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A Test for Turkish Electricity Market: Fraud-Based Manipulation

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Turkish electricity market is rapidly transforming a competitive open market by consistent privatization and liberalization policies of Turkish government. In line with these regulations, a manipulation risk has been revealed which restricts advantages of privatized market. Recent reforms have indicated to market players a horizontal structure will dominate the energy markets while it was completely vertical and state-controlled in the recent past. Turkish government commenced this process with privatization of electricity distribution and small sized generating companies. The fact remains that mainstream of this strategy is increasing the competition on wholesale and retail markets.

Main Reasons of Manipulation on Electricity Markets

  • There is no elasticity on electricity markets. Hence, a small decrease in distribution of electricity may result with unexpected price volatility.
  • The main drawback for electricity manufacturers is storage difficulty which makes a well-balanced electricity market obligatory.
  • In case of there is an electricity transmission issue occurs, manufacturers may gain market power as price determinants.
  • Electricity producers are likely to operate with maximum capacity regarding their marginal cost. Thereby, they are not able to adapt themselves in terms of price increases.

As a consequence of these matters above, Turkish electricity spot market needs an authorised body for well organized market mechanism and dealing with manipulation possibility.

Worldwide War Against to Electricity Market Manipulation

In US, Security Exchange Commission ("SEC") and Commodity Futures Trading Commission ("CFTC") are responsible for preclusion of manipulative transactions. However, these institutions are only restricted with capital markets so physical electricity market trading is not able to be regulated under these authorities' implementations. As a result, manipulation is subject to antitrust law in US. On the other hand, there is no need for market power to apply manipulation. In this regard, Federal Energy Regulatory Commission's authorizations have been extended.

European Union solved this issue in the way that US applied. Energy markets manipulations are defined under Market Abuse Directive ("MAD") but this does not comprise physical electricity trading. With respect to this lacuna in law, Regulation on Energy Market Integrity and Transparency (REMIT) has been enacted and The Agency of Cooperation of Energy Regulators ("ACER") has been authorised for data collection and market observation.

Regulatory Framework of Fraud-Based Manipulation

At a glance, Fraud-Based Manipulation refers financial and commodity markets distortions. In accordance with article 237 Turkish Criminal Law Code 5237, any person who applies fraud-based manipulation in such a way to decrease or increase of prices of goods is punished with imprisonment from three months to two years together with judicial fine. Additionally, article 107 of Capital Markets Law Code 6362 the persons who attempt any misleading transaction for changing prices, demand or supply of capital markets' instruments are given prison sentence from two years to five years along with punitive fine.

In the scope of Electricity Market, Recent enacted Electricity Market Law Code 6446, any definition does not take part about fraud-based manipulation which poses risk on this volatile market. As one might expect, after establishment of energy market exchange ("EPİAŞ") in Turkey, debates will arise regarding legislation of manipulation in electricity market. A new secondary legislation will be highly needed market confidence.

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