Liberalization Process in Electricity Market in Terms of Competition Law

Introduction

Legislation regarding the electricity market initiated its development in the first decade of this century. Primarily, Electricity Market Law No. 4628 (“Law No. 4628”) was approved on 20.02.2001, and then, Electricity Market Law No. 6446 (“Electricity Market Law”), which was published in the Official Gazette dated 30.03.2013 and numbered 28603, took its place. Law No. 4628 was not abrogated with the entry into force of the Electricity Market Law; it was partially amended, however, and its name was altered to the Law on Organization and Duties of Energy Market Regulatory Authority.

Within the framework of the recent legislation that entered into force, a competitive environment in The Turkish electricity market was created by virtue of restructuring with an aim towards liberalization. With regard to the process of the establishment of a competitive electricity market, the Competition Authority (“Authority”) published the Report on Wholesale and Retail Electricity Market Sector Inquiry (“Report”)[1]. One of the subject matters that is thoroughly examined in this Report is the liberalization process of the electricity market. This article briefly discusses the liberalization process of the electricity market, in light of the aforesaid Report of the Authority.

General Overview of the Liberalization Process of the Electricity Market

Along with the changes come into play since the entry into force of the Electricity Market Law, the establishment of a competitive environment in The Turkish electricity market accelerated. The aim of the Electricity Market Law is to create a financially powerful, stabilized and transparent electric energy market that operates competitively, in accordance with private law provisions, and to provide independent regulations and auditing procedures within this market, for the purpose of procuring sufficient, high-quality, constant, and low-cost electricity to consumers.

In the past, the generation, transmission, distribution and retail operations of electricity was on public property, in a vertically integrated structure. In order to enable entry into the electricity market, and to create a sector where balanced competition is achieved, the division of a vertically integrated monopoly market has arisen. This division could be defined as the separation of the transmission and distribution, which are, collectively, considered as a natural monopoly from the perspective of generation and marketing.

Determining market entrance and exit conditions, as well as the tariffs regulating the services that enterprises utilize and/or submit, and the retention of anti-competitive activities of the enterprises, are essential to establish competition in the marketplace[2].

As is stated in the Report, the first stage of the liberalization process of The Turkish electricity markets was the period after the division of the Turkish Electricity Institution (“TEI”). The TEI was divided into the Türkiye Elektrik Üretim A.Ş. (the Turkish Electricity Generation Company) (“TEAŞ”) and Türkiye Elektrik Dağıtım A.Ş. (the Turkish Electricity Distribution Company) (“TEDAŞ”). Afterwards, TEAŞ split into three independent entities.

As of 2001, which was the year when Law No. 4628 entered into force, the private sector took its place in the electricity market and many privatizations ensued. The Report stated that by virtue of the provisions of the Electricity Market Law regarding wholesale markets, as of 2013, a new period for the establishment of a well-operated, liquid wholesale market has commenced.

Developments in Generation within the Liberalization Process

In the Report, it is set forth that due to the fact that electric energy generation requires large-scaled investments, these private sector investments in the Turkish electricity market has started with the establishment of Build Operate-Build Operate Transfer plants. It is foreseen in the Report that the private sector’s role in electric energy generation will increase by privatizations.

The variety of resources in the generation of electricity contributes to the establishment of a competitive market. The Report determines that among the electricity generation resources, natural gas plants have a ratio of 43.63% in 2012. Consequently, when the high ratio of natural gas among electricity generation resources is taken into consideration, the liberalization process of the electricity and natural gas markets interact. However, in light of the determination made in the Report, within the context of the current situation, as well as taking into account the forecasts for 2017, the generation from hydraulic resources is also significant in the Turkish electricity generation market.

Developments in the Wholesale Market within the Liberalization Process

Türkiye Elektrik Ticaret ve Taahhüt A.Ş. (the Turkish Electricity Trade and Undertaking Company) (“TETAŞ”), was established as the first wholesale company in accordance with Law No. 4628 and as it is indicated in the Report, TETAŞ undertakes liabilities for a smooth transition in order to attain a competitive market.

TETAŞ is responsible for the sale and purchase of energy that arise from long-term agreements, which are concluded by the state. TETAŞ is active in trading and undertaking electricity on behalf of the state, and purchases electricity energy from the Türkiye Elektrik Üretim A.Ş.’s (Turkish Electricity Generation Company) (“EÜAŞ”) power plants that operate pursuant to the Build Operate–Build Operate Transfer-Transfer of Operational Rights model, and other countries, as well as from the Balancing Market operated by the Market Financial Settlement Center (“MFSC”). It is also involved in sales to concerned electricity-to-electricity distribution companies, authorized supplier companies, as well as customers who have direct access to the transmission system and to the other countries in accordance with exportation agreements and the Balancing Market operated by the MFSC^[3].

In 2011, the most significant step for the Turkish electric market was the establishment of the Day Ahead Market. The establishment of the relevant market energized the Turkish electricity market and promoted the establishment of a competitive market^[4]. Participation to the Day Ahead Market is not obligatory; however, all licensed legal persons may participate in the Day Ahead Market by signing the Day Ahead Market Accession Agreement. In the Day Ahead Market, participants who are present propose to sell and purchase each hour of the following day, and then Market Clearing Price is established at the point where supply and demand is aligned. Following the closing of the Day Ahead Market, real-time activities with the purpose to eliminate real-time distortions regarding supply and demand is conducted in accordance with the rules that cover the Balancing Power Market.

Therefore, with the impact of the Day Ahead Market and Balancing Power Market, a market structure that is based on bilateral agreements is targeted in The Turkish electricity market. Although the proportion of the bilateral agreements concluded by the private sector is low, the Report states that the increase of that proportion is the main reason and result of the process on the establishment of a liquid wholesale market.

Another development in the electricity market might be specified as the definition of the organized electricity wholesale market by the Electricity Market Law. As stated in the Report, defining the organized electricity wholesale market, and rendering day-ahead and intra-day markets, balancing-ancillary services market, physical and derivative markets made functional by the establishment of the electricity stock market plays a significant role in the liberalization of the market. Finally, the establishment of Enerji Piyasaları İşletme Anonim Şirketi (the Energy Market Operation Company) (“EPİAŞ”) to operate in the organized electricity wholesale market was targeted, and it was established on 12.03.2015. The establishment of EPİAŞ is considered as a substantial element to realize a functioning and transparent market.

Developments in Retail Sale Market During the Liberalization Process

The Report states that the most significant step regarding the liberalization and marketization of the retail market is undoubtedly the privatization of electricity distribution companies between January 2009 and July 2013, which was previously held by TEDAŞ, and, therefore, the operation of the distribution and retail sale activities of electricity by the private sector. The acquisition of all of the electricity distribution companies by the private sector was completed between 2009 and 2013.

Another important step for liberalization of the electricity market is the gradual decrease of the free consumer limit. In accordance with the graphics on the evolution of the theoretic and actual proportions of the openness of the market (the proportion showing the marketization level which is calculated by the division of the free consumer consumptions with the total amount of consumption) concerning the period between December, 2011, and January, 2014, as presented by the Report, the actual level of liberalization is far behind the theoretical level of liberalization, and the decrease of the free consumer limit does not assure the actual benefit by consumers from the right of the free consumer and competition in the retail sales market.

With the liberalization of the Turkish electricity market, consumers may choose among the distribution companies and prefer to conclude contracts with a company that provides the best service. However, a chart presented by the Report demonstrates that between the period of July, 2013, and April, 2014, the consumers exercising the right of the free consumer purchases services from official distribution companies, and do not conclude agreements with other distribution companies, although the distribution and retail sales are to be operated by the separate legal entities. The market share of the independent distribution companies is negligible for private residences, and is higher for consumers in a commercial group, than in an industrial group. Accordingly, consumers in the residential and industrial groups that have a consumption amount higher than the free consumer limit may continue to purchase electricity pursuant to the tariffs provided.

Conclusion

In order for the Turkish electricity market to become competitive, the market model should be planned at every step, and competitive elements should be in accordance with each other. Since the 2000’s, liberalization of the Turkish electricity market is commenced, and a free and competitive market system took the place of the system of sole purchaser and seller. The Report published by the Authority assesses the evolution of liberalization of the Turkish electricity market in terms of legislation and market structure and the marketization process along with the current market situation.