Testing Merit-Order Effect in Turkey’s Electricity Market: The Effect of Wind Penetration on Day-Ahead Electricity Prices

Due to recent support mechanisms, the share of renewable energy sources, particularly wind, in Turkey’s electricity generation has increased significantly. Increasing renewable penetration is supposed to decrease the electricity prices, which is known as the merit-order effect. Main purpose of this article is to test the existence of merit-order effect in Turkish electricity market. To this end, a nonparametric Granger causality test based on wavelet transformation is applied on a daily data set covering Turkish day-ahead power market clearing prices and electricity generation from wind over the period between 2011 and 2018. The overall results confirm the existence of the merit-order effect of wind in Turkey's electricity market. It is also observed that the strength of the negative causality alters drastically over different sub-periods