High Turkish Q2 prices may indicate electricity supply shortages
Turkey faces a looming electricity generation shortage as the supply-demand gap is widening forcing prices upwards, market participants said.
Average spot values on the PMUM power exchange have been volatile since the beginning of the year, reaching a record Turkish lira (TL) 2,000/MWh at the beginning of February, mainly because of critical gas shortages (see EDEM 13 February 2012).
At the same time, Q2 '12 prices, which tend to remain depressed because of low consumption and healthy hydro generation during spring, have been gaining ground. The PMUM average for April this year was pegged at TL112.55/MWh, TL25.72/MWh above last year's average and TL3.26/MWh above the values seen in 2010 (see graph).
Furthermore, the first 11 days of May have outturned at an average TL140.00/MWh, a TL44.00/MWh premium on a similar period last year.
One participant was keen to point out this year's PMUM price averages cannot be compared with last year's as the exchange underwent important changes at the beginning of December. Dispatch rules and the way prices are calculated have changed (see EDEM 22 November 2011).
Price estimates for bilateral agreements by ICIS covering the periods Q2 '11, Q2 '12 and Q2 '13 Baseload, which have been published on a weekly basis since March 2011 when ICIS began assessing Turkish over-the-counter products, also show the price rise (see graph).
However, one difficulty was the assessments were fragmented, rather than comprehensive as Q2 '11 was only assessed for about one month, Q2 '12 Baseload was assessed for 50 weeks and is now delivered, while estimates for Q2 '13 Baseload have only just started. But it is interesting to note the assessments of last year's and this year's Q2 contracts opened on an initially bullish note and followed an incremental upward trend in the first weeks of assessments.
Turkey is looking to double its installed capacity to 90GW in order to respond to soaring consumption that is set to increase within the next 10 years to nearly 400TWh from 209TWh (see EDEM 1 March 2012).
It is too early to conclude from the comparative data that Turkey faces a supply shortage, even with the amount of new generation gradually coming on line. However, some participants were keen to point out two fundamental factors.
Firstly, prices on the balancing market have been outturning at a premium to the Day-ahead market on four days since the beginning of the month and were flat to the Day-ahead market on three.
The biggest spread was seen on 9 May when the Balancing market outturned at TL170.50/MWh, a TL29.55/MWh premium to the Day-ahead market.
Secondly, May consumption increased by 15% to a daily average of 633,000MWh since the beginning of May, compared with May 2011. Meanwhile, public and private generation remains stable compared with last year's values.
For example, the incumbent EÜAŞ's production increased to 20.3GW in 2012 from 19GW in 2011, while private generators inched up to 8GW this year from 7.3GW last year, according to transmission system operator TEIAŞ.
"Of course, one has to take in consideration the fact that May is generally the season for maintenance and a lot of capacity is switched off," a source said. "However, we have had pretty good hydro levels in April and there should be enough hydro generation in May to depress prices. The fact that the balancing market has been at a premium to the Day-ahead market and that the supply-demand ratio is widening indicates that we might expect a generation shortage soon."
A second participant was keen to stress current prices were factoring in a recent 20% increase in natural gas prices, which became effective on 1 April and was expected to lift electricity prices by an average 10%.
Nevertheless, he admitted that Q2 prices are historically low because of the healthy hydro generation and therefore May delivery prices on PMUM have so far "proved surprising".
A third source argued that May prices may be higher than expected, because, contrary to expectations, hydro generators may not be using the water in reservoirs as they are bracing themselves for even higher prices in July.
"I guess people are expecting a new round of gas price increases in July and prefer to hold on to their generation until then so they can sell even higher than now," the third interviewed source said.
While analysed figures and sources' opinions explain only parts of a larger story. Turkey remains a growing economy and is expected to experience a 7% annual growth in power demand in the medium to long run. AS
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