How do variable renewable energy technologies affect firm-level day-ahead output decisions: Evidence from the Turkish wholesale electricity market

Abstract

This paper presents firm-level estimates of how an increase in variable renewable energy (VRE) generation affects individual firms’ day-ahead available capacity and generation plans in a developing country, Turkey. In addition to having a fast growing energy demand, Turkey represents an understudied market case where the market leader, unlike the rest of the generators, is a public enterprise that potentially prioritizes political motives over economic efficiency. We first cluster firms in the Turkish day-ahead market based on their generation profiles using unsupervised machine learning and hourly data from years 2017 to 2019. Then, we estimate the short run marginal effects of the projected VRE generation on firms’ day-ahead available capacity and generation plans via panel data methods. Our results support the existing concerns that the public enterprise, especially during the times of financial turmoil, acts with the motivation to stabilize market prices. Additionally, we find that there is a substantial degree of heterogeneity in firms’ responses to VREs and individual responses significantly differ from the aggregate market response.