Estimating the Value of an Energy Exchange For Turkey
Open Access
- Author:
- Kurucak, Abdurrahman
- Graduate Program:
- Energy and Mineral Engineering
- Degree:
- Master of Science
- Document Type:
- Master Thesis
- Date of Defense:
- July 12, 2013
- Committee Members:
- Anastasia V Shcherbakova, Thesis Advisor/Co-Advisor
- Keywords:
- energy
electricity market
spot price model
forward price model
optimal purchase strategy
Turkish electricity market
Turkey - Abstract:
- The new Electricity Market Law of Turkey was enacted very recently in March 2013. The law builds the legal framework for the establishment on an energy exchange, which has been a topic discussed in the Turkish electricity market for a long time. The aim of this study is to estimate the value of this prospective energy exchange for Turkey. In order to estimate a value, two different scenarios were compared. In the first scenario, it was assumed that a hypothetical retailer procures its entire electricity requirement from the spot market. In the second scenario, an optimal procurement strategy that benefits from both the spot and forward markets was calculated. Since currently no forward electricity markets exist in Turkey, there is no price data for the derivatives. In order to overcome this challenge, a forward price model is developed by constructing a spot price model first and then defining a relationship between spot and forward prices using the spot price data from January 2010 to December 2012. The developed spot price model revealed that electricity prices are highly seasonal, while the forward price model revealed unlike most commodity markets, the market price of risk is negative and hence the futures contract quotes are higher than the expected spot prices. Those results are in agreement with the literature. Finally, my analysis points out that the prospective exchange is indeed valuable for a hypothetical company which is assumed to supply 5% of Turkey’s electricity consumption, with an estimated the value of around TL27.3 million or $14.2 million for the first six months of 2013.