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Evaluation of the reform in the Turkish electricity sector: a CGE analysis

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Abstract

Turkey’s electricity market has undergone extensive reform since 2001 through market liberalization, unbundling, privatization, the establishment of organized power markets, retail market opening, and the establishment of an independent energy regulatory authority. We use a computable general equilibrium model to test the impact of power sector reform on the economy. We construct Turkey’s social accounting matrix for 2010 by disaggregating it into energy accounts. Major findings suggest that the reform has, for a major part, been beneficial to the economy. We find that GDP increases by 0.35% from the baseline when monopolistic rent is reduced simultaneously at all state-run power companies, suggesting that the economy would be better off with these firms behaving as competitive agents in the market, rather than using their dominant position to intervene in the market. One alternative is wider participation of state-run utilities in the day-ahead market, which leads to a 0.25% increase in GDP. Our findings also suggest that the introduction of the day-ahead market and privatization of state-run utilities are positively related to economic growth.

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Fig. 1

Data source: Turkish Statistical Institute

Fig. 2

Source: TEIAS

Fig. 3

Source: TEIAS

Fig. 4
Fig. 5
Fig. 6

Source: EPIAS

Fig. 7

Source: EPIAS

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Notes

  1. For the politics of electricity market reforms in Turkey, see Çetin and Oğuz [13].

  2. See Chisari et al. [16], Kumbaroglu [31], Karahan and Toptas [28], Hosoe [26], Küster et al. [32], Aydin [5], Lu et al. [34], Akkemik and Oguz [3], and Chen and He [15].

  3. A pioneering work that incorporates internal scale economies for an industry is Harris [25].

  4. For some other studies examining Turkish electricity market, see Bahçe and Taymaz [8], Karahan and Toptas [28], and Zhang [51].

  5. Based on information acquired during interviews with market participants.

  6. The most expensive source for electricity generation is oil, followed by natural gas and lignite. We assume that lignite-fired and imported coal or hard-coal fired electricity generation costs are the same. We also assume that the cost of renewable energy is the same for all types of renewable resources (29 Turkish Liras per MWh in 2010). It is worth noting that fuel costs are zero for renewable energy, and hence, only operating expenses are considered.

  7. Specifically, we assume that the exchange rate is equal to 1 in the base data, thereby initially equating world prices (which are exogenous) to 1. After a shock is given, the model solves for the equilibrium real exchange rate.

  8. Peak hours typically refer to 08:00–20:00 during the day.

  9. Off-peak hours refer to the 00:00–08:00 and 20:00–24:00 intervals for a given day.

  10. The decline in GDP in simulation 1.1 and 1.2 is interesting. In our model, GDP is defined as the sum of private and public spending, private and public investments, and net exports. The change in GDP is the sum of the changes in these components. Government spending declines in both scenarios, and the appreciation of the exchange rate worsens the next exports. Therefore, although private consumption increases in both scenarios, the net effect on GDP is a slight decline.

  11. The elasticity of transformation between domestic goods and exports for producers in the baseline is set as 1.25 and cannot go below 1. Therefore, we do not choose a value lower than this.

  12. High long-run unemployment rate above 10% is a general characteristic for the Turkish economy. It is generally believed that the long-run natural rate of unemployment is very high.

  13. See, for example, http://www.world-nuclear.org/information-library/country-profiles/countries-t-z/appendices/nuclear-development-in-the-united-kingdom.aspx. Accessed on 1 November 2018.

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Authors and Affiliations

  1. Argus Media Ltd., Lacon House, 84 Theobald’s Road, London, WC1X 8NL, UK

    Erisa Dautaj Şenerdem

  2. Department of Economics, Yamaguchi University, Yoshida-1677-1, Yamaguchi-shi, 753-8514, Japan

    K. Ali Akkemik

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  1. Erisa Dautaj Şenerdem
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Dautaj Şenerdem, E., Akkemik, K.A. Evaluation of the reform in the Turkish electricity sector: a CGE analysis. IJEPS 14, 389–419 (2020). https://doi.org/10.1007/s42495-020-00038-x

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