An energy exchange in Turkey

By bne IntelliNews July 5, 2011

David O'Byrne in Istanbul -

Less than a month after Turkey's power transmission grid was hooked up to the rest of Europe, the continent's market makers are backing the creation of a new regional energy exchange in Turkey's business capital, Istanbul. The potential trading volume could be significant, experts predict, and a liquid power market would enable utilities to raise the funds necessary to build new power plants and help meet Turkey's rapidly growing electricity demand.

Iris Weidinger, chief financial officer of the European Energy Exchange (EEX), and Jan van Aken, secretary-general of the European Federation of Energy Traders (EFET), were among a number of international guests who joined representatives of Turkish and European power companies at a series of seminars and workshops on June 28 aimed at setting out a roadmap for the creation of a regional energy exchange in Istanbul that would allow for the trading of both power and natural gas.

Speaking at a press conference after the meetings, Batu Aksoy, head of Turkey's Turcas Petrol, explained that the workshops had resulted in the establishment of a number of working groups that would focus on what needed to be done to establish the exchange and to integrate its activities with those of the existing European Energy Exchange. "We expect the exchange to be established in the next six to 18 months," he said.

However, he added that the exact nature of the exchange was still unclear. "It's up to the Turkish government to decide the type of organisation it will be," he said, explaining that it could be established as a limited company in line with current plans for transferring the state-owned Istanbul Stock Exchange to the private sector by transforming it into a company.

The Turkish government's role in deciding the nature of the exchange to be established was echoed by Weidinger, who added that the aim was for the exchange to also serve the region to the east and south of Turkey. "The European Energy Exchange and the EPEX spot market can contribute comprehensive knowledge and experience to support the establishment of the exchange," she said, pointing out that Turkey has the potential to become an important regional trading hub.

According to Radmacher, the exchange would have to be a Turkish legal entity, but that the European Energy Exchange could be a minority shareholder.

Commenting on the potential size of the market the exchange could be hosting, Radmacher pointed out that in Germany while the physical demand for power is around 550 terawatt hours (TWh), the actual traded market is between nine and 10 times that value. "Turkish power demand is currently around 210 TWh and will rise to 300 TWh in three or four years. Even with a low level of trade, the market could easily exceed 1,000 TWh a year," he said.

In order to meet Turkey's growing power demand, Radmacher said it was essential to create a liquid power market that enables power plant developers to raise the fund necessary to build new plants. "It takes around five years for a new plant to be developed," he said, explaining the need for developers to be able to know in advance that they would be able to sell the power produced and for there to be a secure mechanism for establishing the price of that power.


However, Radmacher warned that the new exchange might not be ble to operate effectively unless Turkey liberalised its gas market. While the majority of private power plants in Turkey burn gas, the wholesale gas price is still fixed by the government, he pointed out.

Also threatening the possible success of the market is a Turkish tax law that imposes a 0.825% stamp duty on all contracts bearing a value - including the EFET contracts used for trading power across Europe, and which the planned new exchange will also use.

The EFET contract is standard and allows electricity to be traded as a commodity, just like gold or other commodities," explained EFET head Van Aken, stressing that the contract was essential for the establishment of an energy exchange in Istanbul.

"The problem of the stamp duty will be addressed by the working groups and we will work with the government to establish a transparent process which will allow trade to get up and running," said Radmacher.

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