Energy Derivatives- An Analysis of the Turkish Electricity Market

Abstract

With the new risk perception in financial markets, the use of derivative instruments has increased. In particular, energy derivatives, which are used to reduce the risks associated with energy price fluctuations, have been widely used worldwide and recently in Turkey. The objective of this paper is to contribute to the limited literature by analyzing the evolution of base load futures contracts traded in the Turkish electricity market. Based on a comprehensive literature review, a SWOT analysis is conducted to identify the strengths, weaknesses, opportunities and threats of these financial instruments. It is concluded that, especially after the radical restructuring of the electricity market, a transparent, reliable and competitive investment environment has been created and electricity futures contracts are now one of the most important contracts that help market participants to manage or hedge electricity price risks.