Turkish Electricity Emergence of a Traded Market

Turkish Electricity
Emergence of a Traded Market
Stuart Penson
London, 10 November 2011
London, Houston, Washington, New York, Portland, Calgary, Santiago, Singapore, Beijing, Tokyo,
Sydney, Dubai, Moscow, Astana, Kiev, Hamburg and Johannesburg
Themes
• Emergence of a traded market
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Drivers
Investment
Privatisation
Cross-border trade
• Role of Argus
– Price references
– Methodology
• Turkish power market today
– Price drivers
– Risks to market development
• Conclusions
An Emerging Market - Drivers
Investment
• “$100bn investment in electricity sector needed in next 15
years” – EPDK
• Requires increase in private sector and foreign investments
• 2003-2009 – 12.8GW of new capacity installed; 7.1GW by
private companies
• 7GW of new generation capacity expected to be
commissioned 2010-2013
• Still more capacity required to meet projected annual demand
growth of 6-7pc
Monthly Demand
(GWh)
Privatisation - Distribution
• Block sale of distribution companies previously owned by
TEDAS began in 2008. So far 14 distribution regions have
been sold.
• Distribution in 2011
– 7 companies were put out to tender at the end of 2010: AYEDAS,
Bogazici, Akdeniz, Gediz, Toroslar, Trakya, Dicle.
– One sale completed: Dicle in southeast Turkey.
– Two sales cancelled: Akdeniz and Gediz
– One regional company offered to third bidder with new deadline of
Dec 31 2011
– Three regions turned over to companies who had offered the third
highest bids in the initial tenders.
Privatisation - Generation
• Aim: to improve operational effectiveness and efficiency;
reduce energy costs; increase system reliability and quality of
electricity
• Limited capacity privatised so far
– Privatisation in 2008 of ADUAS energy assets (6 hydro-electric, one
geothermal, one diesel powered mobile station). Total installed
capacity= 141 MW. Won by Zorlu Enerji with US$510m bid
(US$3.62m/MW)
– Privatisation in 2010 of 52 Small run of the river Hydroelectric PPs,
grouped into 18 portfolios. Total installed capacity= 142MW. Tender
process completed with revenue of US$439.9million (US$3.10/MW)
Privatisation - Generation
• Four thermal power plants to be privatised initially on a
standalone basis (Hamitabat, Soma, Can and Seyitomer)
Installed capacity = 3227MW. Original aim was to complete
sales by end of 2011. Only Hamitabat auction has gone ahead,
but that was cancelled after only one bid received.
• Nine portfolios composed of 13 thermal and 28 hydro power
plants (between 356MW and 2,795 MW each). Three all
thermal portfolios, two mixed thermal/hydro portfolios and
four all Hydro portfolios. In total 16.2GW installed capacity.
Process will begin once the initial 4 thermal power plants
have been privatised.
Cross-border Trading
• Turkey’s grid connected with Entso-E in September 2010 for
year-long trial.
• Installed import capacity from Bulgaria and Greece is 8001,300MW; export capacity is 1,000-1,100MW.
• Commercial auctions (trial phase with limited capacities)
began in June 2011.
• Up to 500MW import capacity offered to market. No limit on
offered export capacities.
• Trial phase recently extended to Autumn 2012 to allow
further evaluation.
Cross-border Trading
• Volatile results
– Low levels of available capacity
• High demand for Bulgarian imports to Turkey … transit to
Greece …
• Greek export demand
– Supported by high prices in Greece, tax increase for gas generators
from October
– Low capacities on Bulgaria-Greece border leads to demand to transit
power via Turkey
Cross-border Trading
Cross-border Trading
• Good level of interest from domestic and international firms,
despite low capacities
• Auction winners and participants include:
Aegean Power, AGE Elektrik, Aksa, Alpiq, Altin Asri, Cengiz
Elektrik Cez, Edison Trading, EFT, EGL, Energa Power
Trading, Energo Pro, Enerjisa, Ezpada, Fina, Gen-I, GreenEnv,
Heron, Kartet Karadeniz, Neco Hellas, OET Elektrik, Park
Elektrik, PPC, Protergia, RE Power, Statkraft, Terna Energy,
Turcas, Unit Elektrik, Verbund, Voytron
Why Trade?
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Manage price risk – hedging in a competitive market
Efficient wholesale price discovery – consumer benefits
Price signals for investment
Efficient plant dispatch, optimisation
Proprietary trading, pure trading
The European experience……
Private Companies Must Trade Their Power
Output/Requirements
Bilateral contracts between private entities (MWh) – Source: EPDK
Market Development Gains Momentum
Trading Over-the-Counter
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Innovation, development of products
Counterparty relationships
Brokers
Bespoke structured deals
European power market 75% OTC
Price References
• PMUM
– Currently operates as a planning market. Load is estimated by the grid
operator and matched against generating units and costs to calculate
hourly prices.
– New day-ahead market from December will introduce demand side
bidding; provide a reference price more closely tied to fundamentals
• Turkdex/VOB
– Launched base load electricity contract in late September. Will be
settled against the PMUM day-ahead market. Uncertainty about launch
of day-ahead market may be holding back liquidity
• Price Reporting Agencies
About Argus
• The world largest independently-owned energy
market price reporting and market intelligence
service company
• Offices in London (Headquarters), Singapore,
Beijing, Tokyo, Dubai, Astana, Moscow,
Washington, Houston, plus 10 satellite offices
• Founded in 1970
• Today over 80 publications and services
• 300+ employees
• Private UK registered company held by founder’s
family and its employees
Role of Argus
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Trusted provider of impartial price references
Independent
Transparent methodology
Price references used by producers, consumers, traders,
investors governments, regulators
• Contract basis, mark-to-market, price verification
• Used for settlement of exchange-traded financial instruments,
swaps
Argus Methodology for Turkey
• Weekly (Thursday) survey of market participants – bids/offers
– Including Turkish, Greek, Bulgarian and international counterparties
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Telephone, email, instant messaging
Intelligent assessment of prices
Expert team of market reporters
Methodology available at:
http://www.argusmedia.com/Methodology
• Internal audits of reporting procedures, ensures strict
compliance with stated methodology
Argus Information Matrix
Market News and Analysis
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20 Oct 2011 Turkish power - November price slips but temperatures offer support
17 Oct 2011 Turkish thermal plant to start 600MW unit in December
17 Oct 2011 Turkey’s Akenerji secures financing for Erzin plant
13 Oct 2011 Turkish power – Day-ahead, November prices fall on rising supply
10 Oct 2011 Turkey’s Aksa adds 190MW unit to Antalya plant
06 Oct 2011 Turkish power – Forward prices rise on gas costs, winter outlook
04 Oct 2011 Turkey cancels power plant auction
03 Oct 2011 Turkey imposes gas price hike after 34-month hiatus
30 Sep 2011 Turkish power prices rise in fourth quarter
29 Sep 2011 Deadlines for Turkish power region bids extended
26 Sep 2011 Tender for Turkish gas-fired plant gets just one offer
26 Sep 2011 TurkDex launches base-load electricity futures contracts
23 Sep 2011 Greek TSO to hold daily auctions for capacity to Turkey
22 Sep 2011 Turkish power – Forward prices rise on firm spot market
20 Sep 2011 Turkey’s Zonguldak coal plant back to full operation
20 Sep 2011 Greek-Turkey power border costs higher for October
19 Sep 2011 Turkey-Europe power interconnection trial extended
16 Sep 2011 EBRD to fund clean energy in Turkey
16 Sep 2011 Norway’s Statkraft to build third Turkish hydro plant
15 Sep 2011 Turkish power – October rises on expected gas-price increase
15 Sep 2011 Turkish nuclear plant seeks licence
15 Sep 2011 Turkish power plant to start up in July 2012
14 Sep 2011 Turkish power market steps up lobbying on stamp duty
08 Sep 2011 Turkish spot power prices rise on supply cuts
08 Sep 2011 Turkish coal-fired plant expected to restart
06 Sep 2011 Turkish power up on gas supply problems
25 Aug 2011 Turkdex electricity exchange open to amendments
Argus Turkey Assessments
Weekly price assessments, analytical market
commentary and daily news for Turkey,
published in Argus European Electricity report
Argus Turkey Front-Month Base Load Assessment (TL/MWh)
Low PMUM weighs on
September
Outages and expectations of gas
price increase lift October
Argus Turkey Quarters and Year-Ahead Assessments
(TL/MWh)
Price Drivers – Short Term
• Weather
– Air con consumption drives summer peak. Sensitive to higher/lower
than average temperatures
• Hydro reserves
– 20-25pc of total generation from hydro
• Plant outages
– Sep 2011: PMUM spikes to over TL200/MWh as gas supply issues
force large units to cut generation; delayed restart of Zonguldak
600MW coal unit
PMUM Day Ahead and Gross Demand
PMUM Day-Ahead Average (TL/MWh)
Price Drivers – Longer Term
• PMUM day-ahead
What impact from PMUM switch to full day-ahead market?
• Gas prices
Gas prices for generators held flat for 34 months until ~14% increase October 1.
A similar rise in Q1/Q2?
• New capacity
Icdas’ 600MW coal plant due on line December. High efficiency will displace more
expensive generation.
• Retirement of older inefficient capacity
• Economic outlook
High growth rates for Turkey predicted, but demand growth will not be uniform
Demand Growth Stalling?
Risks to Market Development
• Stamp duty on transactions – Exemption for physical power?
• PMUM day-ahead market launch – delayed previously
• EUAS share of generation, unwinding of residual long-term
contracts
• Pace of privatisation
• Gas market – Long-term supply contracts, lack of advance
information on end-user price changes creates uncertainty in
forward power trading
• Foreign companies appetite for investment, trade, risk
• Financing – competing with European investment cycle
• Transparency of fundamental (generation/consumption) data
• Renewables – traded in the market or fixed price?
Conclusions
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Fast pace of development in last 12 months
Opportunities and challenges ahead
Need for reliable, independent forward price references
Argus fully committed to long-term coverage of Turkey and
the region
More information
Argus Electricity Desk Contacts:
Editor stuart.penson@argusmedia.com
Deputy editor alex.sands@argusmedia.com
Turkish market reporter ayca.rodop@argusmedia.com
CEE/SEE market reporter eleanor.green@argusmedia.com
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