Economic Dispatch Problem: What is it? (Security & MOE)

Key learnings:
  • Economic Dispatch Definition: The economic dispatch problem is defined as a process that assigns power generation to different facilities to meet demand while minimizing costs.
  • Security-Constrained Dispatch: SCED ensures the power grid operates within safety limits while aiming for cost-effective energy distribution.
  • Merit Order Effect: The MOE describes how renewable energies lower electricity costs by supplying power at cheaper rates than conventional plants.
  • Operational Constraints: Economic dispatch requires consideration of system constraints, ensuring reliable and efficient power generation.
  • Impact of Renewables: Renewables significantly alter the energy market’s dynamics by supplying power at minimal costs during peak times, challenging traditional energy sources.

What is Economic Dispatch?

Economic dispatch (also known as economic load dispatch or merit order) is defined as an online process that allocates the generation among the available generators to fulfil the load demand, which helps minimise the total generation cost.

Economic dispatch uses efficient methods to operate power facilities, adhering to production and transmission constraints, ensuring consumer needs are met.

The economic dispatch determines the optimal output of several electricity generation facilities. It contributes to meeting system load at the lowest cost possible, subject to transmission and operational constraints.

Generators with the lowest marginal costs are used first to cost-effectively meet energy demand. The overall system’s marginal cost is set by the last generator used, representing the cost to add one more MWh to the grid.

This method of scheduling generation, referred to as economic dispatch, lowers the price of producing electricity. The traditional economic dispatch approach was created to control fossil fuel-burning power units.

The economic dispatch problem is resolved using specialised computer software. This software should satisfy the operational and system restrictions of the available resources and related transmission capabilities.

Economic dispatch controls the generator’s power within set limits to meet demands efficiently and conserve fuel. This system allows multiple power plants to operate in parallel, enhancing system performance. It becomes required to run the plant units more efficiently in the grid system.

The electric power system is rapidly expanding. Power system interconnections allow multiple power plants to connect in parallel to meet system loads. In the grid system, it becomes necessary to run the plant units more effectively. These are the costs incurred by a power plant to produce a single megawatt-hour.

Depiction of economic dispatch
Depiction of economic dispatch

The merit order is distinct from the fixed costs of a power generation technology. Power plants that continuously produce electricity at very low prices are the first to be called upon to supply power, according to the merit order. Then, power plants with higher marginal costs are added until demand is met.

Security – Constrained Economic Dispatch (SCED)

Security-constrained economic dispatch (SCED) is a simplified optimal power flow (OPF) problem. It is widely used in the power industry. Optimal power flow is one of the most important optimisation problems in the energy industry.

Optimal Power Flow (OPF) calculates the ideal electricity amount needed from the grid’s generators to meet demands at the lowest cost, determining system efficiency.

There are several major approaches to solving the SCED problem, such as linear programming (LP), network flow programming (NFP), quadratic programming (QP), nonlinear convex network flow programming (NLCNFP), and the genetic algorithm (GA).

Merit Order Effect (MOE)

Wholesale electricity prices have been driven down by the expansion of renewable energy sources, which have lower production costs. The process by which the market price is determined is known as the “merit order effect.”

The merit order impact in the energy-only market refers to the reduction in power prices at the electricity exchange brought on by an increase in the supply of renewable energies. The power price is determined by the “merit order.”

The order in which power plants supply energy to the market, with the plant that made the best deal at the outset setting the bar with the lowest operating costs.

The clearing price and the clearing volume are determined by the point where the electricity supply and demand intersect. This clearance price will be paid to all market participants who operate power generators for the grid. Likewise, everyone who purchases electricity at the wholesale market will pay the same price.

Falling electricity production costs, especially from renewables like solar, wind, and biomass, have shifted the merit order, placing traditional power plants at a disadvantage.

During peak load periods, fluctuating wind and photovoltaic power plants with marginal costs close to zero are entering the market and pushing traditional power plants toward the end of the merit order.

The merit order effect (MOE) of renewable energies is the term used by the energy sector to characterize this phenomenon. Conventional power plants just need to supply the residual load, or the remaining electrical demand, that renewable energies cannot meet.


  1. B. H. Chowdhury and S. Rahman, “A review of recent advances in economic dispatch,” in IEEE Transactions on Power Systems, vol. 5, no. 4, pp. 1248-1259, Nov. 1990, doi: 10.1109/59.99376.
  2. Chen, C., Qu, L., Tseng, M., Li, L., Chen, C., & Lim, M. K. (2022). Reducing fuel cost and enhancing the resource utilization rate in energy economic load dispatch problem. Journal of Cleaner Production, 364, 132709.
  3. R. A. Jabr, A. H. Coonick and B. J. Cory, “A homogeneous linear programming algorithm for the security-constrained economic dispatch problem,” in IEEE Transactions on Power Systems, vol. 15, no. 3, pp. 930-936, Aug. 2000, doi: 10.1109/59.871715.
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About Vidya Muthukrishnan

Vidya Muthukrishnan, with a B.Tech in Electronics and Instrumentation from SASTRA University and an M.Tech in Biomedical Engineering from VIT University, is the Team Lead for Digital Training Services at a notable IT company. She oversees E-learning initiatives and Web-Based Training programs, leveraging her extensive background in Learning and Development, which includes a previous role as an Assistant Professor in Instrumentation and Control Engineering at Sri Krishna College of Technology, Coimbatore.