Merit order

The merit order is a way of ranking available sources of energy, especially electrical generation, based on ascending order of price (which may reflect the order of their short-run marginal costs of production) and sometimes pollution, together with amount of energy that will be generated. In a centralized management scheme, the ranking is such that those with the lowest marginal costs are the first sources to be brought online to meet demand, and the plants with the highest marginal costs are the last to be brought on line. Dispatching power generation in this way, known as economic dispatch, minimizes the cost of production of electricity. Sometimes generating units must be started out of merit order, due to transmission congestion, system reliability or other reasons. In environmental dispatch, additional considerations concerning reduction of pollution further complicate the power dispatch problem. The basic constraints of the economic dispatch problem remain in place but the model is optimized to minimize pollutant emission in addition to minimizing fuel costs and total power loss.