All countries have merit order and it's not insane

That's also how a pure commodity market works. The price is the marginal cost.

That's how commodity producers like farmers can be profitable. The marginal producer makes no profit, but every producer who can get their costs below the marginal producer makes a profit.

If farmers didn't make any money, they'd stop farming and we'd have no food.

We recognise that "I decided your kilo of gold is worth $50 so here's the $50 and now the gold is mine" isn't a purchase, that's theft. I'm going to assume you don't think it's insane for us to pay what the owner asked here (If I'm wrong, do let us know).

So, OK, clearly this CCGT electricity here (made with gas) offered for £85 per MWh we're going to buy that, for £85 per MWh.

Now, we also needed all this wind power which bids £5 per MWh. Presumably you'd want to pay them less than £85 per MWh. So, too bad, they bid too low, they get punished right? But since you aren't OK with paying less than the bid price, doubtless if they had bid £84 you'd pay that right?

Notice that the incentive in your model is for everybody to guess what you'll pay and bid just barely below that, whereupon you've wasted a lot of resources, your strategy no longer has any price discovery value, and you're paying almost as much as before. A triumph of... rationality?

How much do you reckon you can save the average household if you do this? £50 per year? Twice that?

> Now if only the UK didn't have an insane system where all electricity is purchased at the highest cost in the mix.

That isn’t a “system”. It’s just what happens. Why would the 99% RE be forced to sell at a lower price? They will sell at whatever the market value is. Which is determined by supply and demand. And the gas turbines will only turn on if it becomes profitable for them to turn on at that price. So the causality actually is the other way around. Lots of demand increases electricity prices, higher electricity prices make it profitable for more expensive means of production to be powered up.

Electricty is a homogeneous good which is traded at one price independent of origin.

Why should an operator of wind turbine sell their kWh for less if the current price is high? That would be stupid.

That's the same insane system used in the rest of Europe, at least in Germany, France, Italy and Spain.

The key is that in the UK gas sets the price almost 100% of the time, vs 25% in Germany or less than 10% in France. The fix: build more of the cheap sources. A patch: cap what gas can bid.

Does that mean the 99% RE gets paid at the same rate as the 1% of gas?

Like if gas is $5 and RE is $1 the RE folks get $5 instead?

Devils advocate would say that might work out in RE's favor. Lower production costs mean more profit and therefore more incentive to build more RE

That's not really "a system", that's how marginal pricing always works for fungible goods. If you need to buy 100 units of something, and the guy selling next to me can't go any lower than $10 without selling at a loss, I'm going to sell at $9.99 every time. Why would I do otherwise?

The point of this is that it's supposed to guarantee windfall profits for wind operators, to make it attractive to keep building out wind until all the marginal gas is pushed out of the market mix. The price being set by the highest-cost source in the mix is a feature for incentivizing buildout, not a bug.

You're kind of missing the point. Renewables use contracts for difference. The article we are discussing is the level of that CFD. So what ever the market price, renewables either give or receive money in line with the CFD.