Discounting along the merit order, with an application to the electricity market

Résumé

Within the same sector, technologies yielding larger variable costs are more sensitive to disruptions during a recession. For this reason, assets lower in the merit order should be valued using a larger risk-adjusted discount rate. We characterize the efficient discount rates along the technological merit order in a standard CCAPM framework, and we link them to their option values. We apply our results to the electricity sector in France, showing that the CCAPM beta of fossil electricity is more than twice that of renewable or nuclear electricity. This fossil beta is increasing with the carbon price. We also propose a methodology to measure the value creation of different generation technologies in a given electricity mix by comparing their levelized costs and prices of electricity that take risks and intermittency into account.

Mots-clés

Codes JEL

Référence

Christian Gollier, « Discounting along the merit order, with an application to the electricity market », TSE Working Paper, avril 2026.