Residential Electricity Demand for Turkey: A Structural Time Series Analysis
Zafer Dilaver
Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey, Guildford, GU2 7XH, Surrey, UK. E-mail: T:+4407717398317
Abstract
1. Overview:
The aim of the research is to determine the residential electricity demand function for Turkey. This is achieved by applying structural time series technique over the period 1971-2006.The relationship between domestic electricity consumption, household total final expenditure and residential electricity prices is investigated. Moreover this study found that household total expenditure elasticity and residential price elasticity were -0.10 and 0.41 correspondingly. Furthermore this paper estimates the underlying energy demand trend for the Turkish residential sector which could offer great advantages for policy makers and, as far as is known, is the first analysis of this kind. This was achieved through a primary research, in which a significant effort was made in order to create a real price data base for residential electricity in order to estimate the precise relationship between price changes and residential electricity consumption. The use of related data must be taken into account in order to explore accurately the relationship between variables by giving evidence from economic theory in energy modelling studies. This study shows that household total final expenditure, residential real energy prices and underlying residential energy demand trend should be taken into account for residential energy modelling studies in order to achieve better estimation results.
2. Methodology:
It is assumed that Turkey’s residential electricity demand is identified by:
(1)
where;
E=Residential electricity demand - KWh
Y=Household Total Final Expenditure (2000 constant YTL)
P= Real residential electricity price (2000 constant YTL)
= Underlying Energy Demand Trend
For the econometric estimation of equation (1) the dynamic log-linear autoregressive distributed lag specification for the long run equilibrium of Turkey’s electricity demand function is as follows:
(2)
where;
et=Ln (Et)
yt=Ln (Yt)
pt=Ln (Pt)
=the value of UEDT at the last period
εt= a random error term.
The UEDT (µt) is stochastic and can only be estimated by the Structural Time Series Model.The software package STAMP 6.3 (Koopman et al. 2004) is used to estimate the model.
3. Results:
3.1 Estimation Results:
The preferred estimated equation is given by:
where = -6.26901 at the end of the period.
The model passes all the diagnostic tests including the additional normality tests for the auxiliary residuals which were generated by the Structural Time Series Modelling approach. Estimated long run residential household total expenditure and price elasticities are 0.41 and -0.10 correspondingly. The estimated stochastic trend decreased and increased over the estimation period. The year 1973 was introduced as a dummy because of the blackouts and energy conservation efforts, which had a sudden increase in 1973 and kept increasing slightly after 1973.
3.2 Forecast Results:
3.2.1 Forecast Assumptions:
The real residential electricity price is assumed to be constant over the period 2007-2020. Furthermore three scenarios are introduced according to different expectations of household total final expenditure.
3.2.2 Forecast Results:
According to the different scenarios, the residential electricity consumption is expected to be between 115.6 and 291.421 Terawatt-hour by the year 2020.
4. Conclusion
The previous energy forecasts for Turkey were mostly not successful, they have always projected much higher demand figures than actual ones. The policies that are implemented based on these weak forecasts such as introducing the guaranteed BO, BOT and TOOR projects caused a significant proportion of electricity generation capacity of public power plants to remain idle, increasing the primary energy import which Turkey normally does not need. As a result of these policies Turkey became much more import dependent in terms of primary energy supplies and much more vulnerable to external shocks. The vulnerabilities of Turkish energy market prevent transition to a competitive market. The underlying energy demand trend, structural changes and breaks in energy consumption behaviour, and the impact of previous shocks should be taken into account in order to make much more successful forecasts. By concluding better forecasts the Structural Time series approach can be a solution for electricity demand planning which will have significant impacts on the welfare of the Turkish economy and environment. Having better knowledge about future demand, it will be possible to finance and develop the necessary measures with an optimum cost and over an optimum period which enables sustainable and cost efficient solutions for future electricity needs. The structural time series modelling enables the underlying energy demand trend to be determined and it gives us valuable knowledge about the structural change and breaks in electricity consumption behaviour and adjustment process related with shocks to the system, it might be concluded that the STSM approach can be the right solution for determining the future energy demand.