Turkey needs to improve market mechanisms for fully liberalization

17 Oca

The 16th Energy Arena, which was held in Istanbul on September 10, hosted interactive sessions where the recommendations for the solutions to the market originated problems were discussed by the panellists.

(Enerji IQ – 10 Sept. 2015) Problems, experienced by the traders in the electricity market was discussed by the senior executives of the sector at the 16th Energy Arena, held in Istanbul on September 10. Panellist also highlighted their recommendations for the solutions of the market originated problems.

Enerji IQ has compiled the eye catching statements made at these sessions:

Anduvap Servet Akgün, Managing Director of Statkraft Trade

‘We do not have any chance to stand in the way of market mechanisms’

  • We do not have any chance to stand in the way of market mechanisms… Support and patch-ups can cover certain things up, but if the realities of the market are present, no one has the chance to stand in their way. And I believe that next year will be an important experience in terms of moving us nearer to these realities.
  • Installed capacity in Turkey has increased by 30% between July 2012 and July 2015. The generation of electricity has increased by 7.5% during the same period. A high amount of renewable capacity has also entered the system during this period. This year rainfall was a little higher than average and prices fell by 35%. While we talk about liberalisation and the free market, we also need to stand behind such times. That is because, this is in actual fact, an “invisible hand”. This is a structure which will correct itself, but if during these times we attempt to get interference in the system through the “Hand of God” – with the famous words of Maradona – instead of the “invisible hand”, we will not be able to obtain any lessons from this at all. If we are people who hold free market views, we need to say this.
  • Capacity mechanisms are also a very lengthy matter for debate in Europe. For a very long time, the industry lobbies in certain countries have been arguing that these need to be established and become more widespread. However, many countries are not keen on this. There are some countries where this will begin around 2017-2018. Thus, a cover up is not a solution to “bail out” some sectors because certain wrong decisions have been taken today. This is something which the market will solve within itself. The market has instruments for this. The name of some of these is consolidation, and the name of some others is changes in the value chains.
  • In fact, one other convergence in our integration with Europe will be the changes in the value chains. Today, we are talking about a wind capacity above 4,000 MW and we are sensing the effect of this on prices. My personal guess is that we will have 1,500-2,000 MW of solar capacity within two years. These will bring us new business models. The biggest agenda in Europe at the moment is the change in the value chain. New activities arise in the parts of the value chain which have been divided – like, for instance, virtual plants…
  • There is a trade of approximately 500 MW on the border with Bulgaria and 200 MW on the border with Greece. This is nowhere near enough but I expect it to rise gradually. Such a low capacity has shown us something important – the cross border trade has consisted more of ‘information transfer’ than of MWs.
  • We need to look at events optimistically and remain calm. These things will happen and when they do we need to remain calm. Transparency is the main element – the principle – of this. If we do not make communication transparent, realise our policies in transparency and share information transparently, we will lose our reliability.

I will finish my speech with highlighting two figures:

33,000 MW: The PV panel capacity produced in China in one year… This capacity will be set up somewhere in the world and will be connected to the system in some way. This is the equivalent of almost 30 nuclear plant units…

Zero: This is the forecast of analysts in respect of the EBITDA to be obtained by the conventional utilities from conventional operations in 2030. That means the world of utilities is finished…

Selim Güven, the Deputy Managing Director of Akenerji Trade

‘Tariffs should not be allowed to constitute a hurdle in front of the markets becoming free’

  • Everything started well, but we are now experiencing a blockage. We need to rediscover the spirit of the period when the market began to liberalise, in order to be able to overcome this.
  • The entry of the private sector into the market in energy and the establishment of competition has been achieved. Some mechanisms need to be operated until the market reaches a certain stage. For instance, a tariff determination mechanism for the protection of consumers… Then, is there any need for tariffs in an environment where competition has been created like today? Why does a segment such as industrialists, which has high amounts of consumption, have a tariff known as the ‘industry tariff’? We need to discuss these and make the necessary arrangements.
  • Prices need to be formed in the market, the market needs to be opened and problems need to be solved within the market, with market mechanisms. In other words, tariffs should not be allowed to constitute a hurdle in front of the markets becoming free.
  • The role of the public sector as a regulator and supervisor, rather than a market player, needs to come to the forefront. However, an important matter here is organisations should possess an organisational structure which is effective, visionary and objective enough to be able to respond to the needs of energy markets, which themselves possess a dynamic structure, and of which they are to be the regulators and supervisors.
  • Until there is an extensive liberalisation in natural gas, there will be no liberalisation in the whole of the energy market, in its full meaning. At the moment there is no predictability in the natural gas market. No one knows what will happen in 2016 or 2017. The players are unable to enter into long term contracts as they do not know how to manage their risks. We are trying to take positions based sometimes on rumours and sometimes on “foreseeing” the future.
  • If there are going to be subsidies these need to be for specific points. That is, there should be isolated subsidies designed towards a section of consumers who are to be given subsidies. These subsidies should not be applied to unrelated consumers and segments.
  • Whether prices in electricity are correct or wrong, is the matter of a different discussion. However, the volatility and the level of the prices bring other opportunities. For instance, there are numerous new product and trading opportunities in retailing, cross-border trade and the wholesale markets.

Korkut Öztürkmen, Managing Director of OMV Samsun Elektrik A.Ş.

‘The market dynamics should be formed with economic realities, not with intervention’

  • There is some ease in the demand – supply balance at the moment, but if we do not allow the market dynamics to be established with economic realities, this will create a great danger for the security of supply in Turkey.
  • It does not matter whether they belong to the public or the private sector, but it is necessary to ensure that all plants make offers in the EPİAŞ market based on their own actual costs and to make the automatic pricing mechanisms functional. These mechanisms are also present in the legislation, but we are not sure whether they actually work properly or not.
  • Turkey is a big market in terms of the consumption of natural gas, but we are not able to benefit sufficiently from the advantages which will be brought by the free market.
  • The continuity of investments is very important. We must support renewable energy until the end, but we also need to underline that Turkey has a need for electricity generated from natural gas.
  • Legal proceedings which have been brought in connection with the legislation are causing delays to investments. The tracking and conclusion of these proceedings according to objective and legal technical criteria will increase the faith of investors.
  • There are a large number of players of all sizes in the market structure we have arrived at. I can see that investors, whose principal line of business is not energy, are investing in this sector. Consolidation is unavoidable in the market in the medium term. In any case, when we turn back to look at the spirit of the energy market, the aim was that certain players manage the market without becoming a cartel. This will serve both the sustainability of the investments and economies of scale.
  • The market is going through a difficult period. As an investor and as a foreign investor partner which has faith in Turkey, we too are reviewing our projects from time to time. However, we still have complete belief that market conditions will improve within a short time.

Hayati Çatbaş, Deputy Managing Director (Commerce) of Alarko Enerji Grubu

‘Liberalisation is being jammed at the point of the impacts of the establishment of the prices of the plants owned by the state’

  • Investments are much more at the focal point of the market than other areas, in developing countries such as Turkey. That is because most of the money is flowing towards there. On the other hand, the market is focused much more on the commercial side in countries like the USA, where the infrastructure and investments have already become settled and where only marginal investments are made.
  • It is very important for the price to become established in a healthy manner in the commercial segment because when you give a wrong signal the route can also be diverted to the wrong direction. And if you give wrong signals continuously investors may run away, because they will not be able to make any predictions in connection with their investments.
  • The reflections of the problems related to the price formation we observe on a daily basis in the short term are spreading to the long term. In respect of these problems, we, as Alarko, are continuing our activities under the umbrella of the Energy Trading Association, of which we are a part, and which represents 80% of the commerce at the moment. The subject keeps coming back to the effects of the price formations of the plants owned by the state.
  • Privatisation and liberalisation are not the exact equivalent of each other. We do not need to index the liberalisation of the market in Turkey to privatisation. We can be successful in liberalisation by managing the commercial assets owned by the public sector in the correct manner.
  • Even if some strategic hydroelectric power plants, such as the Atatürk Reservoir, will always remain in the hands of the state, these must always be managed within the dynamics and rationality of the private sector. Together with this, the liberalisation of the natural gas market will play a very important role in electricity prices being determined in a healthier manner.