Dynamics of electricity price volatility and its impacts on energy investments

This study examines the price volatility dynamics of Turkiye's day-ahead electricity market from 2018 to 2024, analyzing price variations across moderate, high, and extreme regimes. The Markov Regime-Switching GJR-GARCH model captures sudden regime shifts, proving that the three-regime model outperforms the single-regime model based on Value-at-Risk calculations. Regime 1 (moderate) accounts for 42 % of observations in Turkiye's electricity market, and Regimes 2 (high) and 3 (extreme) comprise 45 % and 13 %, respectively. Transition probabilities indicate that electricity prices tend to stay in more volatile regimes, especially during crucial shocks like the Russia-Ukraine conflict and the COVID-19 pandemic. A linear model is also constructed to assess the impact of different energy sources-solar, wind, hydropower, and natural gas-on price volatility. Results show that solar power reduces volatility in extreme conditions, wind and hydropower can either stabilize or amplify volatility, and natural gas is a key driver of volatility in all regimes. Renewable energy investments increase short-term price volatility due to the Merit Order Effect, but in the long run, they enhance energy security by reducing fossil fuel dependence. This study suggests strategies ranging from risk management techniques to energy policies to strengthen electricity market resilience against sudden price shifts.