Forecasting market shares of alternative fuels in Turkey

Abstract

The objective of this study is to examine the interfuel substitution mechanism, and thus to forecast the market shares of alternative fuels, in Turkey. Alternative energy sources are assumed to be bituminous coal, lignite, petroleum and electricity. It is of increasing interest to energy policy makers to detennine the demand response of users to increasing fuel prices. In this study, consumption trends and interfuel substitution mechanism are examined through the use of a forecasting model. A multinomial logit formulation is used as the functional form to explain the market shares of the four main fuel types. The model specification indicates that the dependent variable is the logarithm of the ratio of share of the other fuels to the forth, where the base share can be chosen arbitrarily. On the other hand, the independent variables of the model are relative prices. This simultaneous model is also dynamic' structure so that long tenn reactions to explanatory variables can be assessed. The model is implerrented using tine-series data at the national level, and the two-stage least squares technique of Zellner (1962). The estimated elasticities indicate that relative changes in fuel prices have significant effects in the short-and especially in the long_runs. The results also imply that petroleum and charcoal are tile most price responsive fuels. In order to forecast the future market shares, eight alternative pricing scenanos are developed. Although the forecasts vary depending on the assumptions used; we can conclude that bituminous coal and lignite will be substituted for petroleum, and petroleum share will continue to decline as long as its relative price continues to increase.