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'Fair' ENTSO-E electricity auctions should apply to all Turkish borders - source

16 Nov 2012 17:42:45 | edem


The transparent cross-border auction system that applies to Turkey's electricity flows to and from the European grid should be replicated on all its borders in order to whip up domestic as well as regional liquidity, a senior specialist told ICIS.

As Turkey prepares to start 350MW flows with neighbouring Georgia from next year, as well as increase its exchanges with Iran, Iraq, Syria, Dragon Energy Consulting senior consultant and cross-border specialist Yener Tezyener told ICIS that the system adopted by the Turkish grid operator TEIAŞ on the Bulgarian and Greek border should be adopted on all borders to create a fair, liquid regional market.

Turkey connected its transmission grid to the European system UCTE in September 2010 and has been engaging in restricted commercial exchanges with Greece and Bulgaria since June 2011 (see EDEM 20 September 2010).

New border capacity

The available capacity on the border is currently limited to 266MW with Bulgaria and 134MW with Greece as the flows are still carried out in a testing environment, but cross-border trading interest has increased in recent months.

"Thanks to this new capacity available on the borders, trading on the bilateral and OTC [over-the-counter] markets in Turkey has come alive," Tezyener said.

"An estimated 100-150MW are added to the market every month, and once the trial stage is completed, we shall have yearly auctions and even more capacity," he explained.

Thanks to a system of cross-subsidies, the Turkish electricity market is still regulated, with only approximately one-third of the generated electricity being traded on the free market.

For that reason, any additional volumes help to increase liquidity. This is best reflected in the development of the OTC market where liquidity has been picking up since the first deal in May 2012 (see EDEM 17 May 2012).

Turkish grid operator TEIAŞ and European transmission system operator (TSO) group ENTSO-E expect the trial phase to finish by September 2013, when the capacity on the border is set to increase.

Additional interest

Nonetheless, even under current circumstances the number of companies active in this field has risen. For example, there are currently an average 10 firms buying and selling every month from Bulgaria, the most active border, compared to three in June 2011 when the commercial exchanges started.

Tezyener said the reverse flows also have a positive impact on the region as Turkey's energy hunger drives demand. Local consumption is set to increase by an average 7% annually through to 2023.

"Of course, countries will have to direct more energy to Turkey, which means that more capacity will have to be built across the region to respond to demand," he said.

Financial risks

Tezyener said the need for cross-border flows is so great that despite the taxes on electricity exports from Bulgaria that Turkish companies have to pay when exporting energy, the profit is still appealing.

Bulgaria operates a €17.52/MWh levy that effectively acts as a tax on electricity exports. Even so, the discount to the latest Turkish market on the December Baseload product was assessed at €14.66/MWh on Thursday, while Greek December prices were assessed at a €19.68/MWh discount to the equivalent Turkish contract.

Tezyener conceded that Greece's current financial woes were concerning to Turkish companies interested in the border.

"The payment collection by [Greek grid operator] HTSO is seen as some risk by Turkish companies who would like to export to Greece. However, there are a few Turkish companies who ask European counterparties to take that risk from them by paying them a commission fee," he said.

He stressed however that HTSO had made the necessary payments since the flows started last year.

Nevertheless, Tezyener said, one of the greatest risks that traders face stem from exchange rate fluctuations, as the capacity bought in the European system is paid for in euros, but the energy imported into Turkey is sold in Turkish lira. The Turkish currency tends to be very volatile. Nevertheless, the government has sought to stabilise the fluctuations through a series of measures undertaken in recent months.

"Some companies opt to make a contract with a bank to buy currency at a certain forward rate to hedge their risk," he explained.

Auction system changes

Tezyener said when the auctions were launched last year, TEIAŞ was charging transmission fees for the imported energy for the full month even if those volumes were delivered on less than 31 days.

However, he said the grid operator has now reviewed the requirement so that companies would pay only for the delivered amounts rather than for a fixed period.

He praised TEIAŞ for "doing a very good job" in offering a transparent auctions platform and meeting payment deadlines. "This [auctions] system is very good and fair and it should apply to all borders," he said.

Additional borders

Turkey and Georgia are expected to start commercial cross-border flows by early next year, with 350MW available on the 400kV line linking Akhaltsikhe in Georgia to Borçka in Turkey. The capacity could be increased to as much as 700MW by the summer of 2013, when a second 350MW back-to-back block is switched on, a source at TEIAŞ told ICIS in an earlier interview (see EDEM 22 June 2012).

Georgia has a total installed capacity of just under 3.3GW, relying mostly on hydro generation, and sources say wholesale electricity prices can be as low as €30.00/MWh during the wet season. It is not yet clear whether the capacity will be auctioned off or sold under long-term contracts.

TEIAŞ said it had upgraded a line between Başkale in southeastern Turkey to Khoy in northwestern Iran from 230kV to 400kV. The capacity is scaleable, which means that Turkey can import 200MW in spring and autumn, 300MW in the summer and 400MW in winter. TEIAŞ is expecting to build a back-to-back station by 2015, which would allow reverse flows between the two countries (see EDEM 20 July 2012).

Longer-term plans

The Syrian border could also offer appealing opportunities although this appears more of a long-term project given the current political unrest in the country. Aksa Elektrik Toptan Satış has reportedly resumed exporting to Syria from its gas-fired unit in southeastern Turkey after the flows were interrupted in October (see EDEM 11 October 2012). However, the information and the volumes could not be confirmed as ICIS went to press.

There are plans to establish reverse flows of up to 800MW between Turkey and the Kurdistan Region of Iraq within a decade. Further afield countries such as Azerbaijan or Saudi Arabia have also expressed an interest in flowing power to and from Turkey via intermediary grids (see EDEM 15 October 2012).

As Turkey expects to build up to 45GW of generation within a decade, depending heavily on expensive imported gas or new nuclear generation, a large pool of imported electricity from European and non-European systems could help it to plug the demand-supply gap more efficiently, Tezyener said. AS

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