Turkey, Bulgaria mull spot electricity day-ahead market coupling

LONDON (ICIS)–Turkey is mulling market coupling opportunities for electricity day-ahead trading with Bulgaria, as well as offering support for the development of an organised gas market in the Balkan country. However, there are still challenges on both sides that may hamper the coupling of the two markets.

Representatives of the Turkish energy exchange EPIAS and the Bulgarian counterpart IBEX also discussed this week a possible collaboration for the development of an organised spot market for gas trading and the development of software solutions for the centralised market for bilateral contracts in Bulgaria.

Bulgaria, in turn, has been taking steps to couple its day-ahead electricity market with that of the Former Yugoslav Republic of Macedonia (FYROM), possibly as early as Q2 ’19.

A comparison of Turkish and Bulgarian spot prices since the beginning of 2018 shows that day-ahead values have correlated for most of the period, although Bulgarian delivery prices remain generally volatile.

Bulgarian spot prices have been settling at a significant premium over their Turkish counterpart in the first two months of the year. However, the spread has since reversed, with Turkish spot prices delivering higher, largely on the back of widespread outages and lower hydro production.

The volatility of the Bulgarian market is linked to low competition on the sale side. This means that prices tend to be erratic and the market lacks sufficient depth to reflect fundamental drivers.

Even with the a new raft of proposed amendments to the energy law due to come into force this year, the Bulgarian day-ahead electricity market may still remain unpredictable because in a first phase the incumbent NEK will be reselling renewable output on IBEX.

Furthermore, once renewable producers have the option to sell their generation by themselves, it is likely that they would do so by the balancing market group coordinator to save trading costs.

On the Turkish side, the market would have to align with Bulgaria with regards to time. Turkey has decided to retain the daylight saving time in winter which means that the country remains one hour ahead of Bulgaria for six months of the year. This is likely to create a mismatch between the two countries.

Apart from the electricity day-ahead market coupling project, Turkey is also looking to support Bulgaria to develop an organised spot market for gas trading.

Turkey will be launching its own organised spot market for gas trading on the exchange EPIAS from 1 September. Nevertheless, the Turkish gas market itself has been severely hit by constant political intervention in recent years. This means that most Turkish companies remain sceptical about the success of the Turkish gas market as long as political intervention persists.