Soma underground mine disaster which took place on 13th May 2014 was the highest human life loss accident in the last 40-years around the world. It is for sure that the accident was occurred due to poor security measures, and priorities given to coal production rather than security norms which are to be upgraded to the level of world standards. Soma disaster stemmed from imprudence.
Your writer believes that local coal is the solution to the ever increasing energy demand in the local market. The high quality coal produced from underground mining is not burned in our local thermal power plants. Rich coal is used in the industry, mainly in iron and steel mills. Our local thermal power plants use the nearby local open-pit poor quality lignites, which can not be utilized elsewhere.
Coal is accused to be the “death trap” as source of energy, and we get evaluations that we should move away from coal to other sources. That is an incorrect statement. Local coal is a blessing of this country and it is to be utilized to the least extend in order to get free from imported fuel coal-gas, to reduce current account deficient (CAD), to increase the level of supply security. Hydro, wind, solar energies are not alternative but supporting sources in energy generation.
Today we will cover the latest developments in the local electricity market.
In year 2002, with an amendment to the Energy law, political authority chose to reduce the role of public enterprises in energy generation. Priority was given to the private sector to invest and to build new power plants. Nowadays, we can not say that we have created a free market in energy sector, but we observe that we have reached a certain level in transition.
In liberalization process of markets for use of natural gas in electricity market, our national pipeline company signed the first purchase agreement contract for gas sales and purchase from Russian Gasprom company in year 1984.
Then LNG purchase agreement signed with Algeria. In the next period, public and private companies have created several gas purchase agreements for expanded use of gas volume in the local market, for household heating as well as electricity generation.
In the electricity market, in year 1984 public energy company is divided into generation (TEAS) and distribution (TEDAS) as the first step taken towards market liberalization.
In 1994, we had power plants investments in accordance with Build- Operate- Transfer (BOT) model. Similarly we initiated new power plants to Build-Own- Operate (BOO) to start installation.
EMRA (Energy Markets Regulatory Agency) was established in 2001. TEAS was divided into three companies namely EÜAŞ (generation), TEİAŞ (transmission), TETAŞ (trade). We have created “free consumer” concept, who is given right to choose electricity from any supplier suitable for its requirements.
Financial settlement method passed in year 2003. After the 2006 crisis we experienced electricity balancing and settlement method. The hourly day-ahead planning was provided in year 2010 for transition of the free market pricing.
We had experienced shortage of outsourced supply of natural gas in cold winter months, and faced with price hikes, trapped with no negotiation capability.
Problems for “the intra-day market” will be overcome with the transition to the market called forward. Preliminary work is completed within the intraday market, through new entity EPİAŞ, by the end of 2014 as planned.
Our total installed output energy generation capacity has reached to about 65,000 MW within last 10 years, that has increased in three-fold. Share of the private sector, has passed the share of public electricity generation share.
Total installed capacity of natural gas fired CCPP’s, and imported coal fired conventional power plants started to hold an important share. Natural gas fired combined cycle power plants which were built in Build-Opera and Build-Operate-Transfer contracts, will come to an end in purchase agreements. Then we come to expect new movement in the markets.
With installation of increasing number of wind power plants, Turkey is now ranks 10th in installed wind power in Europe. By 2023, we have a target to reach to 20,000 MW of installed wind electricity capacity, which is unlikely to happen. We hope that by acceleration of regulation process in front licensing and releasing new wind energy permits, we can provide more wind power generation. Moreover wind and solar power companies will be able to provide additional income through carbon markets.
Turkey’s energy consumption had increased by 7% per year on year last 10-years and hence it has doubled its output capacity. Investors has gained market experience in terms of growth forecast which is very important in terms of new investment initiatives. BO and BOT power plants have long-term power purchase agreements to sell electricity to public trading company (TETAŞ). EÜAŞ (public generation company) and other free power generation companies, have bilateral agreements or through the spot market to sell to end consumers.
Public Trade company (TETAS) sell electricity in national tariff to Distribution and Retail selling companies to reach to the end consumers.
Electricity produced from renewable energy sources, have guaranteed purchase prices, which can be sold to retail companies by benefiting at premium price.
The available electricity in the local market is sold through the Day-Ahead Market and Balancing Power Market procedures. Balancing Market has transparency problem in the current situation. We observe that the existing structure amenable to manipulation. Market openness / transparency, are at low rate. In the years ahead, market shares of EÜAŞ (public generation) and TETAŞ will be decreased. BO–BOT power plant shares will be reduced. The market players will be able to move more of a free competitive structure.
We expect that through Istanbul Stock Exchange, and its private partnership with “EPİAŞ (public)”, along with intra-day market, as well as integration of financial markets, we shall have a better transparent structure.
Over the Counter, (OTC) market is classified as bilateral contract market in Turkey, which works in a more limited capacity and for short periods of time. Agreements are subject to stamp duty. There are small number of participants, intermediaries are unique. In the coming years we hope to increase the number both exhibitors and intermediaries.
In our country, we have a narrow volume of “energy exchange” market. We hope that “Istanbul Stock Exchange” will have more volume in energy interactions and expect to be an active market in future. There are active 21 electricity distribution companies, which are expected to be transferred into retail sales process.
Instead of the current national tariff which varies according to the supply point, we hope to adopt a regional price method which would be aimed at resetting the eligible consumer limit to zero.
In natural gas market, we have state monopoly completely controlled by (BOTAŞ) on imports, transmission and marketing. Similar to unbundling in the electricity market, so we expect to have the same unbundling in the natural gas market.
Most of the import is carried out only by BOTAS. BOTAS’s market share should decrease in the coming years.
We are experiencing difficulties due to low supply security of natural gas in storage volume. In order to have better supply security, our public authority introduced new investment plan for new pipelines from Northern Iraq and new offshore gas regions of Israel- Cyprus , introduced new LNG terminal in Izmir, and increase storage capacity of Northern Marmara, invested in underground gas storage in the Salk Lake.
Our electricity market works with the price of basic energy input by each market participant’s hourly basis, working with cost-based bidding procedure. Via bilateral agreements or YEKDEM (renewable energy incentive procedure), the electrical energy generated is transferred to the system. Private plants do not bid on the balancing market, but they declare the deals amount and the estimated production they are transmitting to the system. The total amount of the bids received and the total production demand forecast are made at the point where the marginal price the-day-before is reached.
Final Price to the end consumer is then created by adding the cost of the Loss-theft energy, Distribution Cost, Delivery Cost, TRT (Turkish Radio Television) Share, Meter reading costs, Value Added Tax and additional fees such as energy consumption taxes. TRT share still has ongoing criticisms. Priority in electricity trading is in production optimization and fuel supply security.
In which market, the electricity will be sold in the market, and at what price, at which the time interval, are the questions to follow the supply security.
Consumption portfolio should be kept broad, as well as the production portfolio, their availability should be provided with sufficient flexibility.
In the short-term planning, demand forecasting and plant reliability gain importance. In the medium-term planning, long-term profitability analysis in the bilateral agreements are to be in the realization of demand forecasts. In the longer-term planning, investment objectives should include determination of the final amount of consumer demand.
Number of Supply companies in Turkey are too many. The number of companies in a competitive market is too essential. Compared with samples of the number of suppliers in Europe, we observe that less number of operations is better for more healthy market. We hope that this number will decrease over time. In the long term, EÜAŞ and TETAŞ purchase contracts will end.
In the long term, tariffs will be lifted.
EMRA’s market support will be reduced.
Retail players will have more freedom than a dominant position in the competitive market of the future. End users will hopefully receive cheaper and more reliable electricity.