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Analyzing the impact of oil price volatility on electricity demand: the case of Turkey

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Abstract

The effect of volatility on an economy has been widely discussed in previous studies, both theoretically and empirically. However, few studies have considered the effect of volatility on electricity demand. The purpose of this study is to analyze the effect of oil price volatility on electricity demand in Turkey. Annual balanced panel data on provinces of Turkey covering two different time periods, 1990–2001 and 2004–2014, are used. In this context, a dynamic panel data model is estimated using the system generalized method of moments estimation approach. The results show negative short-run effect of oil price volatility on electricity demand for the period 2004–2014. Moreover, although demand for electricity is found to be price inelastic during the period between 1990 and 2001, the results show that it is elastic during the period 2004–2014. This could be due to the electricity market liberalization policies implemented through the enactment of the Electricity Market Law in 2001. In conclusion, to minimize the costs associated with volatility, policy-makers should focus on better management of external supply and demand shocks by fiscal and monetary authorities, and on dissemination of energy efficiency and conservation applications.

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Fig. 1

Source: Author’s representation based on data obtained from the Transmission Company of Turkey

Fig. 2

Source: Author’s representation based on data obtained from the Statistical Institute of Turkey (TURKSTAT)

Fig. 3

Source: Author’s representation based on data obtained from the Transmission Company of Turkey

Fig. 4

Source: Author’s own elaboration using QGIS 2.10.1

Fig. 5

Source: Author’s own elaboration

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Notes

  1. Readers are invited to refer to the author’s Ph.D. thesis for a detailed literature review.

  2. The conditional variance of the crude oil price growth is calculated by estimating the ARMA(8, 1)- GARCH(2, 2) model under the generalized error distribution assumption using the daily spot crude oil price (Cushing, OK WTI Spot Price FOB, $/barrel) taken from the U.S. Energy Information Administration (EIA) database. Estimation results are available upon request.

  3. Due to space limitations, the estimation results are not presented here, but are available upon request. The lower and upper bounds for good estimates were found to be 0.623949 and 0.944886, respectively.

  4. Due to space limitations, estimation results are not presented, but are available upon request. The lower and upper bounds for good estimates were found to be 0.6478829 and 0.8653593, respectively.

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Authors and Affiliations

  1. Department of Political Sciences and Public Administration, Ondokuz Mayıs University, 55139, Kurupelit-Samsun, Turkey

    Gülsüm Akarsu

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Correspondence to Gülsüm Akarsu.

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This article is part of Ph.D. thesis of the author. I would like to thank to anonymous referees for their valuable comments.

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Akarsu, G. Analyzing the impact of oil price volatility on electricity demand: the case of Turkey. Eurasian Econ Rev 7, 371–388 (2017). https://doi.org/10.1007/s40822-017-0079-8

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