David O'Byrne in Istanbul -

If there has been one constant in the history of both the Turkish people and their country, it has been the relentless move westwards: from the steppes of Central Asia to Anatolia, and from there to Europe. And as of June 1 - 482 years on from the Ottoman siege of Vienna and 12 years on from Turkey's recognition as a candidate for EU membership - the country has made another step to the West with the interconnection of its national power grid to that of the pan-European ENTSO-E network.

Turkey's position is still only provisional and subject to an 11-month "test phase", but it has allowed for cross-border trading to commence and it is expected to be followed next year by full interconnection.

Started in 2010, the interconnection became a physical reality in September last year when Turkish grid operator TEIAS was hooked up with its counterparts in Bulgaria and Greece via three 400 kilovolt (kV) connections, allowing up to 400 megawatts (MW) to flow into Turkey and 300 MW out. With testing successfully completed in May, ENTSO-E took the decision to allow cross-border trading with the first trades quickly undertaken despite unfavourable market conditions. "We've made some small trades from Greece and Bulgaria to Turkey and in the reverse direction to Greece, to test the system," says Mustafa Karahan of East European power trading group EFT, who also heads up Turkey's Electricity Traders Association (ETD), adding that a couple more of Turkey's 117 licensed trading companies have also tested the system.

Slowly does it

However, trading is likely to be slow for some time, explains Karahan, as wholesale prices in the three countries are very close. But in the long term, he predicts a booming market as regional countries exhibit differing power imbalances. "Bulgaria and Romania both have excess capacity thanks to the nuclear plants, while Greece has excess power in winter but insufficient power in summer when demand is high," he says, pointing out that Turkey's rapidly growing demand and rapidly expanding capacity offer a wealth of options. "Our long-term goal is to have a regional trading pool based in Istanbul, like the 'North Pool' operated in Scandinavia."

In addition to trades with near neighbours in the Balkans, Turkey also has natural trading partners to the east. "Georgia has too much capacity in summer and not enough in winter, while Azerbaijan is always short," explains Karahan, listing Iran, Turkmenistan, Iraq and Syria as other countries with which Turkey has traded power in the past and could do so again.

Indeed, trading with Syria in June moved a step closer with Turkish power company Aksa Enerji inking a deal with Syria's national electricity company to supply up to 500 MW via an existing 400 kV line. A spokesman for Aksa tells bne that the deal was not related to current unrest in Syria and had been under negotiation for some time, a fact confirmed by ENTSO-E, which said it had approved the trade of up to 380 MW for up to one year.

Taxing times

But for Turkey itself the next step should be the establishment of a full over-the-counter (OTC) market to allow power to be traded before it is produced, a step which Karahan explains is essential for the establishment of real market prices. That, though, could take some time due to Turkish tax law, which levies a stamp duty of 0.825% on any contract which bears a value. "OTC contracts are typically traded around 10 times before the power is generated - an 8.25% tax would make trading impossible," says Karahan, adding that in his capacity as head of the Electricity Traders Association he has been lobbying Turkey's energy ministry for OTC contracts to be exempted from repeat stamp duty.

With Energy Minister Taner Yildiz having recently announced his support for a full OTC market in Turkey, there appears to be a good chance of the excess tax being waived. In the meantime, the association has finalised an alternative system that will allow power contracts to be traded on the Istanbul derivatives market Vadeli ve Opsiyon Borsasi (VOB). "I think we'll be trading 25-33% of the power from the private generating capacity within two years," he says, explaining that with currently 29 gigawatts (GW) of Turkey's 50 GW of installed capacity operated by private sector companies, he doesn't foresee any problem finding companies to trade power.