Turkey’s Tetas may buy lignite-fired output

Turkey’s Tetas may buy lignite-fired output

Print article07 Jun 16, 18:10 - Electricity, Coal-fired, Fundamentals

London, 7 June (Argus) — Turkey's state-run trading company Tetas may start purchasing domestic coal-fired generation from independent generators in a bid to incentivise the sector and reduce dependency from foreign energy resources.

A new law will allow Tetas to purchase domestic coal-fired generation from independent power producers (IPPs) if the amount of power demanded by distribution companies — to which Tetas sells most of its power — is not met by output by its existing bilateral agreements. The volume of purchases, delivery period and price, as well as other terms and conditions are to be defined by a council of minister's decision, according to the final draft amendments approved by the parliamentary committee responsible for energy.

These amendments were approved by the Turkish parliament last week along with other changes to energy laws, and they will take effect when published in the official journal.

With the new rules, Tetas is kept exempt from the scope of the public tender law for its energy purchases from IPPs. Current legislation does not allow the firm to sign contracts with private entities and its purchases are limited to existing concession contracts — with the so-called Tetas plants, including build-operate (BO), build-operate-transfer (BOT) and transfer-of-operating-rights (TOOR) agreements.

It is still unclear when Tetas will announce its first purchase of lignite-fired power from IPPs, but a few participants expect that it could be launched for delivery as soon as the beginning of July or August.

Tetas purchases of lignite-fired output could only have an upside impact on day-ahead prices if Tetas decides to reduce volumes of bilateral agreements with the BO, BOT and TOOR plants, which seems unlikely for the short run, some market participants said.

But Tetas might face a power deficit when the 672MW Birecik hydropower plant's concessionary contract ends in early October.

The changes come as an effort by the Turkish state to support domestic coal-fired generation and reduce dependency on foreign resources. Currently, domestic coal-fired generation is estimated at an hourly average of 4.0-4.5GW.

Low spot prices this year have reduced the profitability of thermal plants. Some gas-fired capacity is left out of the merit order, reducing the share of gas in the generation mix. And current day-ahead prices can only cover input costs of lignite-fired plants with efficiency levels at or below 38pc, one lignite-fired generator said, adding that repayment of credit taken to make investment has become more challenging amid a strong depreciation of the Turkish lira against the dollar last year.

The Epias day-ahead base-load average between January and delivery for 8 June was TL120.23/MWh, down by TL8.46/MWh compared with the same period last year.

Turkey's installed lignite-fired capacity rose by 430MW during January-May to 9.8GW, as a second 135MW unit at the 270MW Bolu Goynuk, a 145MW unit at the 290MW Adularya, and a second 150MW unit at the 450MW Tufanbeyli plants started commercial operations. Tufanbeyli's third 150MW unit is running testing operations, and Adularya's second unit is expected on line this month.

Some 4.6GW of domestic coal-fired capacity was transferred to the private sector during 2013-15 and most of these plants have undergone rehabilitation works to improve efficiency (see table). They are also eligible to sell their output to Tetas under the new rules.

And state-run utility Euas' lignite-fired capacity was 3.2GW by the end of 2015, counting for 15.5pc of its total generating capacity.

Privatisation through purchase guarantees

A new method for the privatisation of renewable and coal-fired capacity is also introduced through the recent law changes. If Euas or its affiliates decide to sell their assets for the purpose of investing in new renewable or lignite-fired power plants, buyers will not have to purchase the asset outright. Instead, buyers will compete for a guaranteed sales prices from Tetas for the plant's output through a privatization auction. Under these auctions, the initial guaranteed sales price will be set by the energy ministry and the company agreeing to receive the lowest sales price will win the tender.