Where is the cheap electricity? The great illusion in the electricity market

The Turkish energy market is experiencing one of its greatest contradictions in recent years. While electricity prices in the Day-Ahead Market (DAM) under the Energy Exchange Istanbul (EXIST/EPİAŞ) drop to zero TL levels during certain hours, industrialists, tradespeople, and citizens continue to face high electricity bills. Production costs are being hiked under the pretext of electricity costs, transportation tariffs are being increased, municipalities are complaining about energy expenses, and producers claim they are operating at a loss.

Even more strikingly, while approximately 83% of electricity production in Turkey is carried out by the private sector, the entirety of distribution and retail sales is also under the control of private companies. With this being the case, the question of why the cheap electricity generated in the markets does not translate into social welfare is being asked ever more loudly. If prices on the electricity exchange are falling to zero, why is the public still using expensive electricity? Whose pocket is the profit from this cheap electricity going into, and who is paying the cost? This is precisely the fundamental issue that needs to be discussed in the Turkish energy market today.

A PARADOXICAL PERIOD IN ENERGY ECONOMICS: Why Are Electricity Prices “Zeroed Out” at EPİAŞ?

As the global economy undergoes a historic energy transition centered on combating the climate crisis and green transformation, one of the most critical reflections of this shift is occurring in electricity markets. Turkey has also become one of the countries drawing attention in the field of renewable energy in recent years, having achieved significant capacity increases, particularly in solar, wind, and hydroelectric investments. However, this very transformation process is making a new and deep contradiction in the energy market visible.

Recently, we have been witnessing electricity prices in the Day-Ahead Market (DAM) under EPİAŞ dropping to zero TL levels during certain hours of the day, especially in the spring months. At first glance, this picture could be interpreted as “cheap energy” or the “success of renewable energy.” However, when looking at the background of the issue, the resulting landscape points to a much more complex economic and structural problem.

There are several important dynamics at the root of electricity prices hitting zero. First, rising water levels in hydroelectric power plants increase production capacity. In addition, the share of solar and wind power plants in total production is growing every year. Especially during midday hours, the intense loading of solar energy into the system, combined with periods when demand remains seasonally low, creates a serious surplus of supply in the market. Since electricity is not a storable product, this supply pressure created in the system rapidly pulls prices down.

Moreover, because the marginal production costs of solar and wind power plants are quite low, these plants can often offer “sales at 0 TL” to the market. During hours when demand remains weak, the market clearing price naturally retreats to the zero point.

However, the critical point overlooked here is this: Electricity prices falling to zero does not mean that everyone in the system is winning. On the contrary, this situation creates a serious distortion in income distribution, investment risk, and structural cost transfer in the energy market. This is because while some producers continue to protect their income thanks to state guarantees as prices hit zero, many investors operating in the free market are forced to produce at a loss. More importantly, this cheapness on the exchange is not reflected in the citizen's bill to the same extent.

HOW ARE ELECTRICITY TARIFFS (NATIONAL TARIFF) FORMED?

In the public eye, electricity bills are often evaluated solely based on the “price of electricity.” However, the national tariff system used by residential subscribers consists not of a single cost item, but of a multi-layered pricing mechanism extending from production to distribution, and from taxes to public subsidies. The final figure the citizen sees on their bill includes not only the active energy price formed on the EPİAŞ electricity exchange, but also distribution fees, transmission costs, system usage expenses, taxes, and subsidy policies.

The “active energy cost,” which is the most visible part of the bill, is directly affected by electricity production costs and market prices at EPİAŞ. However, alongside this, distribution companies' infrastructure investments, maintenance and repair expenses, loss-leakage targets, and grid operating costs are also reflected in the tariff. In addition to these, the Municipal Consumption Tax (BTV), VAT, and various legal deductions increase the total amount of the bill.

However, the most critical and least known dimension of the system by the public is the subsidy mechanism. This is because state supports do not appear as a separate item on the bill; they are applied embedded directly into the tariff structure. In other words, the figure paid by the citizen is determined not only by costs, but also by how much of which cost the state chooses to reflect onto the consumer.

The main reason for the high bill increases felt by citizens recently is not just the rise in energy costs, but the narrowing of the scope of the subsidy mechanism. That is, a larger portion of the costs previously borne by the state is being loaded directly onto the shoulders of the consumer. For this reason, even if electricity prices at EPİAŞ fall to zero during some hours, this cheapness is not reflected in the bill to the same extent.

WHY DO PRICES FALL TO ZERO AT EPİAŞ? Structural Distortion in Supply and Demand Balance

The most fundamental rule of the electricity market is that the energy produced must be consumed simultaneously; that is, electricity, by its nature (unless there are massive battery systems), cannot be stored in the grid. Therefore, price formation is shaped according to the marginal cost of the instantaneous supply and demand balance at that moment.

So, what are the dynamics that pull the price to zero on the exchange?

Renewable Energy Density and Marginal Cost Theory: Turkey's unlicensed solar (GES) and wind (RES) installed capacity has made a huge leap, partly due to the incentives provided. Especially in March, April, and May, the peak of river flows (hydraulic), the increase in sunshine duration, and the fact that the weather is neither too hot nor too cold, causing air conditioning loads (demand) to bottom out, create a massive supply surplus in the market. Since the operating and fuel costs of solar and wind power plants are theoretically "zero," these plants enter "price-independent (0 TL)" sales offers into the exchange. Because the system gives priority to this cheap source, the market clearing price (PTF) anchors to the zero point when demand decreases.

Flexibility Problem of Base Load Plants: Despite prices falling to zero, large lignite, imported coal, or natural gas combined-cycle power plants cannot stop production completely. This is because, technically, the cost of shutting down a thermal power plant and bringing it back online a few hours later (start-up cost) is much higher than the cost of feeding electricity into the system at 0 TL at a loss for those few hours. Therefore, large conventional producers continue to pump electricity into the grid with the logic of "cutting losses is a gain," further fueling the supply surplus.

FREE MARKET ECONOMY AND THE DEBATE ON UNFAIR COMPETITION: YEKDEM Protection and Asymmetric Market Structure

At the center of the debates in the electricity market today is not just the fall in prices, but the fact that the effects of this decline are not distributed equally among market actors. This is because the most fundamental principle of a free market economy is that all players in the market are subject to the same risk and reward mechanism. However, the current electricity market structure in Turkey is increasingly taking on a more asymmetric appearance, especially due to incentive and guarantee mechanisms.

One of the most striking examples of this structure is the Renewable Energy Resources Support Mechanism (YEKDEM). Some producers who invested under YEKDEM in the past continue to benefit from state-guaranteed purchase prices. Thanks to old incentive models, especially those based on foreign currency, these plants can sell their production at the guaranteed price even if the market price falls to zero. In other words, even if electricity is traded at 0 TL for hours at EPİAŞ, the income flow of these producers is largely protected.

However, there is a very different picture on the other side of the market. Producers who invested without state guarantees, relying entirely on free market conditions, not only fail to earn income during hours when prices hit zero but are also forced to produce at a loss due to system usage costs. This situation creates serious financial pressure, especially for natural gas, coal, and some free renewable energy investments.

More importantly, many renewable energy investors whose 10-year purchase guarantee period has expired in recent years are now also outside the protective shield. These facilities, which were established with high costs in a different era, are struggling to survive today under the pressure of market prices. While a significant portion of investors with disrupted cash flows are struggling with loan repayments, the risk of “investments falling into the hands of financial circles,” which is frequently voiced within the sector, is growing.

It is precisely at this point that one of the most critical contradictions of the market emerges: When prices rise, regulation kicks in, a price ceiling is applied, and producer revenues are limited; however, when prices fall excessively, there is no protective mechanism to balance the market. In other words, the system acts interventionist during periods of profit, and entirely with free-market logic during periods of loss.

THE “NEGATIVE PRICE” DEBATE: Why Doesn't a Real Market Signal Form in Turkey?

One of the most critical problems in the electricity market today is that the price mechanism cannot fully reflect real market conditions. This is because for a free market to function healthily, prices must produce economic signals that balance the system not only during periods of rise but also during periods of supply surplus. In Turkey, the current regulatory structure prevents this natural balancing mechanism from working fully.

In developed electricity markets in Europe, prices are allowed to fall to negative levels when a supply surplus occurs. Especially in Germany, the Netherlands, and Scandinavian countries, electricity prices can sometimes drop to negative levels during periods when the wind is blowing very strongly or solar production increases excessively. Although this may seem extraordinary at first glance, it actually functions as a highly rational mechanism for the market.

The meaning of a negative price is this: “There is more electricity in the system than needed. If you want to continue producing, you must bear the cost of this because you are putting a load on the system.” Thus, the market sends a natural balancing signal to producers. Inflexible plants tend to reduce production, storage investments are encouraged, and the system works more balanced within itself.

In Turkey, the market floor price is limited to zero TL due to EMRA (EPDK) legislation. That is, prices cannot go below zero. For this reason, even if a supply surplus occurs, the system cannot send a sufficiently strong economic signal to producers. As a result, some plants continue to produce even at a loss, the supply surplus grows, and the market loses its capacity to self-balance.

CONSUMER PARADOX: Why Doesn't Cheap Energy Reflect as a Discount on the Bill? Who Benefits from the “Price Ceiling System”?

The biggest contradiction in the electricity market today emerges right here: While prices on the EPİAŞ electricity exchange drop to zero during some hours, no significant cheapening is seen on the citizen's electricity bill. Moreover, industrialists continue to complain about high energy costs; municipalities justify transportation hikes with electricity expenses; and small tradespeople are trying to survive under rising operating costs. With this being the case, the question is being asked ever more loudly in the public eye: “If electricity is almost free during some hours, why is this cheapness not reflected to the citizen?”

The answer to this question lies in the multi-layered structure of the electricity market in Turkey, which does not consist solely of production costs. Because the electricity bill paid by the citizen is not limited to the spot market prices formed at EPİAŞ. The tariff system is shaped together with distribution fees, transmission costs, taxes, system usage expenses, subsidy mechanisms, and various regulatory items. Therefore, a drop in prices on the exchange does not mean that bills will fall at the same rate on their own.

However, the point to note here is that tariffs can be updated in a very short time when market prices rise rapidly; whereas, when prices fall sharply, a similar discount is not reflected to the consumer at the same speed. In other words, while the system rapidly transfers cost increases to society, it does not socialize cost decreases to the same extent.

The picture that has emerged in Turkey today is quite striking: Prices in the electricity market are falling, but this decline is not reflected in social welfare to the same extent. The producer is losing money, the investor is experiencing uncertainty, and the consumer cannot feel the advantage of the cheapening electricity. Such a structure is not only unsustainable but also makes debates on justice and efficiency in the energy market inevitable.

SECTORAL RISKS: Investor Flight and the Threat to Supply Security

The fact that electricity prices remain close to zero levels for a long time creates strategic risks that directly affect not only today's cost debates but also Turkey's energy supply security and future investment capacity. This is because the energy sector is an area that needs long-term investment confidence, financing sustainability, and a predictable market structure, rather than short-term price movements.

Today, many energy producers in Turkey who invested by trusting the free market are under serious financial pressure. Especially natural gas, coal, and free renewable energy investments that have no purchase guarantees not only fail to earn income during hours when prices retreat to zero but also struggle to cover their operating costs. For these plants, which lose money as they continue to produce electricity, the current market structure is becoming increasingly unsustainable.

Even more critically, many renewable energy investors who invested in the past with YEKDEM incentives and whose 10-year guarantee period has now expired are facing the harsh realities of the market. These investments, which were once financed with foreign currency-based loans, are now experiencing serious cash flow problems due to low market prices and high financing costs. The risk of “energy investments passing into the control of financial circles or high-interest funds,” which is increasingly talked about in the sector, is fed precisely by this process.

This picture negatively affects not only existing investors but also new investment decisions. Because no bank or international financial institution wants to provide long-term loans to a sector where prices are constantly suppressed, regulations are unpredictable, and market risks are not distributed equally. Indeed, this is one of the main reasons behind the significant slowdown in new base load power plant investments under free market conditions in Turkey in recent years.

Therefore, the “zero price” period experienced at EPİAŞ should not be evaluated merely as a temporary market anomaly. This picture also serves as a strong warning sign that investment confidence in the Turkish energy market is weakening, financial sustainability is deteriorating, and new vulnerabilities are forming in terms of supply security.

SEARCH FOR A STRUCTURAL SOLUTION: The Need for a New Design in the Turkish Energy Market

At the point reached today, the “zero price” phenomenon experienced in the EPİAŞ electricity market is not just a periodic supply-demand balance issue; it is also a structural area of rupture that necessitates rethinking the current market design. Because the resulting picture points to a balance point where the producer loses money, the investor experiences uncertainty, and the consumer cannot benefit from the cheapness. For this reason, the issue is no longer just the level of prices, but the question of how the system as a whole functions.

In the current structure, the first area that draws attention is the need to reconsider incentive and support mechanisms. Especially fixed purchase guarantee models similar to YEKDEM, which were applied in past periods, accelerated investment on one hand, while creating an income structure independent of market price signals on the other. At the stage reached today, it is clear that such mechanisms need to evolve into flexible models that are more compatible with market realities and where risk is distributed more balanced. Otherwise, indirect burdens on both public finance and the consumer will continue to increase.

The second critical area is the lack of a dynamic tariff system on the consumer side. Electricity has become a commodity shaped not only by production and consumption balance but also by timing management. Despite this, households in Turkey are largely billed through fixed tariffs. However, in a system where smart meter infrastructure is becoming widespread, the consumer's ability to react to price fluctuations during the day will both reduce individual costs and contribute to the balancing of the system.

The third important topic is energy storage capacity. The intense inclusion of renewable sources such as solar and wind into the system inevitably leads to an increase in production surplus during certain hours. For this surplus to be converted into economic value, battery technologies, pumped-storage hydroelectric systems, and similar solutions need to be put into operation rapidly. Otherwise, the low prices formed in the middle of the day will continue to remain as inefficiency within the system.

Finally, for market signals to work healthily, the price mechanism needs to be brought to a more realistic structure. As seen in international examples, allowing negative pricing in cases of supply surplus is an important tool that facilitates the system's self-balancing. This mechanism, as it forces the producer to act more rationally, can also direct investment decisions to more efficient areas.

When all these topics are evaluated together, the result is clear: What is needed in the Turkish energy market is not just a technical price correction, but a multi-dimensional structural reform. The main goal of this reform is clear: to establish an energy balance where the investor feels confident, the consumer pays a fair price, and the system works sustainably.

CONCLUSION: The Real Question in Energy- Who Wins, Who Loses?

Although the “zero price” phenomenon emerging on the EPİAŞ electricity exchange may appear on the surface as a technical market fluctuation, it actually points to a deeper incompatibility accompanying the structural transformation of the energy system. In a structure where the share of renewable production is rapidly increasing, supply periodically exceeds demand, and electricity creates pressure on the system as a non-storable commodity, a fall in prices is, of course, an expected result. However, if this decline is not reflected equally to all actors in the economy, one must speak here not only of market dynamics but of a lack of design.

At the point reached today, the picture is quite clear: Income volatility is increasing on the producer side, investment appetite is weakening, and financing costs are rising. On the consumer side, energy, which should theoretically be cheaper, cannot be felt to the same extent due to the tariff structure and subsidy layers. The mechanism that provides the balance in between tries to keep the system alive by redistributing costs through different channels.

In this framework, the real question is no longer “why did electricity get cheaper?” but “why can't this cheapness translate into social welfare?” Because in the energy market, the price signal is not an indicator on its own; what is decisive is how this signal reflects on investment decisions, consumption behaviors, and ultimately social welfare.

If neither a permanent improvement in production costs is achieved nor a noticeable relief is formed in the citizen's bill, even though prices fall to zero during some hours, it has become mandatory to reconsider the market mechanism here. Similarly, a structure where investors are pushed out of the system and the consumer cannot access the price advantage cannot produce a sustainable or fair balance in the long run.

For this reason, the approach needed in the energy sector is a holistic regulatory architecture that goes beyond short-term price movements. A structure that protects the consumer while protecting the producer, operates without distorting market signals, and distributes risks more balanced is no longer a choice, but a necessity.

Opening the negative price mechanism to discussion, as in international examples, is also important in this respect. If electricity truly becomes “excess” during some hours, the economic equivalent of this situation should be clearly seen within the system; the resulting benefit should spread not only to certain actors but from industry to public transportation and ultimately to the citizen. Otherwise, the “zero” prices seen on the exchange turn into an illusion that covers up high costs on the consumer side while producing a cheapness that is only apparent.

In the final analysis, the green transformation and renewable energy goal can only gain meaning with a rational economic design that prioritizes public interest, observes justice in distribution, and provides balance without distorting the market mechanism. Otherwise, the gap between the “zero” prices seen at EPİAŞ and the “high” bills paid by the citizen will continue to remain as a structural contradiction deepening in energy economics.