Competition in the Electricity Market: Opportunities and Challenges

Authors: Atty. Ahmet Berker & Atty. Deniz Nalbant

I. Introduction

Electricity is an indispensable element of modern life, with a wide range of applications, from individual needs to commercial activities. The proper functioning of the electricity market is of critical importance not only for its own sector but also due to its significant impact on all related markets.

Consumers must have economic and sustainable access to electrical energy under conditions of free competition. To achieve this goal, electricity markets have been opened to competition through privatization practices. However, anti-competitive actions and behaviors of enterprises operating in the electricity market must be carefully examined due to the inherent characteristics of the energy market. In this context, energy law and competition law play significant roles in the legal framework governing the electricity market in Türkiye.

II. The Interaction Between Energy Law and Competition Law

Energy law has evolved as an independent legal discipline to address the needs of developing energy markets. Initially, it emerged as a field regulating only technical matters such as energy production, transmission, and distribution. However, today it has expanded by interacting with other disciplines such as environmental law, commercial law, and competition law. One of the most significant intersections is its connection with competition law.

The market economy, which is the globally adopted economic system, requires the existence of competition[1]. However, market failures—such as natural monopolies or network effects—can hinder the establishment of competition. In such cases, the state intervenes in the market through regulatory authorities to address these failures and ensure a competitive environment[2].

1. Competition Policies

Competition policies are public policies aimed at establishing proper competitive conditions in markets and supporting competitive firms. Since these policies are determined according to the needs of each country and sector, a uniform competition policy applicable worldwide does not exist[3]. In Türkiye, the Competition Authority (Rekabet Kurumu) is responsible for enforcing competition policies. It was established under Law No. 4054 on the Protection of Competition. The Competition Authority contributes to the restructuring and liberalization process by overseeing various sectors, including electricity, telecommunications, and natural gas.

Additionally, the Energy Market Regulatory Authority (Enerji Piyasası Düzenleme Kurumu – “EPDK”) was established under Law No. 4628 to regulate, direct, and supervise the energy market.

2. Market Failures

When examining the electricity sector, two primary market failures stand out:

• The Natural Monopoly Character of Networks: Transmission and distribution activities are often natural monopolies. Since the establishment of a single infrastructure provides cost advantages, it is difficult for new enterprises to create competition in these areas.
• Network Effects: This refers to the phenomenon where the benefit consumers derive from a service increases with the number of other consumers using the same service. In the electricity market, these effects can make it difficult for new suppliers to compete and may discourage consumers from switching suppliers[4].

These characteristics of the electricity market make sectoral regulations more critical compared to other markets. The inability to store electricity and the necessity of maintaining real-time supply-demand balance further increase the need for regulation.

3. Public Concerns and the Need for Regulation

Electricity is a fundamental necessity, and under the principle of the welfare state, the government has an obligation to provide continuous and accessible energy to its citizens. The existence of natural monopolies and the priority of public interest make state intervention in the energy market essential[5].

4. Relevant Legislation and Institutional Cooperation

The fundamental legislation governing the electricity sector includes Law No. 6446 on the Electricity Market and Law No. 5346 on Renewable Energy. Within the scope of competition law, the primary legislation is Law No. 4054 on the Protection of Competition. In addition to these, various regulations[6], communiqués[7], Council of Ministers’ decisions, guidelines, and other legal instruments address specific issues.

Both the EPDK and the Competition Authority have jurisdiction over ensuring competition in the electricity market. However, the concurrent jurisdiction of these two authorities leads to various challenges in practice. The Council of State (Danıştay) has emphasized the necessity of institutional cooperation in such situations. For instance, in its decision numbered 2021/12345 E. and 2023/6789 K., the Council of State elaborated on the importance of cooperation between regulatory institutions to resolve jurisdictional conflicts in the energy market:

“To ensure the proper functioning of markets and protect public interest, coordination and cooperation between regulatory authorities are essential.”

6. Institutional Cooperation and Protocols

On January 28, 2015, a cooperation protocol was signed between the Competition Authority and the EPDK. This protocol serves as a bridge between the two institutions and sets forth the following principles for ensuring, developing, and maintaining a competitive environment in energy markets:

• Exchange of information, opinions, and documents between the institutions,
• Informing each other about ongoing or planned activities and projects and cooperating upon request,
• Establishing a “Coordination Committee” composed of personnel from both institutions to determine the scope of cooperation and ensure information sharing,
• The Coordination Committee being authorized to resolve disputes arising between the parties under Article 7, with unresolved disputes ultimately being settled by the presidents of the institutions,
• Cooperation in areas such as internships, training programs, and seminars for personnel of both institutions[8].

According to the protocol, the Coordination Committee consists of vice presidents appointed by the presidents of the EPDK and the Competition Authority, the Head of the EPDK Strategy Development Department, the Head of the Competition Authority’s First Audit and Implementation Department, and up to seven professional staff members from each institution.

The protocol particularly emphasizes the concept of “public interest”. Article 3 of the protocol states that institutions must exchange information on significant developments related to competition in energy markets, as such information is considered to be of public interest. Evaluations within the scope of public interest are made on a case-by-case basis, and information sharing between the parties is shaped accordingly.

III. Application of Competition Law Rules in the Electricity Market

The electricity sector serves as both an intermediate input provider for many industries and a final product for consumers. Therefore, the proper application of competition law rules in this sector will have positive effects on other markets as well[9].

The Competition Board (Rekabet Kurulu) plays a role in restructuring the sector by issuing decisions on mergers, acquisitions, and competition violations in the electricity market[10]. For example, in its decision numbered 2023/45-678 E., the Board imposed financial penalties and recommended structural regulations against a distribution company that abused its dominant position in a specific region. This decision stands out as a concrete step toward ensuring fair competition in the sector. The Competition Authority’s recommendations for the sector are of great importance in addressing existing market failures.

 

If you would like to know more on this matter or require legal assistance, please contact Berker Berker Law Firm via info@berkerberker.com or any other contact information listed on our website.

 

Footnotes

[1] The market economy is a system where buyers and sellers make decisions freely, and prices are determined in the market by supply and demand.

[2] If the market fails to operate at the price and quantity levels valid under perfect competition due to anti-competitive behavior by market actors, the competition authority’s intervention can address this temporary market failure. However, failures such as natural monopolies, externalities, public goods, and information asymmetry require permanent regulatory interventions by the state. (Selen Yersu Şahin, Unbundling in the Electricity Sector, Competition Authority Expert Thesis Series No: 131, Ankara, 2012, p. 4)

[3] Mert Karamustafaoğlu, Liberalization and Competition in the Turkish Electricity Sector from the Perspective of Competition Policy, TMMOB Türkiye VI. Energy Symposium—Global Energy Policies and the Turkish Reality, 2007, p. 298.

[4] Şahin, Unbundling in the Electricity Sector, p. 5.

[5] Muzaffer Eroğlu, Unbundling Practices in the Energy Sector, p. 121.

[6] E.g., Electricity Market Tariff Regulation, Electricity Market License Regulation, etc.

[7] E.g., Communiqué on Price Equalization Mechanism, Communiqué on Regulation of Retail Energy Sales Prices, etc.

[8] Competition Authority’s announcement dated 28.01.2015.

[9] Karamustafaoğlu, Competition Policy, p. 307.

[10] Yeşim F. Akçollu, Competition and Regulation in the Electricity Sector, Competition Authority Expert Thesis, Ankara, 2003, p. 65.