TURKISH MARKET: CHALLENGES & OPPORTUNITIES

Anduvap Servet AKGÜN

MD, Statkraft Trading Ltd.,Türkiye

Regional Electricity Trading Conference,

Tbilisi, November 2012

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Outlook

- Interconnecting

Turkey

- Policy

Recommendations

- SWOT

Current Status of

the Market

- Balancing

Market to Spot

Exchange

- OTC Trading,

Standard

Contracts,

Derivatives

Trade Drivers

- Market and the

Players

- Best Practices

AGENDA

Norway

Sweden

Finland

UK

Germany

Turkey

Brazil

Peru

Chile

India

Zambia

Sri Lanka

Nepal

Laos

Philippines

Statkraft

AGUA IMARA

SN POWER

STATKRAFT

Installed capacity

16 600 MW

90% renewable energy

3400

employees

Power production

52 TWh/year

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

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Trade Drivers

The Game

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Trade Drivers

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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

Trading_Best Practices

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Trading_Best Practices

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Trading_Best Practices

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EPEX FR Day Ahead vs. Imbalance Prices – 01.09.11

System Buy price System Sell Price Day Ahead price

- Over the Counter Trading dominates the European Power Markets

- OTC + Clearing is the most preffered option for the Traders

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Trading_Back to the Playground

15% 3%

82%

2011 OTC and EEX Volumes in France and Germany

EEX Fwds Epex spot

OTC DE+FR

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!

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Turkish OTC Screens

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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

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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

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Outlook

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

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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

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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

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Policy Recommendations

Superb location as a potential cross-continental power trading hub

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•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

Interconnecting Turkey

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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

Interconnecting Turkey

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Interconnecting Turkey

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

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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

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www.statkraft.com

THANK YOU

Anduvap Servet Akgün

servet.akgun@statkraft.com