Electricity demand analysis using cointegration and ARIMA modelling: A case study of Turkey

Abstract

In the early 2000s, the Republic of Turkey has initiated an ambitious reform program in her electricity market, which requires privatization, liberalization as well as a radical restructuring. The most controversial reason behind, or justification for, recent reforms has been the rapid electricity demand growth; that is to say, the whole reform process has been a part of the endeavors to avoid so-called "energy crisis". Using cointegration analysis and ARIMA modeling, the present article focuses on this issue by both providing an electricity demand estimation and forecast, and comparing the results with official projections. The study concludes, first, that consumers' respond to price and income changes is quite limited and therefore there is a need for * Corresponding author. Tel.: +90-312-2872560 E-mail: erkan@erdogdu.net URL: http://erkan.erdogdu.net/english b The author is working as an Energy Expert in Energy Market Regulatory Authority of the Republic of Turkey. The present article is a part of the dissertation submitted by the author in fulfillment of the requirements for the award of the degree "MSc in Energy Economics and Policy". In October 2005, the author is awarded an "MSc with distinction" by the Department of Economics, University of Surrey (UK). The views, findings and conclusions expressed in this article are entirely those of the author and do not represent in any way the views of any institution he is affiliated with. 2 economic regulation in Turkish electricity market; and second, that the current official electricity demand projections highly overestimate the electricity demand, which may endanger the development of both a coherent energy policy in general and a healthy electricity market in particular.

Turkish aggregate electricity demand: An outlook to 2020

“…However, they did not find a significant price effect, stating this was to be expected given electricity prices were subsidised by various Turkish governments. This is a little surprising given that the degree of variability in Turkish real electricity prices appears to have been somewhat greater than general European real electricity prices, as illustrated in However, Erdogdu [7] states that "data on net electricity consumption, population and GDP is not available quarterly" hence the annual series on these data were "converted into quarterly data by linear interpolation so as to make use of them together with quarterly data on electricity prices" [p. 1134]. This might have helped overcome the problem of insufficient data and observations, but possibly introduced an 'artificial data generating process' given three out of the four series used (including the dependent variable) had an artificial seasonal pattern imposed and might well have led to biased estimated elasticities.…”

“…Source: [4] and [1] There are only a limited number of previous academic studies focussing on Turkish aggregate electricity demand, although there has been an increase since the early 2000s. These include Bakirtas et al [6], Erdogdu [7], Ozturk and Ceylan [8], Kavaklioglu et al [9], Hamzacebi [10] and Akay and Atak [11]; some of which attempt to identify a Turkish aggregate electricity demand relationship, some of which attempt to forecast future aggregate electricity demand, and some of which attempt to both; these are briefly reviewed below. Bakirtas et al [6] used the cointegration technique with annual data to explore the relationship between per capita aggregate electricity consumption, income per capita, and price for the period 1962 to 1996.…”

“…This might have helped overcome the problem of insufficient data and observations, but possibly introduced an 'artificial data generating process' given three out of the four series used (including the dependent variable) had an artificial seasonal pattern imposed and might well have led to biased estimated elasticities. 4 Similar to Bakirtas et al [6], Erdogdu [7] undertakes a separate analysis to produce a forecast of future Turkish electricity demand. 5 The above summary highlights that Bakirtas et al [6], Erdogdu [7], Hamzacebi [10] and Akay and Atak [11] all made use of techniques that effectively only used past electricity consumption to drive their forecasts of electricity demand.…”

“…4 Similar to Bakirtas et al [6], Erdogdu [7] undertakes a separate analysis to produce a forecast of future Turkish electricity demand. 5 The above summary highlights that Bakirtas et al [6], Erdogdu [7], Hamzacebi [10] and Akay and Atak [11] all made use of techniques that effectively only used past electricity consumption to drive their forecasts of electricity demand. They therefore ignored any demand relationship and the important interaction between electricity consumption and economic variables such as income and price.…”

An exposé of bioenergy and its potential and utilization in Turkey

“…8 MW, respectively, in 2005(Erdogdu, 2007a. The distribution of the produced electricity energy according to primary energy sources was as follows: natural gas 44.74%, hydropower 25.11%, coal 25.05%, oil 4.92%, biomass 0.09%, geothermal 0.06% and wind 0.04% (Kone et al, 2007).…”