Causality analysis between Turkish electricity spot and futures markets

Electricity energy is an indispendable part of life with continuously improving technology. Growth of the sector is unavoidable due to the increasing need of electricity. Properly functioning market structure is also important to attract investments in the sector. Therefore, plenty of steps are taken and essential changes are being done. Even though progress has been made in regards to the process that starting with the Electricity Market Law and aims to have an electricity market that is clear, reliable, competitive, and integrated with electricity markets of other countries, it has not yet reached this desired goal. Accordingly, it is believed that Turkish electricity spot and future markets could not properly show the real prices. Turkish Energy Market was decided to establish the name of more liberal and more reliable electricity market. Only electricity trading is going to be done in this market at the first step. After Turkish Energy Market, real price formation is expected by the increasing market depth. In the study, firstly how the market works and what kind of changes that occured were investigated. After that, important electricity markets in the world, the current markets in Turkey, and price formation in these markets are mentioned. In this context, the relationship between electricity spot and futures markets were examined by the Granger causality test. The spot data was daily average prices that determined by TEİAŞ and the future data was daily settlement prices of the closest term that determined by BİST. In the first step, time series were tested by Augmented Dickey Fuller unit root test. Then, Granger causality test was performed and two-way causality was found out. According to this result, both markets affect each other and the argument that future prices are leading indicators for the spot prices is not valid in Turkish Electricity Market. Key Words: Electricity Energy, Electricity Markets, Electricity Spot and Future Markets, Granger Causality Test.