Turkey's booming power market set for liberalisation

ISTANBUL Wed May 22, 2013 10:10am EDT

ISTANBUL May 22 (Reuters) - Turkey's bid to create a regional power market is moving forward with preparations to add electricity futures and derivatives trading yet the appeal of tapping the country's rapid growth is tempered by caution about how the market will work.

"Turkey has the potential to develop into a regional energy trading hub which could even provide a bridge with Europe," said Tobias Paulun, member of the exchange management board at Germany's European Energy Exchange (EEX).

"But the questions now are about how to realise a market and how to attract liquidity," Paulun said.

EEX last year signed a memorandum of understanding with Turkish power transmission company TEIAS.

European utilities such as Norway's Statkraft and Germany's RWE have also set up trading teams in Turkey.

Others who have expressed interest in the market include German utility E.ON which has recent acquired 50 percent of Sabanci Holding's Enerjisa as well as big Turkish investors like Aksa Enerji, in which Goldman Sachs holds a stake.

"The most important thing that is missing is a reference price and if there will be a forward price for 2014-2015. This is what you look for from an investor point of view," Bakatjan Sandalkhan, vice president, RWE Turkey, told the EMART Turkey conference in Istanbul.

"Do we have a mechanism to set the price for 2014-2015 and can we trust this mechanism? At the moment we can't talk about a trading market, we can only talk about a market where you only buy and sell power," he added.

GROWTH STORY

Set to overtake Britain within a decade as Europe's third biggest electricity consumer, Turkey is what investors have been waiting for as Europe's economic crisis has dried up its power demand, forcing utilities and big banks to scale back on power and gas trading.

Turkey's power market looks to be the only one in Europe promising returns, after electricity consumption rose by 5 percent to 242 billion kilowatt hours (kWh) in 2012 and with energy demand growth forecasts that are second only to those of China.

A year earlier, Turkey's energy consumption grew 9.2 percent (to 118.8 million tonnes of oil equivalent), contrasting with a 0.5 percent drop on average across Europe and Eurasia, BP's annual statistical review showed.

"There is a lot happening in Turkey, especially if you compare its growth with that of the rest of south-east Europe," said Claus Urbanke, head of new markets at Statkraft.

Statkraft, which is building 600 megawatts of hydropower capacity in Turkey, set up a trading desk in Istanbul in April last year and is currently recruiting additional staff.

STATE SHARE

The launch of an energy exchange by October will introduce electricity futures trading and is aimed at transforming the existing PMUM spot power trading platform into a more transparent and free market.

PMUM has little liquidity and is therefore often bypassed by private power traders who opt for bilateral contracts to sell or buy power.

And after a decade of privatising energy assets, the Turkish government still controls almost half of the power-generation market.

It holds a 49 percent stake in Turkey's main stock exchange Borsa Istanbul, which is likely to be the biggest shareholder in the planned power exchange.

"The state will definitely hold a stake because when the market is tight, we see irrational prices in spot trading. So in order to balance that, we need to have the state stake," an energy official said.

To do that it will hold onto some of the hydro power plants which it sees as strategic assets.

"Some hydro plants will not be privatised and with the production here, the prices will be balanced when necessary," the official said.

Turkey has completed the privatisation of 20 power distribution grids and no longer owns any. It has completed four power generation tenders and is eyeing more.

(Additional reporting by Orhan Coskun in Ankara; writing by Humeyra Pamuk; editing by Jason Neely)

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