Comparative Analysis of Economic Merit Order Based on Dispatch Point vs. Delivery Point for Consumer Benefits and kWh Rates: Examples from North America, Europe, India, and Pakistan.

Abstract
The economic merit order in electricity markets determines the sequence in which power generation sources are dispatched based on their marginal costs. This paper explores two approaches to the merit order: dispatch point and delivery point, and evaluates their implications for consumers and electricity rates. Using examples from North America, Europe, India, and Pakistan the paper assesses which approach better benefits consumers and results in more efficient kWh rates.
Introduction
The merit order mechanism is crucial in electricity markets, aiming to ensure cost effective generation and distribution. This paper compares the dispatch point and delivery point merit orders, evaluating their impacts on consumer pricing and overall efficiency, with real world examples from North America, Europe, and India.
Conceptual Framework
2.1 Dispatch Point Merit Order
The dispatch point merit order ranks power plants based on the cost of electricity production alone. This approach is simple and focuses on minimizing generation costs, but does not consider transmission constraints or losses.
2.2 Delivery Point Merit Order
The delivery point merit order includes both generation and transmission costs. It ranks generators based on the total cost of delivering electricity to the consumer, reflecting a more comprehensive cost structure.
Comparative Analysis
3.1 North America
Dispatch Point:
Example: PJM Interconnection (U.S.)
PJM operates a regional transmission organization (RTO) that uses a dispatch point merit order. PJM’s market design focuses on minimizing the generation cost by dispatching the cheapest available sources first. This has led to relatively low electricity prices in some regions, but issues arise with transmission congestion.
Impact: While dispatch point pricing can lead to lower short-term rates, transmission constraints in PJM’s network can cause significant price spikes in congested areas, such as during high demand periods or extreme weather events.
Delivery Point:
Example: California Independent System Operator (CAISO)
CAISO incorporates both generation and transmission costs in its pricing model. The CAISO market design adjusts prices based on the delivery point, considering both the cost of generation and the impact of transmission congestion.
Impact: This approach can result in higher prices in the short term but offers a more accurate reflection of the true cost of electricity delivery, helping to manage transmission congestion and reduce volatility in pricing.
3.2 Europe
Dispatch Point:
Example: The British Electricity Trading and Transmission Arrangements (BETTA)
In the UK, BETTA uses a dispatch point merit order for generation. Generators are dispatched based on their marginal costs, which helps in maintaining low prices when generation costs are low.
Impact: While the dispatch point model has been effective in reducing short-term costs, transmission constraints and congestion can sometimes lead to price disparities across different regions.
Delivery Point:
Example: The European Network of Transmission System Operators for Electricity (ENTSOE)
ENTSOE’s framework often considers delivery point costs by integrating transmission tariffs into the pricing. This model helps manage cross-border electricity flows and ensures that transmission costs are accounted for in market prices.
Impact: The delivery point approach leads to more stable pricing across different regions and better reflects the actual cost of delivering electricity, though it can result in higher prices compared to the dispatch point model.
3.3 India
Dispatch Point:
Example: Indian Energy Exchange (IEX)
In India, the IEX uses a dispatch point merit order for day ahead market operations. This approach prioritizes generators based on their bid prices and marginal costs, aiming to minimize generation costs.
Impact: The dispatch point model has helped in lowering prices in areas with abundant cheap generation sources. However, India’s transmission infrastructure can cause significant losses and inefficiencies not reflected in this pricing model. 
Delivery Point:
Example: Power System Operation Corporation Limited (POSOCO)
POSOCO manages transmission and operates the national grid, considering both generation and transmission costs. The approach aims to optimize the total cost of electricity delivery, accounting for transmission losses and grid congestion.
Impact: Incorporating delivery point costs has led to more accurate pricing that reflects the true cost of electricity. This model helps in managing transmission constraints and reducing inefficiencies across the grid.
Pakistan’s Economic Merit Order:
In Pakistan, the economic merit order is managed by the National Transmission and Dispatch Company (NTDC) along with National Power Control Centre (NPCC) is responsible for controlling and monitoring Pakistan’s national power generation and transmission system. NPCC is responsible for ensuring the efficient and reliable operation of the national power grid. The NTDC/NPCC uses a dispatch point-based merit order system, where power generation sources are dispatched based on their marginal costs at the point of generation
Comparative Insights
Economic Efficiency:
Dispatch Point: Simplifies the dispatch process but may result in inefficiencies due to unaccounted transmission constraints. Examples from PJM and BETTA illustrate the potential for price volatility and regional disparities.
Delivery Point: Provides a comprehensive view of the total cost, improving overall system efficiency and stability. Examples from CAISO, ENTSOE, and POSOCO demonstrate how accounting for transmission costs can lead to more stable and fair pricing.
Impact on Consumers:
Dispatch Point: Often results in lower short-term rates but can lead to higher prices during periods of transmission congestion. This effect is evident in markets like PJM and IEX.
Delivery Point: May lead to higher short-term prices but offers better long-term stability and fairness. The delivery point model, as seen in CAISO and ENTSOE, aligns pricing with the actual cost of delivering electricity.
kWh Rates:
Dispatch Point: Generally results in lower short-term kWh rates but may not account for long-term transmission costs. Short-term benefits can be seen in markets such as BETTA and IEX.
Delivery Point: Provides a more accurate reflection of total costs, potentially leading to more stable kWh rates over time. Markets such as CAISO and POSOCO show that delivery point merit orders can reduce long-term price volatility.
Conclusion
The choice between dispatch point and delivery point merit orders has significant implications for electricity pricing and market efficiency. While dispatch point models can offer lower short-term rates, delivery point models provide a more comprehensive view of the total cost of electricity, leading to more stable and fair pricing. The examples from North America, Europe, India, and Pakistan illustrate that incorporating delivery point costs often results in more efficient and equitable outcomes for consumers, despite potential short-term price increases.n