Potential Impact of Electricity Reforms on Turkish Households

Abstract

This paper analyses the potential effect of electricity reform on different households, using a series of potential scenarios for price changes, and consumption information from the 2003 Turkish Household Expenditure Survey. Turkey is emerging as a regional energy market, hub, and transit country between Europe and Asia, and has been reforming her energy sector in line with EU Energy Acquis since 2001. Introducing a cost reflective tariff is an essential component of Turkish electricity reform. Yet, this tariff structure might create real hardship for, and thus strong opposition from, some households, which might not be compensated through the rather undeveloped Turkish social security system. Perhaps to avoid the possible political costs of this before the general election of November 2007, the Turkish Government disregarded the sector regulator EMRA's insistence, and postponed pursuing such tariff for at least five years. Identifying these households, however, helps to anticipate opposition, and perhaps to mitigate it partially through compensation schemes. This might also facilitate Turkey's integration with the Energy Community of South East Europe created in 2005. To explore the likely effect of tariff changes on various groups of households we apply six scenarios. Firstly, we analyse the likely impact of EMRA's proposal of reflecting large regional variation in technical and non-technical losses. We also consider the effect of a potential efficiency saving from the proposed merger of distribution companies. Then, we explore the potential outcome of raising the currently low ratio of residential to industrial tariffs to OECD average. Furthermore, we study the effect of reducing the rather high level of taxes on households. Lastly we examine the likely consequence of changing the present flat rate prices per kilowatt hour to a tariff which reflects more accurately the pattern of consumer-related and consumption-related costs.