Electricity Market in Turkey - vol. 1 n 3 2021 - Istanbul Center for Regulation
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vol. 1
TURKEY
quarterly
n°3
2021
Electricity Market in Turkey
Network Industries Quarterly Turkey | Published four times a year, contains information about postal, telecom- munications, energy, water, transportation and network industries in general. It provides original analyses, informa- tion and opinions on current issues. The editor establishes caps, headings, sub-headings, introductory abstract and inserts in articles. He also edits the articles. Opinions are the sole responsibility of the author(s). Subscription | The subscription is free. Please do register at info@ic4r.net to be alerted upon publication. Letters | We do publish letters from readers. Please include a full postal address and a reference to the article under discussion. The letter will be published along with the name of the author and country of residence. Send your letter (maximum 450 words) to the managing editor. Letters may be edited. Publication director | Matthias Finger Managing editor | Deniz Ece Dalgıç Tetikol Publishing editor | Ozan Barış Süt Founding editor | Matthias Finger Publisher | IC4R and ITU, Istanbul Technical University,Taşkışla, 34367 Istanbul, Turkey email: info@ ic4r.net; website: https://ic4r.net/)
foreword
Network Industries Quarterly Turkey, Vol. 1, Issue 3, 2021 (March)
“Electricity Market in Turkey”
I am very pleased to be guest editor of this issue of electricity regulation was first introduced in 2001 and,
Network Industries Quarterly-Turkey, entitled Electric- since then, there has been dynamic regulation to bring
ity market in Turkey: How it is coping with demands the electricity market to up to date and prevent large-
from liberalization policies. scale economic and technical problems in the market.
Electricity has maintained its importance as the main This issue presents five articles covering latest de-
energy source in the modern world, and well-function- velopments in Turkish electricity markets. Topics are
ing electricity markets still lie at the heart of modern future contracts (Taner Şahin), electricity storage (Meh-
liberal economies. As common policy, almost all coun- met Kürkçü), competition problems in distribution net-
tries in the world prefer a liberal electricity market un- works (Caner K. Çeşit), renewable support schemes
der which there is competition for electricity genera- (Emrah Çelebioğlu), and private contract competition
tion and supply. On the other hand, electricity markets (Muzaffer Eroğlu).
have to be regulated strictly as they employ networks
Şahin examines futures electricity contracts and
such as distribution and transmission and other com-
recent changes to regulations. He states that even
plex technical matters. There are several challenges
though base load electricity futures contracts have
for electricity market regulators to stay up to date and
been traded in Turkey since 2011, the electricity fu-
manage constantly changing technological and eco-
tures market, which is planned to start within EPİAŞ
nomic developments. History shows that, in case of
after June 2021, is a brand new and crucial step. Şa-
regulation failures, the effects will be catastrophic.
hin claims that electricity futures market to be operat-
Like many liberal economies, Turkey has undergone ed within EPİAŞ will be one of the most critical steps
a liberalization process in its electricity market. In the taken to provide adequate risk management tools for
process, regulatory power has been given to the En- market participants. It is critical that electricity futures
ergy Market Regulatory Authority (EMRA). Modern market complements the functions of the day-ahead
foreword
and intraday markets operated within EPİAŞ. cilities based on renewable energy resources, which
entered into force on 30 January 2021. After provid-
Çeşit examines recent developments regarding
ing necessary background information and a historical
competition in electricity markets from a competition
viewpoint, Çelebioğlu evaluates the potential impact of
law perspective by examining recent important deci-
the new regulation on the market. He evaluates the ef-
sions of the Turkish Competition Authority (TCA). He
fects of the new scheme, both for electricity generation
first shows approaches of the TCA by examining sec-
industry and for consumers in the future.
tor inquiry reports. Later he explains three decisions
regarding the incumbent undertakings providing elec- Finally, I examine the latest developments in market
tricity distribution and retail sale services in various openness and switching trends from ineligible con-
regions of Turkey. With these decisions, the TCA had sumer contracts to bilateral contracts in Turkish elec-
heavily fined the investigated undertakings. Çeşit con- tricity market by examining regulation in the supply
cludes that, in order to achieve a competitive market, market and the level of competition in Turkey. I start
the TCA will actively interfere either by sector reports by examining the current regulations regarding supply
or by imposing sanctions directly. contracts and market openness and later outline re-
cent decisions of the EMRA towards achieving supply
Kürkçü examines recent technical and regulatory
side competition. I also present obstacles for market
developments regarding electricity storage. He indi-
openness as the expected level of openness has still
cates that one of the solutions for the flexibility required
not been reached.
by the power systems is electricity storage. He then
shows the importance of sound regulation as the de-
ployment of electricity storage largely depends on the Muzaffer Eroğlu
existence of sound and ambitious policies and clear Assistant Professor, Kocaeli University
legislative frameworks. He finally discusses the draft
“Electricity Storage Activities Regulation” and accom-
panying proposals for changes in other secondary leg-
islation, and indicates that the draft provide a compre-
hensive regulatory framework pertaining to grid-level
electricity storage in Turkey, offering improved flexibil-
ity and renewables deployment, as well as opening up
new opportunities for investments.
Çelebioğlu examines the potential effects of the
new Turkish Renewable Energy Resources Support
Mechanism (YEKDEM) for electricity generation fa-
contents
6 EPİAŞ Era Begins in Electricity Futures Market
Taner Şahin
10 Competition Problems in Distribution Networks: the Turkish
Competition Authority Involved with a Heavy Hand
Caner K. Çeşit
14 Electricity Storage in Turkey: Are we there yet?
Mehmet Kürkçü
18 Private contracts in Electricity market: Are we liberal yet?
Muzaffer Eroğlu
22 New Renewable Support Scheme: Until When?
Hasan Emrah ÇelebioğluNetwork Industries Quarterly Turkey | Vol. 1 | N°3 | March 2021 6
EPİAŞ Era Begins in Electricity Futures Market
Taner Şahin*
Introduction since “the industry moves away from administrative-
ly determined, cost-based rates and towards mar-
“The nature of promises […] is that they remain im- ket-driven prices.”4 Therefore, derivatives market
mune to changing circumstances.”1 instruments, including futures or options, which pro-
This phrase, stated by the fictional character Frank ducers and consumers use to hedge the price risk
Underwood in the first episode of the popular polit- created by the spot market, have become addition-
ical television show House of Cards, says a lot. Un- al fundamental parts of the liberalization process
derwood wanted to secure his plan to become the in electricity markets.5 During this process, many
US Secretary of State with a promise given to him types of derivative instruments, such as forwards,
in advance, but was unable to do so. Nevertheless, futures, swaps, options, tolling contracts, load-serv-
Underwood’s effort to manage the risks created by ing full-requirement contracts, and financial deriva-
changing circumstances through promises is not tives on electricity transmission capacity, are already
unusual. From the very beginning of history, human employed in electricity markets.6 Within the scope
beings have discovered a way to keep risks manage- of this study, futures contracts will be described
able through promises, which clearly provide greater here only briefly. Futures contracts are highly stan-
assurance when they are arranged as written and le- dardized – in terms of contract conditions, trading
gally binding documents. On this path, it can be said locations, transaction requirements, and settlement
that derivatives have been among the most crucial procedures – and heavily regulated contracts that
discoveries for risk management. As Weber said, “[d] are traded on exchanges.7 At first glance, although
erivative contracts emerged as soon as humans were forward contracts and futures contracts seem similar
able to make credible promises.”2 Derivatives for risk to each other, they differ particularly with regard to
management undoubtedly go back thousands of the platforms on they are traded.8 While forward con-
years.3 tracts are often traded in over-the-counter markets
between dealers as bilateral transactions, futures
Derivatives in Electricity Markets: What are Fu- contracts are traded on exchanges.9
tures Contracts?
Futures Contracts in Turkish Electricity Market
The use of derivative market instruments in elec-
tricity markets as risk management tools started with As base load electricity futures contracts, elec-
the liberalization of electricity markets. In this sense, tricity futures contracts first started to be traded in
the use of derivative market instruments in electricity Turkey in 2011.10 There was no properly functioning
markets is very recent by comparison. Liberalization electricity spot market in Turkey at that time. For this
in electricity markets has led to high price volatility reason, there has been criticism of the fact that base
load electricity futures contracts were traded on the
* Assistant Professor, Ondokuz Mayıs University, Ali Fuat Başgil Law School, Department of Commercial Law, taner.sahin@omu.edu.tr, t.sahin@
hotmail.co.uk
1
Netflix, ‘House of Cards’: Season 1, Chapter 1 (2013).
2
Ernst Juerg Weber, ‘A Short History of Derivative Security Markets’ in Hafner W Zimmermann H. (ed), Vinzenz Bronzin’s Option Pricing Models
(Springer 2009), p. 434.
3
S Riederová and K Růžičková, ‘Historical Development of Derivatives’ Underlying Assets’ (2011) 7 Acta Universitatis Agriculturae Et Silviculturae
Mendelianae Brunensis pp. 521–526, p. 522.
4
S Stoft and others, ‘Primer on Electricity Futures and Other Derivatives’ (1998), at (accessed 03.03.2021), p. 1.
5
ES Amundsen and B Singh, ‘Developing Futures Markets for Electricity in Europe’ (1992) 13 The Energy Journal pp. 95–112, p. 96.
6
For further details of these derivatives employed in electricity markets for risk management, see SJ Deng and SS Oren, ‘Electricity Derivatives
and Risk Management’ (2006) 31 Energy, pp. 940–953, pp. 942-948.
7
Ibid, p. 943; A Gottesman, Derivatives Essentials: An Introduction to Forwards, Futures, Options, and Swaps (John Wiley & Sons, Inc 2016), p.
20.
8
Gottesman (n 8) , pp. 19–20.
9
Deng and Oren (n 7), p. 944; Gottesman (n 8), p. 21.
10
A Önol, ‘Turkey: Introduction of Derivative Contracts In Electricity Market: Base Load Electricity Future Contracts’
Electricity Market in TurkeyNetwork Industries Quarterly Turkey | Vol. 1 | N°3 | March 2021 7
Turkish Derivatives Exchange before there was a
Bilateral contracts are private contracts
proper spot electricity market.11 Monthly, quarterly, between parties that are not subject to any
and annual base load electricity futures contracts are regulation. Hence, there is a counterparty risk;
now being traded at Borsa Istanbul, based on cash that is, the seller may not deliver the product
specified in the contract and/or the buyer may
settlement.12 According to EPİAŞ General Manager not pay the price specified in the contract. It
Ahmet Türkoğlu, initiatives were started in 2018 to is therefore difficult to transfer these contracts
establish a futures electricity market within EPİAŞ to third parties before their due date. Finally,
these contracts are subject to stamp duty. On
that will allow for future-dated electricity trade with the other hand, electricity futures contracts
physical delivery.13 The most critical concrete steps Answer
are standardized and regulated contracts
traded in the organized market. There is no
carried out within this framework were taken with the
counterparty risk in these contracts, as EPİAŞ
“Regulation on the Amendment of the Electricity Mar- provides central counterparty service to the
ket Balancing and Settlement Regulation” and “Elec- parties. In other words, physical delivery and
payments are under the guarantee of EPİAŞ. It
tricity Futures Market Procedures and Principles” can be said that, thanks to this development in
published in the Official Gazette dated 02.02.2020 risk allocation, electricity futures contracts can
and numbered 31027. be easily transferred to third parties until their
due date. Finally, unlike bilateral contracts,
The second paragraph of Article 6/A of the Elec- electricity futures contracts are exempt from
stamp duty.
tricity Market Balancing and Settlement Regulation
reveals the purposes for which the electricity futures
Is there any difference between the electricity
market will operate in Turkey. According to that para- futures contracts traded in EPİAŞ and the base
Question
graph, it aims to provide market participants with load electricity futures contracts traded in
the opportunity (1) to balance the contractual com- Borsa İstanbul?
mitments and production and/or consumption plans
on a future basis, (2) to trade in order to avoid price Yes. There is a cash settlement in electricity
futures contracts traded in Borsa Istanbul
change risks, (3) to increase predictability by creating Futures and Options Market. In other words,
forward price signals, and (4) to offer trade opportu- the physical delivery of electricity is not in
nities.14 question in these contracts. On the other
hand, settlement is based on physical delivery
Table 1. Enlightening answers to critical questions in the EPİAŞ electricity futures market. From
the perspective of the participants, while all
regarding the electricity futures market to be operat- electricity market participants and financial
ed by EPİAŞ investors can be a party to the electricity
Answer futures contracts traded in the Borsa Istanbul
Futures and Options Market, only electricity
Is the futures electricity market an alternative market participants licensed by EMRA can
Question to the day-ahead and intraday markets be a party to the electricity futures market to
operated by EPİAŞ? be operated in EPİAŞ. In terms of settlement
period and letter of guarantee, there is a daily
settlement in Borsa Istanbul Futures and
No. On the contrary, all three markets will Options Market and a letter of guarantee is not
Answer be complementary markets that respond to accepted. However, in the EPİAŞ electricity
market participants’ diverse needs. futures market, there is monthly settlement and
letter of guarantee is accepted.
What is the difference between contracts
traded in the electricity futures market to be
Source: This table was compiled by the author
Question based on the information video about electricity fu-
operated by EPİAŞ and bilateral contracts
traded in over-the-counter markets? tures market published by EPİAŞ on its YouTube
channel.
11
For brief discussion regarding this issue, see, ibid; S Herdem, ‘Turkey: Promising Market For Hedging The Risk In Energy: “Turkish Electricity
Derivatives Market”’ (2013), at (accessed 05.03.2021).
12
Borsa İstanbul, ‘VİOP Enerji ve Emtia Sözleşmeleri’, at (accessed
05.03.2021), p. 20.
13
Uzman Gözüyle Enerji, ‘Röportaj: Ahmet Türkoğlu - EPİAŞ Genel Müdürü’ (2020) (accessed 05.3.2021), p. 29.
14
Article 6/A, Parapgraph 2 of Electricity Market Balancing and Settlement Regulation.
15
Article 7/1 of the Electricity Futures Market Procedures and Principles.7 Ibid, p. 943; A Gottesman, Derivatives Essentials: An Introduction to
16
Article 8 of the ibid.
17
Electricity Market Balancing and Settlement Regulation (n 15).
Electricity Market in TurkeyNetwork Industries Quarterly Turkey | Vol. 1 | N°3 | March 2021 8
Physical Delivery Obligation did not adversely affect. As expected, the electricity
futures market in Turkey was also negatively affect-
Article 7/1 of the Electricity Futures Market Proce-
ed by this epidemic, at least in terms of the opening
dures and Principles defines the delivery period as:
date. With Decision dated 19.11.2020 and numbered
“the days that include physical delivery obligations
9704, EMRA amended Article 64 of the Electricity Fu-
of the market participants who are parties to the rele-
tures Market Operating Procedures and Principles.
vant contract.”15 As can be understood from this defi-
With this change, the operation of the electricity fu-
nition, the electricity futures market will be a market
tures market was postponed to 01.06.2021. Accord-
based on physical settlement. Within this structure,
ing to the statement made on the official website of
according to the second paragraph of Article 7, dai-
EPİAŞ, the collateral, default, and settlement mod-
ly, weekly, monthly, rest of the month, quarterly, and
ules of the electricity futures market, whose software
annual contracts can be made based on the delivery
and quality tests were completed, had to be reviewed
period. Furthermore, Article 8 of the Electricity Fu-
carefully due to extraordinary conditions arising from
tures Market Procedures and Principles defines load
COVID-19.18
types as base load, peak load, and non-peak load
for each day of the physical delivery period of each Conclusion
contract.16
The future is always full of unknowns for human
How and Who Can Participate in the Electricity beings, and is therefore associated with risks. Hu-
Futures Market? mans have used futures contracts (or, in general, de-
Article 18/B of the Electricity Market Balancing and rivatives) since the earliest times of history to avoid,
Settlement Regulation is the governing provision re- or at least manage, the risks posed by an uncertain
garding who can participate in the electricity futures future. There is no doubt that futures markets are
market.17 According to this article, legal entities hold- vital for electricity markets due to the economical-
ing generation, transmission, and supply licenses as ly non-storable characteristic of electricity and the
market participants can join in the electricity futures need for simultaneous production and consumption
market. According to the same article, legal entities in electricity markets.19
holding distribution licenses can also participate in
the electricity futures market, provided that they can In this short paper, after briefly addressed the rea-
only make sales offers. The same article lists the re- sons for the need to derivative market instruments
quirements for registration in the electricity futures and futures contract was briefly defined, efforts to
market, as follows: (1) Acquiring legal entity status; establish electricity futures market in Turkey were
(2) at least one or a unit of the generation facilities discussed. As mentioned above, base load electrici-
included in the portfolio of the generation license ty futures contracts have been traded in Turkey since
holder is provisionally accepted by the Ministry 2011. However, the electricity futures market, which
of Energy and Natural Resources and other rele- is planned to start within EPİAŞ after June 2021, is a
vant documents are completed; (3) completing the brand new and crucial step in this sense. In a liberal-
amount of the entrance guarantee and contribution ized electricity market, the most important element is
for the default guarantee account determined within providing adequate risk management tools for mar-
the framework of the Electricity Futures Market Pro- ket participants. Operating an electricity futures mar-
cedures and Principles; (4) fulfilling the conditions ket within EPİAŞ will be one of the most critical steps
and obligations specified in the Electricity Futures in this direction. It is critical that an electricity futures
Market Procedures and Principles. market complements the functions of the day-ahead
Effect of COVID-19 on Electricity Futures Market and intraday markets operated within EPİAŞ (see Ta-
in Turkey: Postponing the Opening Date ble 1, above).
There are few activities that the COVID-19 outbreak
15
Article 7/1 of the Electricity Futures Market Procedures and Principles.7 Ibid, p. 943; A Gottesman, Derivatives Essentials: An Introduction to
16
Article 8 of the ibid.
17
Electricity Market Balancing and Settlement Regulation (n 15).
18
EPİAŞ, ‘Vadeli Elektrik Piyasası 1 Haziran 2021’de Katılımcılarımızın Hizmetine Sunulacak’ (2020) (accessed 01.03.2021).
19
For more information on the fundamental characteristics that distinguish electricity markets from other markets, see Sally Hunt, Making Compe-
tition Work in Electricity (John Wiley & Sons, Inc 2002), pp. 30–32.
Electricity Market in TurkeyNetwork Industries Quarterly Turkey | Vol. 1 | N°3 | March 2021 9
References
Amundsen ES and Singh B, ‘Developing Futures
Markets for Electricity in Europe’ (1992) 13 The En-
ergy Journal 95.
Deng SJ and Oren SS, ‘Electricity Derivatives and
Risk Management’ (2006) 31 Energy 940.
EPİAŞ, ‘Vadeli Elektrik Piyasası 1 Haziran 2021’de
Katılımcılarımızın Hizmetine Sunulacak’ (2020).
Gottesman A, Derivatives Essentials: An Introduc-
tion to Forwards, Futures, Options, and Swaps (John
Wiley & Sons, Inc 2016).
Herdem S, ‘Turkey: Promising Market For Hedging
The Risk In Energy: “Turkish Electricity Derivatives
Market”’ (2013).
Hunt S, Making Competition Work in Electricity
(John Wiley & Sons, Inc 2002).
İstanbul Borsası, ‘VİOP Enerji ve Emtia Sözleşm-
eleri’.
Netflix, ‘House of Cards: Season 1, Chapter 1’
(2013).
Önol A, ‘Turkey: Introduction Of Derivative Con-
tracts In Electricity Market: Base Load Electricity Fu-
ture Contracts’ (2011).
Riederová S and Růžičková K, ‘Historical Devel-
opment of Derivatives’ Underlying Assets’ (2011) 7.
Acta Universitatis Agriculturae Et Silviculturae Men-
delianae Brunensis 521.
Stoft S and others, ‘Primer on Electricity Futures
and Other Derivatives’ (1998).
Uzman Gözüyle Enerji, ‘Röportaj: Ahmet Türkoğlu -
EPİAŞ Genel Müdürü’ (2020)
Weber EJ, ‘A Short History of Derivative Security
Markets’ in Hafner W Zimmermann H. (ed), Vinzenz
Bronzin’s Option Pricing Models (Springer 2009).
YouTube, ‘EPİAŞ Vadeli Elektrik Piyasası (VEP)’
(2021)
Electricity Market in TurkeyNetwork Industries Quarterly Turkey | Vol. 1 | N°3 | March 2021 10
Competition Problems in Distribution Networks: the Turkish Competition
Authority Involved with a Heavy Hand
Caner K. Çeşit*
Introduction ensuring consumer awareness and final consumer
pricing for the retail markets.
Electricity is an indispensable product for end-us-
In December 2018, the TCA announced the initia-
ers and the electricity market has a sophisticated
tion of a second sector inquiry concerning wholesale
market structure. In the past, the generation, trans-
and retail electricity markets, after the developments
mission, distribution, and retail operations of elec-
on liberalization and reorganization of Turkish elec-
tricity were all done on public property, in a verti-
tricity market. The TCA aims to closely examine cur-
cally integrated structure. Turkish electricity market
rent market structure and operation, making assess-
had gone through a difficult liberalization process
ments from competitive perspective in accordance
towards a competitive market. This process, which
with the market participants’ experiences and pro-
picked up speed in 2001 with the entry into force of
viding recommendations for the future. However, the
the Electricity Market Law No. 4628,1 moved to an-
TCA’s findings have not been published yet.
other stage with the Electricity Market Law No. 6446,2
which came into force in 2013. When the inelastic demand for electricity and dif-
ficulty in electricity storage are taken into consider-
To enable access into the electricity market and
ation, market power is an important source of com-
to create a sector in which competition is ensured,
petition problems in an electricity market (Sağlam,
the monopoly structure needed to be divided (Ertuna,
2012, p. 67). Transparency has been considered as
2010, p. 44). Dividing the monopoly structure means
an element for preserving efficient competition in the
that transmission and distribution should be sep-
electricity market since electricity distribution com-
arated from generation, wholesale, and retail. After
panies’ subsidiaries (that is, incumbent retail elec-
the liberalization process, while generation, whole-
tricity sales companies) and independent electricity
sale, and retail electricity markets are converted to a
sales companies compete with each other. Thus,
competitive structure, transmission and distribution
determination of market power and competitive con-
remained in a monopoly structure. This method of
cerns that arise from market power are often on the
separation aimed to curb the power stemming from
agenda of competition authorities.
vertical integration.
Indeed, the TCA adopted three decisions regard-
In January 2015, to help to achieve the goal of a
ing the incumbent companies providing electricity
competitive market design, the Turkish Competition
distribution and retail sale services in various regions
Authority (“TCA”) published a sector inquiry into the
of Turkey. With these decisions, the TCA had heavily
wholesale and retail electricity markets. The aim of
fined the investigated undertakings.3 In this article,
the inquiry was to make contributions to policymak-
we will firstly examine market definition in the Turkish
ers on important subjects in the liberalization pro-
electricity distribution and retail electricity sales mar-
cess, to provide guidance to undertakings operat-
kets, and then analyze abusive practices in light of
ing in the sector, and to lay the groundwork for the
the TCA’s enforcement.
creation of an efficient competition policy specific to
the electricity market. The inquiry had dealt with the Relevant Market Definition in Electricity Distri-
subjects of market power, market monitoring, trans- bution and Retail Electricity Sales
parency, and vertical integration for the wholesale
Market definition is a tool for identifying the com-
markets, and the position of incumbent distribution
petitive constraints that a company faces and, thus,
and supply companies in the liberalization process,
*
Associate, ACTECON, e-mail: caner.cesit@actecon.com
1
Published in the Official Gazette No. 24335 (Repeated) and dated 3 March 2001.
2
Published in the Official Gazette No. 28603 and dated 14 March 2013.
3
The TCA’s decisions dated 20 February 2018 and numbered 18-06/101-52; dated 8 August 2018 and numbered 18-27/461-224; dated 1
October 2018 and numbered 18-36/583-284.
Electricity Market in TurkeyNetwork Industries Quarterly Turkey | Vol. 1 | N°3 | March 2021 11
determining who a company’s competitors are. distribution company operated as a legal monopoly
Therefore, market definition must reflect commer- in their respective regions.
cial realities and identify the full set of competing
On the other hand, the TCA held that the differenc-
services. The legal standard for market definition is
es among residential customers, commercial cus-
set within the Guidelines on the Definition of Relevant
tomers, and industrial customers would justify defin-
Market.4 Principally, the TCA takes demand substi-
ing three separate product markets for the retail sales
tution into consideration while defining the relevant
of electricity. Thus, “retail electricity sales to consum-
markets. Supply substitution may also be taken into
ers under eligible consumer limits”, “retail electricity
consideration where its effect is equivalent to that of
sales to industrial consumers”, “retail electricity sales
demand substitution.
to business consumers” and “retail electricity sales to
The relevant market is established by the combi- residential consumers” are defined separately as rel-
nation of the product and geographic markets. The evant markets. The market for retail electricity sales
relevant product market comprises all the products to industrial customers was further sub-segmented
and/or services that are regarded as interchange- as “retail electricity sales to industrial customers tied
able or substitutable by the consumer, by reason of to the system at the transmission level” and “retail
the products’ characteristics, their prices, and their electricity sales to industrial customers tied to the
intended use. The relevant geographic market com- system at the distribution level”.
prises the area in which the undertakings concerned
The TCA considered the difference in the regulat-
are involved in the supply and demand of products or
ed tariffs for each customer type, different legal rules
services, in which the conditions of competition are
governing the agreements to be signed with the res-
sufficiently homogeneous and can be distinguished
idential customers and different awareness levels,
from neighboring areas because the conditions of
and perceptions of the relevant consumer groups.
competition are appreciably different in those areas.
Although the TCA had sub-segmented the relevant
In the electricity sector, distinctions are made market, the investigated undertakings had claimed
among generation and wholesale services, transmis- for relevant market definition based on consumption
sion services, distribution services, and retail services levels for commercial and industrial consumers.
during relevant market analysis. However, this article
Moving forward to the relevant geographic mar-
focuses on distribution and retail services, given that
kets, it is crucial to determine whether to define a
the TCA’s enforcement relates to these markets.
nation-wide market or a regional market. In its de-
Before delving into details, the current competitive cisions, the TCA considered that, regardless of the
framework of Turkish electricity sector should be in- type of the customer, the conditions of competition
dicated briefly. In the retail level of electricity sector, in each distribution region were considerably differ-
ineligible consumers may only be served by the retail ent from one another, as incumbent retail electricity
arm of the electricity distribution company operating sales companies had much higher market shares,
in the region where the customers reside and retail both in terms of electricity sold and number of cus-
prices for ineligible consumers are determined by tomers served than the independent electricity sales
the Energy Markets Regulatory Authority (“EMRA”). companies in their respective distribution regions.
Instead, incumbent retail electricity sales companies Although the investigated undertakings argued that
and independent electricity sales companies com- the relevant geographical market should be defined
pete on equal grounds for signing agreements with nation-wide, the TCA rejected this argument and de-
eligible customers. This competitive framework has fined local geographical markets for retail electricity
blurred the lines between distribution and retail elec- sales made to residential, commercial, and industrial
tricity markets in terms of competition (Yücel, 2012, customers.
p. 7).
This narrow market definition considerably affect-
However, the relevant market definition for unreg- ed the TCA’s assessments since the investigations
ulated activities differs from regulated activities. With concerned abuse of dominance. With respect to
respect to distribution, the TCA defined the relevant dominance in local retail electricity sales markets, the
product markets as the regional electricity distribu- TCA pointed out that the market shares of all incum-
tion services markets in line with the fact that each bent retail electricity sales companies in their respec-
4
Adopted by the TCA’s decision dated 10 January 2008 and numbered 08-04/56-M.
Electricity Market in TurkeyNetwork Industries Quarterly Turkey | Vol. 1 | N°3 | March 2021 12
tive distribution regions were much higher than their panies
closest competitor and emphasized that the currently
• Foreclosure of the market to the independent
held market power does not seem transitory due to
electricity sales companies through different
the presence of high entry barriers and a lack of buy-
conducts
er power.
• Complication of customer switches to com-
Abusive Practices in Electricity Distribution
peting independent electricity sales compa-
and Retail Electricity Sales
nies via concluding legally deficient contracts
The dual role of the incumbent retail electricity and IA-02 Forms
sales companies has caused competitive concerns • Competition in the market being restricted due
in electricity markets (Özercan, 2007, p. 26). Vertical to the implementation of different conducts
integration creating incentives for cross-subsidiza-
• Customer switches being prevented via agree-
tion between network activities and unregulated ac-
ments including commitments and automatic
tivities, and discriminatory use of the network and ac-
renewal clauses.
cess to information, are commonly considered as a
source of abusive practices in the electricity markets. As a consequence of the extensive investigations,
the TCA decided that the investigated undertakings
The TCA brought up two main issues with respect
violated Article 6 of the Law No. 4054 on the Protec-
to the creation and maintenance of a competitive
tion of Competition.6 Although the infringement find-
retail electricity sales market. These were potential
ings for each investigation slightly differs from each
competitive advantages that may stem from the ver-
other, the TCA has identified discriminatory abusive
tical integration between incumbent retail electricity
practices in the electricity market.
sales companies and distribution companies, and
incumbent retail electricity sales companies’ poten- It was concluded that this vertically integrated un-
tial incentives to leverage their legal monopoly in the dertakings violated competition by disadvantaging
market for the retail sales of electricity to ineligible other independent retail electricity sales companies.
customers, as well as their dominance in the compet- The TCA ruled that the investigated undertakings
itive section of the market to distort the competition foreclosed relevant markets by means of eliminating
and hinder the activities of the competitors in the un- eligible consumer mobilization process and breaking
regulated market. down the consumer choice mechanism, and thus
abused its dominant position in the relevant market.
In 2014, the TCA had conducted preliminary inqui-
ries against certain distribution companies and in- Concluding Remarks
cumbent retail electricity sales companies to assess
whether they had abused their dominant position.1 The TCA’s decisions reveal that it assigns signifi-
Although the TCA identified certain unilateral prac- cant value to the electricity markets. The alleged nar-
tices of the vertically integrated undertakings that row market definition made by the TCA has put in-
may have restricted competition in various regional cumbent retail electricity sales companies in a difficult
markets for retail sale of electricity, instead of initiat- position. By reason of the narrow market definition,
ing fully fledged investigations, the TCA addressed the incumbent retail electricity sales companies held
structural problems in the market to the EMRA. More- a dominant position in their respective distribution
over, the TCA sent warning letters to the companies regions. Thus, their commercial strategies should be
requiring the cessation of the examined practices. determined carefully considering the special respon-
sibility that arises from the dominant position. The
Almost four years later, the TCA had initiated fully TCA’s vigilant approach to electricity markets shows
fledged investigations against the vertically integrat- that the TCA will not hesitate to use its enforcement
ed undertakings in Turkish electricity market. The powers against the incumbent undertakings, and the
TCA examined allegations of: TCA’s ongoing sector inquiry may shape the com-
• Anticompetitive information exchange and co- petitive structure in the electricity market.
ordination between the distribution company
and the incumbent retail electricity sales com-
5
The TCA’s decisions dated 22 October 2014 and 14-42/762-338; dated 22 October 2014 and numbered 14-42/761-337; dated 3 December
2014 and numbered 14-47/860-390.
6
Published in the Official Gazette No. 22140 and dated 13 December 1994.
Electricity Market in TurkeyNetwork Industries Quarterly Turkey | Vol. 1 | N°3 | March 2021 13
References
Electricity Market Law No. 4628 published in the
Official Gazette No. 24335 (Repeated) and dated 3
March 2001.
Electricity Market Law No. 6446 published in the
Official Gazette No. 28603 and dated 14 March 2013.
Ertuna, T. H. (2010). Competition Law in the Elec-
tricity Market: Liberalization and its Consequences,
Ankara Bar Review, Vol. 3, Issue 2, 35–60.
Law No. 4054 on the Protection of Competition
published in the Official Gazette No. 22140 and dat-
ed 13 December 1994.
Özercan, M. (2007). Elektrik Endüstrisinin Yeniden
Yapılandırılması ve Deregülasyonu Sürecinde Perak-
ende Satış Rekabeti, Rekabet Kurumu Uzmanlık Te-
zleri, Ankara.
Sağlam, B. (2012). Monopolden Emtia Piyasasına:
Emtia Piyasası Yaklaşımıyla Elektrik Piyasalarındaki
Dönüşüm Sürecinin Rekabetçi Analizi, Rekabet Ku-
rumu Uzmanlık Tezleri, Ankara.
Yücel, C. Ö. (2012). Elektrik Üretiminde Hakim Du-
rumun Tespiti, Rekabet Kurumu Uzmanlık Tezleri,
Ankara.
Electricity Market in TurkeyNetwork Industries Quarterly Turkey | Vol. 1 | N°3 | March 2021 14
Electricity Storage in Turkey: Are we there yet?
Mehmet Kürkçü*
Introduction it is apparent that the share of renewable energy
in Turkey’s power generation capacity and primary
To increase the share of intermittent and variable energy mix is likely to grow. Considering the inter-
renewable energy sources (which in this article spe- mittency and variability of renewable energy sourc-
cifically indicates wind and solar, excluding other re- es, this growth can be sustained only with a more
newable energy sources) in the primary energy mix flexible power system, which can be achieved in the
of countries, it is necessary to improve the flexibility presence of several measures, such as more flexible
of power systems to maintain the balance between power plants, demand response, or energy storage.
supply and demand over power grids. This system
flexibility challenge, stemming from the deployment Considering the growing popularity of electricity
of renewables, has been addressed with a variety storage at the grid level, this article aims to provide a
of solutions to provide flexibility on the supply-side, recap of the global status of electricity storage from
demand-side, grid, and system-wide. Among the technical and policy viewpoints and discuss recent
bundle of measures, grid-level electricity storage legislative advances and future prospects on the top-
presents an option as a grid or system-wide flexibility ic for Turkey.
solution (IRENA, 2019a). To this end, a number of in- Status Quo of Electricity Storage and Recom-
novations have been proposed to store electricity at mended Policies for Deployment
the grid level and consequently integrate intermittent
renewables to power grids better while protecting Although electricity storage is well deployed and
system flexibility. Along with advances in technology commercialized on small scales, such as in mo-
and declining costs, these technologies have proved bile electronic devices, applications like electric
to be promising for the transition to carbon-free ener- vehicles or grid-level electricity storage still have
gy systems and carbon-neutral economies. vast room for improvement. This potential for im-
provement is promising for clean energy transition,
According to the estimates of IRENA, the current
as it enables improved utilization renewable ener-
11 GWh of global electricity storage capacity, which
gy for electricity generation and the elimination of
is dominated by utility-scale stationary batteries, is
greenhouse gas emissions originating from fossil
expected grow to 100–421 GWh by 2030, depending
fuel combustion for the same purpose. That is why
on the rate of renewable energy deployment in line
electricity storage has captured the attention of the
with the goal of limiting the rise in global temperature
scientific community and has been the subject of
to below 2°C above the pre-industrial levels by the
extensive scientific work. This was made evident
end of the century (IRENA, 2019b).
by the analysis carried out by the International En-
The evolution of the energy landscape in Turkey ergy Agency (IEA) on the global patent develop-
follows the global trend. By the end of 2020, Turkey’s ments, which highlighted that the growth in patent-
installed wind- and solar-based power generation ing activity in electricity storage has surpassed the
capacity (including both licensed and unlicensed pace of patenting in any other technology over the
generation) reached 15,500 MW, corresponding to last decade. This expansion in patenting of battery
16.2 percent of the total generation capacity at that technologies has resulted primarily from advances
time (EMRA, 2021). In 2019, wind and solar plants in lithium-ion batteries developed for electric ve-
generated about 10.3 percent of the total electricity hicles. However, besides the boom in lithium-ion
generated (EMRA, 2020). Considering both the am- battery technology, nickel–manganese–cobalt ox-
bitious renewable support mechanism implemented ide cathode chemistry has emerged as a promising
and other regulations promoting renewable energy, alternative as well. IEA also reports that potentially
* Group head at the Energy Market Regulatory Authority of Turkey. The views expressed in this article are those of the author, and do not neces-
sarily reflect the official policy or position of the institution he is affiliated with.
Electricity Market in TurkeyNetwork Industries Quarterly Turkey | Vol. 1 | N°3 | March 2021 15
disruptive technologies are expected to emerge at energy mix is expected to grow. Considering the in-
smaller scales with regional variation (IEA, 2020a). termittency and variability characteristics of renew-
able energy sources, this growth can be sustained
According to IRENA, battery storage technolo-
only with a more flexible power system, which can
gies are among enabling technologies for renew-
be achieved in presence of flexibility measures. This
able energy deployment, where other solutions ex-
argument is supported by a recent study by the
ist, such as electrification of sectors, smart grids,
SHURA Energy Transition Center, which underlines
digitalization, and retrofitting existing capacity.
that the Turkish transmission grid will be able to cur-
However, a number of additional factors, such as
rently accommodate 40 GW of installed renewable
business models, market design, and system oper-
(wind and solar) capacity by 2026 without any tech-
ation, have significant importance for deployment
nical challenges, but expanding this capacity further
of technologies supporting renewables (IRENA,
needs additional investments for grid flexibility. The
2019a).
study claimed that “a total distributed battery storage
On the other hand, deployment of the above-men- capacity of 600 MW would be an important source
tioned innovations, including energy storage, re- of flexibility to integrate 30% share of wind and solar
quires clear and ambitious policies and regulatory energy into the system” (SHURA, 2019).
approaches. The IEA concentrates on four pillars
In addition to the technical potential highlighted
for promotion and deployment of electricity stor-
by the SHURA Energy Transition Center, the current
age more effectively (IEA, 2020b):
Electricity Market Law (No. 6446) provides a legisla-
Policy. One recommendation is to design poli- tive basis for the introduction of electricity storage to
cies pertaining to electricity storage with a focus Turkey’s power system. The Electricity Market Law
on flexibility. This necessitates the identification defines “electricity storage” as energy storage meth-
of flexibility requirements of electric systems and ods based on storing electrical energy by convert-
comparison of electricity storage with other alter- ing it to another form and then converting it back to
native technologies or measures with specific re- electrical energy and feeding it to the network. More-
gard to flexibility. over, according to the provisions of the Electricity
Market Law and Electricity Market Licensing Regula-
Regulation. In order to clearly define the rights
tion, electricity storage is exempt from licensing, with
and responsibilities of market operators, trans-
conditions to be set by the Energy Market Regulatory
parent regulatory frameworks need to be in place.
Authority (EMRA).
According to the IEA, these regulations should ad-
dress the ownership issue, which originates from Owing to the legal basis explained above and con-
associating storage with generation and unbun- sidering the decrease in the installation costs of the
dling of network operations from generation. Reg- storage facilities and the prospected demand for the
ulatory approaches are claimed to influence the establishment of these facilities in the market, EMRA
performance on network investment deferral. announced its draft “Regulation on Storage Activities
in Electricity Market” and opened this draft to public
Role of storage in ancillary service and flexibil-
consultation for the first time in January 2019 and fi-
ity markets. The IEA has pointed out that making
nally in February 2021. The released draft regulation
storage a component of ancillary services can im-
covers provisions that allow investors to build stor-
prove storage economics dramatically by allow-
age capacity that is integrated to generation, con-
ing investors to recover their capital expenditures
sumption, or networks, or is totally independent.
sooner. Bundling several power system services is
believed to speed up this cost recovery further. On the generation side, the draft regulation aims
to limit generation integrated storage capacity with
Accessibility. According to the IEA, policy mak-
the generation capacity of the corresponding facility.
ers should improve their planning and consider
This includes facilities that benefit from either the re-
co‑siting renewables and storage as an alternative
newable support mechanisms or the power purchase
for improving system flexibility.
agreements, but the energy fed to the grid from such
Electricity Storage in Turkey: Potential and storage facilities is excluded from the renewable sup-
Regulatory Prospects port or purchase guarantees. On the consumption
side, the draft proposes limiting consumption inte-
As stated above, the share of renewable energy grated storage capacity with the capacity subject to
in Turkey’s power generation capacity and primary
Electricity Market in TurkeyNetwork Industries Quarterly Turkey | Vol. 1 | N°3 | March 2021 16
the connection agreement of the consumers. required by the power systems is provided with a va-
riety of solutions to provide flexibility on the supply
The draft also proposes to regulate conditions for
side, demand side, grid, and system-wide, among
independent storage facilities, setting maximum al-
which grid-level electricity storage exists.
lowed installed capacity (the most recent proposal
was 5 MW), allowing to provide auxiliary services, Along with advancing battery technologies and
participation in balancing power market, and stipu- declining costs, the deployment of electricity stor-
lating the approval of grid operators for connection age depends largely on the existence of sound and
to grid. ambitious policies and clear legislative frameworks.
Besides these policies and legislative frameworks,
The planned regulation also covers storage by
transparent regulations are essential for advancing
distribution system operators, provided that such
markets for capacity, flexibility, and ancillary ser-
storage investments are proven to allow distribution
vices. This way, electricity storage investments can
network investment deferral, supported by adequate
be encouraged and rendered competitive with other
cost-benefit analysis. As a reflection of unbundling
technologies.
concerns referred above, distribution-integrated
storage facilities are not envisaged to participate in The draft “Regulation on Storage Activities in
wholesale, retail, or balancing power markets. The Electricity Market” and accompanying proposals
draft also proposes storage investment by the trans- for changes in other secondary legislation provide a
mission system operators, being limited to pilot proj- comprehensive regulatory framework pertaining to
ects and without commercial activity. grid-level electricity storage in Turkey, offering im-
proved flexibility and renewables deployment, as well
Finally, the draft also proposes rules pertaining to
as opening up new opportunities for investments.
other issues such as liability of conformity to techni-
cal standards, land expropriation, and special condi-
tions for storage facilities established under research
and development activities.
Besides the draft regulation under study, other
secondary legislation on electricity market regulation
is to be updated within the context of electricity stor-
age. These pieces of secondary legislation pertain to:
• Licensing
• Unlicensed generation
• Connections to grids and grid rules
• Balancing and settlement
• Remote metering
• YEK-G (guarantee of origin) certification
It must be emphasized that the assessments above
are made according to the most recent draft regu-
lation made available to the public. Inputs received
during the public consultation process and reassess-
ment of the topic by EMRA may generate new regu-
latory prospects, ending up with different legislative
provisions.
Concluding Remarks
Higher shares of intermittent and variable renew-
able energy sources in the primary energy mix of
countries necessitate improved flexibility of power
systems to sustain electricity supply. The flexibility
Electricity Market in TurkeyNetwork Industries Quarterly Turkey | Vol. 1 | N°3 | March 2021 17
References
EMRA (2021), Elektrik Piyasası Sektör Raporu
Aralık 2020, Energy Market Regulatory Authority, An-
kara, https://www.epdk.gov.tr/Detay/DownloadDoc-
ument?id=emxstOZcb5k=.
EMRA (2020), Electricity Market Sector Develop-
ment Report, Energy Market Regulatory Authority,
Ankara, https://www.epdk.gov.tr/Detay/Download-
Document?id=IJ175t527+U.
IEA (2020a), Innovation in batteries and electricity
storage, IEA, Paris.
IEA (2020b), Energy Storage, IEA, Paris https://
www.iea.org/reports/energy-storage.
IRENA (2019a), Innovation landscape for a renew-
able-powered future: Solutions to integrate variable
renewables. International Renewable Energy Agen-
cy, Abu Dhabi.
IRENA (2019b), Innovation landscape brief: Utili-
ty-scale batteries, International Renewable Energy
Agency, Abu Dhabi.
KAYTEZ, F. “Şebeke arz güvenliğinde elektrik de-
polama sistemlerinin şebeke entegrasyonu ve gelecek
vizyonu”, PowerPoint presentation in Turkish, https://
enerji.mmo.org.tr/wp-content/uploads/2019/02/Dr.-
Faz%C4%B1l-KAYTEZ-ODTU-MD-sunumu.pdf.
SHURA (2019), On the Way to Efficiently Supply-
ing More Than Half of Turkey’s Electricity from Re-
newables: Costs and Benefits of Options to Increase
System Flexibility, SHURA Energy Transition Center,
İstanbul.
Electricity Market in TurkeyNetwork Industries Quarterly Turkey | Vol. 1 | N°3 | March 2021 18
Private contracts in Electricity market: Are we liberal yet?
Muzaffer Eroğlu*
Introduction to Current Regulations mined by the Board would be classified as an in-
eligible consumer. The Board announced that the
Turkey has been going through a liberalization yearly consumption limit for the eligible consumer
period in electricity markets for years. The fact that is determined as greater than 1200 kWh for 2021. 1
the main purpose of the liberalization process is
In accordance with EML Art. 10/2, only eligi-
to create competitive markets at all levels has led
ble consumers may conclude bilateral agreement
the liberalization process for supplying electrici-
contract with a supply company without any area
ty to end users. Therefore, the expansion on the
limitation in Turkey. Meanwhile, the Act states
demand side is important, as is the diversification
that bilateral agreements are commercial agree-
in generation and supply. In parallel with the lib-
ments between real and legal persons on trading
eralization of the supply market, the consumption
electricity and/or capacity that are not subject
side has also been opened to competition.
to the approval of the Board, but to private law
The Electricity Market Law (EML) in 2001 and provisions. An eligible consumer may bargain re-
the Energy Market Regulatory Authority (EMRA) garding the price, terms, and conditions of the
promote and support the full liberalization of the electricity supply contracts with the supplier. The
electricity market in Turkey The end users (the main difference between eligible and ineligible
EML prefers the term “consumer”) appear to play consumers is whether the consumer has the right
important roles in expected fully liberated mar- to choose the supplier. While an eligible consum-
ket. The contracts concluded by the end users er has the right to choose the supplier, an ineligi-
have been regulated differently from the other ble consumer must purchase electricity from the
contracts in the market. Today, the main instru- last-resort retail license holding company in the
ment in Turkish law that regulates the types of area.
the private contracts in electricity market is the
At this stage, the choice is not fully provided
Electricity Market Act No. 6446 dated March 14,
on the consumption side, and only eligible con-
2013. The secondary instrument on the matter is
sumers are free to choose their suppliers. While
the Electricity Market Consumer Services Regula-
retail sale contracts are concluded between the
tion issued by the EMRA (“the Regulation”). The
ineligible consumers and the supply company, the
EML regulates two different types of contracts
eligible consumers are entitled, but not obliged,
for electricity supply to consumers in electricity
to conclude a bilateral agreement with a supply
markets: retail sale contracts and bilateral agree-
company. Here, it is worth noting a concept reg-
ments. While retail sale contracts are concluded
ulated by the EML – the supply of last resort –
between the ineligible consumers and the supply
which is defined in Art. 3/1 (ee) as the supply of
company, the eligible consumers are entitled, but
electricity to eligible consumers who do not ob-
not obliged, to conclude a bilateral agreement
tain electrical energy from a supplier other than
with a supply company.
the supplier license holder and authorized com-
Eligible consumers are real or legal persons who pany as the last resort supplier. These consumers
are entitled to select their supplier because their also must sign retail sale contracts. Accordingly,
yearly consumption amount is above the electrical retail sale contracts with ineligible consumers,
power amount designated by the Energy Market contracts with eligible consumers who still pur-
Regulatory Board (the Board). Hence, a consumer chase electricity from last-resort suppliers, and
who cannot qualify as an eligible consumer be- bilateral agreements between supply companies
cause their consumption is below the limits deter- and eligible consumers are regulated by the EML
*
Dr. Muzaffer Eroğlu, Kocaeli University Law School, muzaffer.eroglu@kocaeli.edu.tr ORCID: https://orcid.org/0000-0003-0079-1781
1
https://www.epdk.gov.tr/Detay/Icerik/16/serbest-tuketici (accessed on February 15, 2021).
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