Turkey’s Tetas to stay active in spot power market
31 May 17, 13:55 - Electricity, Corporate, Fundamentals, Politics
London, 31 May (Argus) — Turkish state-run wholesale power trading firm Tetas will continue to be active in the day-ahead market, after its contracts guaranteeing electricity purchases were revised, general manager Feridun Alak said.
Tetas has an obligation to purchase 85pc of the output from private-sector plants with a build-operate (BO), build-operate-transfer (BOT) and transfer-of-operating-rights (TOOR) contracts (see table). These contracts used to have take-or-pay obligation before they were revised, and Tetas had to pay even if it instructed plants to stop generating. The revised contracts allow Tetas to reduce generation at these plants without having to pay for the power not generated, although it has extended the termination date of the contracts in return, Alak said.
Renegotiation of the contracts started four years ago and the firm in 2016 started to optimise its position — cutting its own expensive output and purchasing cheaper power from the day-ahead market — which has continued to a greater extent this year.
Tetas expects the so-called purchase guarantee contracts to be extended by around 3-5 months, but this could be longer if there is a need for a greater reduction in output from Tetas plants, Alak said.
The company has been block-bidding around 1.5-2GW, on average, in the day-ahead market this year, and cut its own output, Alak said (see graph). This counts for the flexibility it has gained from the contracts revision, he said.
Tetas' purchases has supported day-ahead prices above market expectations in the spring months of this year (see table). Tetas will continue to "optimise throughout the year", regardless of whether it is a peak or weak demand period, Alak said. This could support spot prices above 2016 levels later this year.
"We could have cut more [of our own generation] but this is not feasible because of transmission [network] and primary frequency obligations limitations… Had there been no such limitations, we would have cut all [inefficient] generation. There is a minimum profit that needs to be captured. It all comes down to cost benefit," Alak said. "We operate on a cost-based basis."
Power plant efficiency and financial constraints limit the extent to which Tetas can purchase power in the spot market. Plants operating under BO contracts, which will operate independently when their contracts terminate, have conducted rehabilitation work to increase their efficiency to 55-57pc. But the efficiency of BOT and TOOR plants, which state-run utility Euas will operate when the contracts expire, remains below 50pc, Alak said.
Botas obligations
Tetas has also taken on state-run gas trading Botas' take-or-pay obligations related to gas use by BO or BOT plants, Alak said. Tetas communicates regularly with Botas to ensure that a reduction in these plants' gas use does not force Botas to make take-or-pay obligations for the front three-month, six-month and balance-of-year periods, he said.
Tetas operates eight gas-fired plants with a combined capacity of 6GW, all of which purchase their fuel from Botas.
The performance of the lira is a key factor in Tetas' pricing policy, Alak said. "We run [foreign exchange] risk analyses. Trading in the spot market is in Turkish lira but [Tetas' purchase guarantee] payments to utilities are made 60 days after, therefore there is a risk to incur losses [because of foreign exchange volatility]. We make foreign exchange rate projections, and predictability is key for us," he said.
Most Tetas contracts will terminate in 2018-22, after which the firm will take over generation of nuclear, lignite-fired, solar and wind power plants whose sales will be guaranteed under new contracts. Tetas will continue to optimise even after it takes over the plants, to the extent allowed by contracts and the plants' technical features, Alak said.
