Power to the market

By bne IntelliNews May 6, 2013

David O'Byrne in Istanbul -

It has been a long time coming, but Turkey's new electricity market law that was finally passed by the Turkish parliament in March looks set to herald the creation of a fully liberalised energy market.

The new market will allow the trading of a range of energy products both inside Turkey and across its borders. And if successful, it should keep energy prices competitive and end the uncertainty concerning power sales, which has slowed the pace of private sector investment in power generation to such an extent that Turkey for much of the past decade has been just a few steps away from power shortages.

Central to the new law is the creation of a new energy exchange: Enerji Piyasalari Isletme Anonim Sirketi, or EPIAS for short, which will be incorporated by the end of September. Envisaged as part of Turkey's planned Istanbul Financial Centre, the creation of which has already seen the re-branding of the Istanbul Stock Exchange as Borsa Istanbul, EPIAS is expected to be physically located in Istanbul adjacent to the stock exchange.

The precise details of what will be traded and when trading will commence have yet to announced, though. "The energy market regulator EPDK is currently drafting EPIAS articles of association and the secondary market regulations," explains Mustafa Karahan, head of Turkey's Electricity Traders' Association, who says that once these are published it will be clear what mandate the company has been given.

Initially at least, EPIAS is expected to take over the operation of Turkey's existing "day ahead" power market PMUM. Eventually though, EPIAS is expected to expand operations to allow day ahead, intra-day spot and physical trading in power and possibly also natural gas, with responsibility for developing trading of futures products remaining with Borsa Istanbul.

Ownership and policing matters

The final ownership of EPIAS is also still unclear, with the new law specifying only that it limits the participation of state companies to 15%, a figure which can be doubled to 30% by ministerial decree. According to Karahan, the initial 15% could be held by Turkey's state power grid operator TEIAS. "If they include gas market trading in EPIAS' remit, then a second 15% stake could be held by Botas," he suggests, referring to Turkey's state gas importer, which currently imports 80% of Turkey's gas and operates the country's gas transmission network.

Also as yet unclear is how the market will be policed. "There has to be effective market surveillance to ensure the market cannot be manipulated," warns Karahan. Otherwise the new law repeats existing legislation governing the role of the existing state energy market regulator EPDK and the state grid operator TEIAS, as well as confirming the existing regulations on the issuing of licenses for generation, distribution and transmission for between a minimum of 10 years and a maximum of 49 years.

Other changes included in the new market law include the introduction of a new "preliminary generating license" to be awarded to power plant projects as a first stage to allow developers to secure funding. Those projects that are able to secure funding and are ready to move to construction will then be awarded a full generating license: This change amends a flaw in the old law, which allowed companies to apply for and be awarded licenses for projects that they had no intention of developing and were intending only to sell on as off-the-peg licensed projects at a hefty mark-up. This resulted in the development of a de-facto secondary market in licensed projects, with hundreds of mainly hydroelectric power projects licensed but undeveloped as license holders instead tried to sell them on.

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