*4.3. Sensitivity Analysis*

The proposed mathematical model can be used to predict electricity market behavior in the future when the parameter estimates in the Table 2 are adjusted to future values. The four parameters which express the size of the market are considered as factors. All other parameters express market characteristics which remain constant long term. Thus, the factors which affect market future behavior are the following four parameters:


S*max* is analogous to the installed power of conventional electricity generated systems that are dispatchable, meaning that they determine SMP through hourly price bidding in the day-ahead market. Similarly, *WT* and *PVT* are analogous to the renewable installed power, non-photovoltaics and photovoltaics, respectively. Finally, *DT* expresses the society activities and is analogous to the economic growth.

In the sensitivity analysis of Figure 12 the effect of the above four factors on the merit order effect (MOE), separately, is presented. Demand is the crucial factor; it can double the MOE when it increases by about 25%. Renewables appear to have a smaller effect, while conventional installed power appears to have a negative effect. Obviously, all these effects are interpreted from Figure 1 by changing the interception of the demand and supply curves.

**Figure 12.** Sensitivity analysis (one factor at a time): Effect of crucial market factors on the merit order effect. D = demand, W = renewables except photovoltaics, PV = photovoltaics, and Smax = conventional.

The effect of the factors when they are changed simultaneously is presented in the scenario analysis of Figure 13. The following scenarios are examined:


• A − D All factors except Demand are increased by the same rate.

**Figure 13.** Scenario analysis (simultaneous factor variation): D + R = demand and renewables are increased by the same rate, conventionals are kept constant; D = demand is increased, all other factors are kept constant; A = all factors are increased by the same rate; D + C = demand and conventionals are increased with the same rate, renewables are kept constant; and A − D = all factors, except demand, are increased by the same rate.

Obviously, the higher positive effect is obtained when demand and renewables are increased simultaneously, and the higher negative effect is obtained when demand remains constant and all other factors are increased. Similarly, any other combination of changes can be examined.
