit order to generate more
economically in the same way grid procures the power for its economical availability to the
customer.