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Turkish electricity market 'ready for new day-ahead bourse'

22 Nov 2011 18:13:52 | edem

Turkey's electricity market has entered the final lap towards the launch of a Day-ahead exchange that will recalibrate the sector's trading dynamics.

On 1 December, the current transitional Day-ahead for planning platform on PMUM, the local exchange, will become a fully fledged bourse, like Europe's EEX or Nordpool, according to a PMUM source.

The switch was expected in May, but had to be postponed because of issues related to the incorporation of a feed-in mechanism within the platform's new setup (see EDEM 14 April 2011).

Under the new arrangements, participants will have to adapt to a raft of changes that will range from a shift in the way bids are placed to the necessity to submit collateral guarantees by anyone interested in maintaining a presence on the exchange.

The PMUM source, who has been working on the transition to the new setup, said that trading will be portfolio-based rather than physical, from 1 December.

"Portfolio-based means that in the current state, market players are bidding based on generation and consumption," he said. "Under current circumstances, if you have two power plants you send two different bids. However, in [a] portfolio-based arrangement you send out just one set of bids for your [entire] portfolio. The market then receives all the information from market participants and sums them up," he added.

Based on those calculations which sum up all submitted bids and offers, PMUM will be able to issue a Day-ahead Baseload and Peak index that would constitute the reference price for the market.

From next month, market participants will be deterred from engaging in speculative activities between the balancing market and the day-ahead market as the new arrangements will discourage arbitrage opportunities.

Another addition to the Day-ahead market will be the introduction of the feed-in mechanism which will be incorporated in the overall setup of the exchange.

Under this mechanism, renewable generators who have chosen to opt into a fixed feed-in tariff next year will sell their production to the balancing market at a fixed price (see EDEM 25 October 2011). The current tariff for wind, hydro and geothermal generation is $0.073/KWh. This may include a $0.023/KWh bonus if local equipment is used.

A source active on the market said the current mechanism does not encourage producers of renewable generation to submit accurate forecasts for their generation.

"As things stand, the grid operator will simply tell producers eligible for feed-in tariffs to send in their production figures to it.

These figures will then be fine-tuned by TEIAS, the grid operator, and fed into the PMUM system, without applying imbalance costs to producers of renewable generation, the source said.

"What is the incentive there to work on a proper daily production? You can send whatever you like. Even if you predict 2MW of generation and at the end you produce 30MW there is nothing to avoid such a catch. Even for run-of-river generation, you need some sort of forecasts."

He added: "For the beginning, at least, producers, when they send the forecasts, should be required to keep it within a limit. There should be a 20-30% band, and people should be within that band. There will be deviations but if you are still within that band, you don't pay anything," he added.

The switch to the new market arrangements could also cause a drop in active market participants.

All players interested in remaining active on the bourse will be required to submit a collateral guarantee that would amount to a minimum Turkish lira 200,000 (€80,422)

Depending on the company's exposure to the Day-ahead market, this sum may be increased.

The regulations will require prospective traders to prove that at least 50% of the sum is held in cash, a maximum of 25% is held in bank guarantees, while the rest can be provided in domestic bonds.

Due to the new requirements, no more than 40-50 trading companies are expected to remain active on PMUM, compared with the current estimated 150 entities. AS

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