©ICIS HEREN - Power-hungry Turkey set to change SEE market dynamics
Large-scale developments in the Turkish power sector look set to reconfigure the dynamics of the southeast European market and potentially push regional power prices up by an average €5.00/MWh, analysts have warned. With a soaring economic growth, Turkish annual power demand is expected to double to 499TWh by 2020. To match the rise in consumption, the country is seeking to double its production to 96GW over the same period. The new capacity will come from a variety of sources: private investments, which include plans for an estimated 12 GW of coal and gas-fired production, an estimated 10GW of nuclear capacity and multiple projects in the renewables sector. But even with the new capacity coming online in the short run, Turkey will have to plug the gaping shortfall by importing power from southeastern Europe. Earlier this month, the European Network of Transmission System Operators for Electricity (ENTSO-E) said Turkey was to start flowing power to the synchronous area of mainland Europe as part of a one-year period (see EDEM 7 June 2010). Sources estimated a 500-800MW maximum volume could start flowing from Turkey into neighbouring Bulgaria when the two existing 400KV lines become functional in mid-September. In exchange, Turkey is considering buying "thousands of megawatts of capacity" from Bulgaria, and possibly Romania, Greece and Serbia once the lines become commercially operational a month later. "How the synchronisation of Turkey to ENTSO-E will affect electricity prices in Central Europe depends on how Turkey will optimise the Bulgarian/Greece borders," Jozsef Balogh, an energy specialist and former trader, told ICIS Heren. "One theory is that the country will buy cheap nuclear electricity from Bulgaria. This Turkish import will divert Bulgarian electricity from the Serbian and Romanian borders, and prices in Central Europe will go up," he explained. In return, Turkey is expecting to export cheap peak electricity, unfettered by costly carbon caps slapped on EU countries. "Turkey [a non-EU country] has no carbon costs at the moment, so the power will potentially be cheaper," said Ebru Kurum, a Turkish power specialist at Pöyry Energy Consulting. "During the peak periods, this will come in handy," she added. Traders active in Bulgaria have been sceptical regarding the market opening, claiming that existing export fees charged by the local grid operator could deter traders from buying capacity from Bulgaria. But analysts say, even with the current penalties recently raised by the Bulgarian regulator to €10.70/MWh, it would make commercial sense to flow power into Turkey. Plamen Popov, managing director at Statkraft Bulgaria, believes that regional prices, currently hovering in the €40.00-50.00/MWh range including the export fees, could gain another €5.00/MWh once Turkey begins absorbing capacity from southeast Europe. "It is difficult to say whether prices will be affected west of Hungary," Popov said. "There is no experience, no statistics, no history to make any judgements. What could be affected, however, is the direction in which southeastern countries will flow power." "Romania, Greece and Serbia might consider [flowing power to] Turkey, rather than central and western Europe. But this is a matter to be seen after October," Popov added. Balogh said traders are yet to understand how the arrival of a power-guzzling player like Turkey will affect the regional market. "People don't realise that the bulk of the consumption is in the European part of Turkey, around Istanbul. They have gas-fired capacity in the west and hydro-capacity in the east. After 18 September, the western part will have the potential to import from Bulgaria and Greece. With gas prices expected to go up, Turkey will increasingly look at Romania, Bulgaria and Greece to replace gas-generated electricity. As a result, the value of Bulgarian peaking power station projects like Haskovo [a 130MW gas-fired power plant] will go up sharply after 18 September," Balogh pointed out. Turkey is paving the way towards a liberalised electricity market where the state acts only as a supervisory authority, rather than as an investor in the market. To achieve this goal, the country is privatising large swathes of the power sector. Turkey's distribution grid was divided into 21 regions and 20 of these were put up for sale. More than 50 hydro power plants were divested last month and could be followed by a further 16GW of generating capacity - including natural gas, coal and lignite-fired power stations. On a separate level, Turkey is looking to develop an independent spot market, which would be split from the balancing market and where prices respond to the needs of the power sector. Currently licensed companies can strike bilateral energy purchase agreements between themselves or with third parties. Electricity prices, sales conditions and agreement periods can be determined freely in those agreements, according to a study published by Mehmet Gün & Partners, a Turkish consultancy. Last year, 88% of the entire market was tied up in bilateral contracts (146,010GWh). The spot market made up the rest, with volumes estimated at 20,090GWh, according to data released by Fina Enerji, one of the fastest-growing power trading companies in Turkey. Day-ahead and intra-day markets are currently run by the system operator, TEIAŞ, and there are around 350 dealers, according to Fina Enerji. PMUM, the centre for financial settlement in the market, is responsible for the day-ahead balancing and for determining the day-ahead price based on collected offers from participants. This is set to change in January next year, when the new liberalised market is expected to follow the decentralised structure of the UK, but most analysts are wary to second-guess how that will play out. "It is difficult to say how the spot market will behave once it is split from the balancing market," said Popov. "Generally, once you split the two, the prices of the two segments will go in opposite directions. The spot will become bearish and the balancing markets tends to get bullish to make up for the imbalances created," he explained. Ozan Karaduman, associate in the energy law department at Mehmet Gün & Partners, said that Turkey would have to rejig its energy laws to respond to the emerging renewables sector before it could become fully liberalised. He said renewable power prices are currently €0.05/KWh lower than those in the free market. The government is considering a new proposal that could raise the renewable price to up to €0.25/KWh, but it is unlikely ministers will settle for such a sharp increase, according to Karaduman. Something else that could put wind in Turkey's sails is Bulgaria's recent U-turn on a raft of energy projects, including the 2GW Belene nuclear power plant. Last week, the government said it would freeze the project indefinitely, though it signalled this week it might back-track on this pledge. Former economy minister Petar Dimitrov told the local press that Bulgaria's failure to go ahead with the Belene project would boost Turkey's plans for a Russian-backed 4.8GW plant on the Black Sea coast. With an economic growth of 5% predicted for 2011 by Merrill Lynch, stable credit ratings and a privatisation and investment programme in full swing, Turkey is expected to stamp its mark on the regional power sector in the short, as well as long run. (THE ICIS HEREN REPORTS - EDEM 14.116 / 18 June 2010)

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