TURKISH MARKET: CHALLENGES & OPPORTUNITIES Anduvap Servet AKGÜN MD, Statkraft Trading Ltd.,Türkiye Regional Electricity Trading Conference, Tbilisi, November 2012
AGENDA 1 2 3 Trade Drivers - Market and the Players - Best Practices Current Status of the Market - Balancing Market to Spot Exchange - OTC Trading, Standard Contracts, Derivatives Outlook - Interconnecting Turkey - Policy Recommendations - SWOT 2
Statkraft Sweden Installed capacity 16 600 MW Power production 52 TWh/year 90% renewable energy 3400 employees Norway Finland Nepal Turkey Laos UK Philippines Germany India Peru Brazil Sri Lanka STATKRAFT SN POWER AGUA IMARA Chile Zambia
Trade Drivers The Playground - Organized Exchanges (Spot, Futures, etc.) - Over the Counter Markets (OTC) - Traditional Bilateral Trading The Players - Traders (Position Taking, Hedging, Pure Speculation) - Generators - Suppliers - Large Industrial Companies - even the Grid Operators 4
Trade Drivers The Game 5
Trade Drivers Well-functioning trading platforms: - Bring diversity of supply and demand to the market - Accelerate the liquidity by attracting more players - Provide transparency - Serve as a trustworthy counterparty for every participant - Create reliable price reference / signals But, how? - Keywords : Transparency & Credibility 6
Trading_Best Practices 7
Trading_Best Practices 8
Trading_Best Practices 90 80 70 60 50 40 30 20 10 0 EPEX FR Day Ahead vs. Imbalance Prices 01.09.11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 System Buy price System Sell Price Day Ahead price 9
Trading_Back to the Playground 2011 OTC and EEX Volumes in France and Germany 15% 3% 82% EEX Fwds OTC DE+FR Epex spot - Over the Counter Trading dominates the European Power Markets - OTC + Clearing is the most preffered option for the Traders 10
Current Status_Turkey What we have today? - An operational day ahead market since 12/2011 - Lack of a reliable reference price, PMUM index is hard to explain fundamentally - Market failures on the imbalance market (balancing power market) - Retail power sales by wholesale trading companies; eligible sales business - Tariffs, EUAS contracts with DisCos and exclusive contracts (BOT, TOR etc.) as illiquidity factors - Lack of regulatory framework to kick-off OTC trading (supervisory body, reporting etc.) - However... The Spirit is there! 11
Turkish OTC Screens 12
Issues Product definition and standardization, CZ OTC market example Stamp Tax; 0,0825% of each deal! Counterparty base ; EFET agreements, risk management a clearing solution maybe more red quotes than pink ones What to trade on? Lack of fundamental data, REMIT approach, Bid/Offer Curves Removal of additional costs from trading activities; grid fees, export/import fees Still quite low ATCs on the Turkish-Greek-Bulgarian borders and only monthly auctions 13
Outlook Amendments on the Electricity Market Law; stamp tax exemption, brokerage licences Establishment of an independent / private Market Operator (EPIAS), MoU with EEX The first Turkish EFET standard contracts have been signed, quite a number of companies to follow As soon as the Stamp Tax related issues are resolved and the regulatory framework is set, OTC market will speed up Intorduction of Intraday Market and maybe adjustments for the Imbalance Coefficients 14
Outlook Accelerated integration on the borders The Transparency Platform / Initiative Congestion Management - Market Splitting (mid-term) / Market Coupling (long-term) / or both? Ancillary Services; fair/transparent compensation and market spirit YEKDEM (Ren. Energy. Sales Mech.), negative prices soon maybe? Further development of OTC Markets, Future / Forward Contracts, Exchanges in search of Reference Prices 15
Policy Recommendations Turkey, with its vast potential of natural resources, granted superb location and attractive power market, has the chance to lead the regional power market - In order to achieve this: Turkish power market has to ensure the power supply balance by encouraging the existing/potential investments and well aligned policies between the governing bodies Turkey has to set the cross-border policies as a part of national electricity strategies in combination with sound capacity allocation designs- in line with EU directives private sector might be encouraged to invest in interconnectors 16
Policy Recommendations market design should be revised so as to create healthy reference prices. Market players should be able to trade/hedge the uncertainties via well functioning OTC markets and independent futures/derivatives exchanges the regulatory framework has to be improved in a reasonable time period in order to accelerate the positive developments congestion management tools to be preferred and to be publicized to eliminate the uncertainties, e.g. Re-dispatching, market splitting, market coupling 17
Interconnecting Turkey Superb location as a potential cross-continental power trading hub 18 Sep. 2011 ENTSO-E approved the trial flows 1 June 2011 Commercial Flows started with limited capacity X-Border flows; not only for the exchange of power but also for the exchange of the know-how and experiences 18
Interconnecting Turkey Interconnection Projects in the Pipeline: Black Sea Regional Transmission System - Two synchronious zones: West (Romania, Turkey, Bulgaria /ENTSO-E), East (Ukraine, Russia, Moldova, Georgia, Armenia, Azerbaijan) - Est. Completion by 2015 19
Interconnecting Turkey 20
To conclude... Strengths & Opportunities Sustainable and continuously growing consumption & population Continious liberalization Privatizations Existence of a running spot market Increasing volume at OTC/Bilateral platforms Government support on the free market Attractive price levels as compared to many EU markets 21
To conclude... Threats: Lack of transparency Data unavailability State domination Not foreseen spot prices Unavailability of energy exchange Dynamic regulations Dependency on natural gas prices and its availability Lack of standardization 22
THANK YOU Anduvap Servet Akgün servet.akgun@statkraft.com www.statkraft.com