2. ICIS European Power Trading Report
The ICIS European Power Trading Report provides quarterly analysis of market
developments, as well as an outlook for trading prospects over the next year. The in-depth
report not only covers the established power markets of Europe, but also the emerging
markets of Romania, Serbia, Bulgaria and Greece.
The report is vital for those looking for trading opportunities and tracking developments in
European power markets.
Report features
The ICIS European Power Trading Report covers 14 European power markets and gives
readers access to:
The ICIS Power Tradability Index
Full coverage of activity in established and emerging markets
Analysis of the state of OTC markets, counterparties, price drivers, supply and
demand, trading forums and data transparency
An outlook for trading prospects over the next year
Quarterly updates so you are aware of the latest market developments
How can it help?
The ICIS European Power Trading Report provides an independent and expert view of
European power markets. It enables you to:
Gain a better understanding of the key European power markets
Understand market developments that could affect trading prospects
Read crucial market insights
Make decisions about trading positions and prospects
Create strategic plans using ICIS’ independent view
Identify who the major trading partners are
Determine what growth prospects are like in each of the markets
To find out more about the report please contact energysales@icis.com
3. 3European Gas Hub Report: Qx 2015 Update
Liquidity developing fast despite obstacles
Turkey
Turkey’s fast-developing market has drawn interest as well as doubts
from traders and investors scouring for profit.
Turkey’s surging economic growth has boosted energy demand.
Combined with the liberalisation of the electricity sector, these two
factors have supported the launch of a traded electricity market which
has developed fast since ICIS launched the first assessments of over-the-
counter electricity prices in 2011.
Electricity consumption has been growing at an annual 5-6% rate for
the last ten years, while gas use has increased tenfold between 1992-
2014. As we speak, Turkey’s total installed capacity is 70GW, while its gas
consumption in 2015 is expected to reach 50.8bn cubic metres (bcm).
This has attracted new entrants, with the number of new participants
accelerating last year.
However, obstacles to trading remain.
Firstly, the electricity sector has been trapped in a cumbersome cross-
subsidies system established in the late 1990s and which is expected to
die out naturally by the end of this decade. Under current arrangements
around 50% of the total production is still sold to the regulated market
at set tariffs, and the end of this system in the next five years is expected
to encourage a further surge in liquidity.
Secondly, despite attempts to liberalise the gas market, progress has
been slow. This is largely because natural gas is seen as a political tool
in negotiations with neighbouring states, a characteristic that is strong
across the region, with Turkey close to three-quarters of the world’s con-
ventional oil and gas resources.
Turkey’s energy markets were vulnerable to the Russia-Ukraine con-
flict in 2014, as critical volumes feeding the populous western Marmara
region transit the war-torn eastern part of Ukraine. Gas curtailments,
particularly in the western part of Turkey, tend to lead to extensive shut-
down instructions in the electricity sector as the gas transmission system
operator BOTAS has no other means to balance the system. These af-
fected liquidity in the market.
In October, Russian volumes via the western Malkoclar entry point were
halved until the end of November, inducing panic among Turkey’s private
and public companies. Russia never explained the reasons behind the curtail-
ment, but observers noted that volumes increased to the daily contractual
average of 42m cubic metres (mcm) after Ankara conceded to partner up in
a gas pipeline project that would replace the Moscow-backed South Stream.
Worse yet, 2014 proved one of the driest years in the last decade,
undermining hydroelectricity supply. The prospect of supply shortages
ICIS Tradability Index
Contract Spread Points
Day-ahead €0.50/MWh 0
Week-ahead €0.50/MWh 0
Month-ahead €0.50/MWh 0
Two months ahead €0.50/MWh 0
Three months ahead €0.50/MWh 0
One quarter ahead €0.50/MWh 0
Two quarters ahead €0.50/MWh 0
One year ahead €0.50/MWh 0
Two years ahead €0.50/MWh 0
Three years ahead €0.50/MWh 0
Day-ahead €0.30/MWh 0
Week-ahead €0.30/MWh 0
Month-ahead €0.30/MWh 0
Two months ahead €0.30/MWh 0
Three months ahead €0.30/MWh 0
One quarter ahead €0.30/MWh 0
Two quarters ahead €0.30/MWh 0
One year ahead €0.30/MWh 0
Two years ahead €0.30/MWh 0
Three years ahead €0.30/MWh 0
Total 0
Liquidity TWh
Total trade volume
Q1 2014 1.1
Q2 2014 0.8
Q3 2014 2.1
Q4 2014 1.9
October '14 0.5
November '14 0.8
December '14 0.6
A full history of trades data is available. Please contact sales@icis.com
SAMPLE DATA
SAMPLE DATA
4. 4 European Power Trading Report: Full year 2014
led to greater volatility in the short-term market, which changed the
trading pattern on the OTC market.
Traders had focused more on short-term contracts in previous years,
but in 2014, particularly in the second half of the year, they turned their
attention to the back end of the curve. The winter months were simply
deemed too risky to take a position on.
On the positive side, previous barriers to trade have either been over-
come, or seen as less important.
There is some use of the Turkish version of the EFET contract in use
across Europe, helping to increase trading with more standardisation.
However, many other contract arrangements have proliferated, with Turk-
ish counterparties producing their own versions of master agreements.
Other issues such as Turkey’s 0.948% stamp tax, applied on any con-
tracts which carry a financial element, remain in place – but the OTC mar-
ket has continued to develop, in spite of this additional transaction cost.
Aside from typical market-related uncertainties, liquidity is also tak-
ing time to develop as a cultural shift, as the concept of energy trading
becomes more entrenched.
For example, traders are not dedicated to trading, but are also asked
to deal with administrative work as well as planning and following up
existing contracts.
Finally, trading does not happen as seamlessly as in other markets –
traders often have to check with their managers before taking advantage
of opportunities in the market.
THE STATE OF OTC
OTC activity nearly doubled on 2013, with 793 trades reported to ICIS.
These were concluded across four Turkish and EU-based broker screens.
The overwhelming majority were Baseload trades, with only nine
peak, domestic peak or off-peak deals. Comparatively, there were 438
deals on broker screens in 2013.
Just like in previous years, interest focused on the near curve, although
there was an increase in front-year trading in the second half of 2014.
Nevertheless, the trading pattern of 2014 was rather erratic, and a
direct reflection of the intrinsic risk. March and April were the most active
months of the year, but by December, liquidity ebbed away.
The early surge in liquidity was linked to a regulatory change at the
beginning of 2014 which led to the merging of the wholesale and retail
licences into a single supplier licence.
This allowed wholesale licence holders to tap the retail customer base.
At the same time, the market saw a surge in the number of successful
supplier licences issued by the regulator EPDK, with 40 additional licences
issued in 2014, compared with only 12 wholesale trading licence (as was
previously known before) a year earlier.
Nevertheless, market participants’ enthusiasm was tempered by vola-
tility during the year.
It became clear in the first quarter that the country was facing one of
its worst droughts in a decade, which meant that the supply of cheaper
energy generation used to control potential delivery price spikes was
simply not an alternative.
By April, typically the wettest month of the year, dam levels were
less than 30% of the expected average for the period, which meant
that April Baseload out-turned at an average TL160.61/MWh on the
exchange PMUM, the highest level since the establishment of the day-
ahead market for that month.
Fearing similar bullish out-turns in May, traders’ interest turned to
the OTC market, with strong interest in the front month in particular,
accounting for 30 of the 103 deals.
Most trading has concentrated on the near curve, where the level of
risk was deemed reduced.
But interest in front month trading, as a means to lock in volume
and price, waned later in the year, when fears over a gas supply crisis
triggered by a severe curtailment in Russian flows turned to downright
panic. The number of trades reported on screen dropped to around 50 in
October, November and even lower in December.
Interest switched to long-term trading as prompt products were
deemed too risky. A total of 28 Calendar Year 2015 Baseload trades were
reported to ICIS between August and December 2014, compared to only
13 Cal’14 Baseload deals concluded on broker screens throughout 2013.
COUNTERPARTIES
The number of new entrants in the market has more than tripled, from
12 in 2013 to 40 in 2014, bringing their total to 203. The increase can be
explained on two accounts: the rise in liquidity and a regulatory change
at the beginning of the year that led to the merger of the wholesale and
retail licences into a single supplier licence.
Those actively trading on the Turkish OTC market include genera-
tors and wholesale companies, which are mostly interested in securing
volumes and hedging.
The incumbent EUAS has the most installed capacity, and sells the
biggest part of its generation to the state wholesaler TETAS. It also sells a
smaller portion of generation to the day-ahead market PMUM, operated
by grid operator TEIAS.
However, information about the volumes sold to TETAS and PMUM
in 2014 is not available until summer 2015 when the company releases
information about the previous year’s activity.
The more active counterparties are the wholesale companies
which are either Turkish or Turkey-based, including EFT, Esko Enerji,
2MEnerji, GEN-I, Ezpada, Alpiq, TT Group and Limak. Producers such as
Enerjisa, RWE, Fina, OMV, Akenerji are also active, although typi-
cally they sell generation through bilateral contracts rather than on the
OTC market.
Most of the OTC trading is focused on supply, although there are
some incipient forms of speculative trading. There is also a growing vol-
ume of financial trading.
Larger companies are more likely to engage in some speculative trad-
ing, while smaller companies trade to secure volumes for their customers.
Trading is also boosted by cross-border exchanges with Bulgaria and
Greece. A number of companies have entered the market with a focus
on cross-border trading opportunities.
There are on average 12 companies trading on the Bulgarian-Turkish
border taking part in monthly tenders organized by the grid operator
TEIAS. The number increased almost tenfold since limited commercial
flows started in June 2011.
The most active companies are wholesalers such as GEN-I, TT Group,
Celler Elektrik, Alpiq, Limak and Unit Elektrik.
PRICE DRIVERS
The key driver for electricity prices remains natural gas prices. The 9%
increase in the regulated natural gas tariff from 1 October attracted a
similar hike in regulated electricity tariffs, and therefore OTC prices in
the non-regulated market. In contrast to the reaction from the gas mar-
ket, electricity companies said the rise was hefty and even warned at
the time that the December Baseload price would increase to a record
TL200.00/MWh.
However, disruptions in gas supply have also unsettled participants
during 2014.
The first issues occurred in February when a concomitant drop in
imports from Iran, Azerbaijan and Algerian LNG pushed the day-ahead
price to TL217.49/MWh, the highest last year.
5. 5European Power Trading Report: Full year 2014
Other shocks over the year included the curtailment of Russian gas
flows at the beginning of October, without obvious reason, and dropped
to panic-inducing levels of 20mcm/day at the end of November.
This meant that electricity liquidity, which had been relatively robust
earlier in the year, slowed down visibly.
Hydroelectricity is the other form of flexible supply, and participants
pay close attention to hydro levels as the other main flexible form of
generation.
For example, reduced hydro production had also forced generators to
run thermal plants at full throttle, including during the summer period
when daily demand spiked to an all-time high of 41GW on 14 August.
SUPPLY
In 2014, Turkey’s generation increased to nearly 70GW, which placed the
share of the private sector markedly higher than that of the state-owned
company, EUAS.
Turkey’s thermal capacity including natural gas and coal-fired genera-
tion stands at 41.2GW, split between state generator EUAS and private
operators. Hydro capacity is just under 23.5GW, with EUAS the major
producer. Installed wind capacity was 3.5GW at the end of 2014, and
Turkey offers feed-in tariffs to producers, so this figure is rising.
Part of Turkey’s generation is tied up within a superstructure of
subsidisation, with generators such as EUAS or the so-called Build-Own-
Operate (BO), Build-Own-Transfer (BOT) created under private-public
partnerships, which are required to sell their production to the state
wholesaler TETAS at a regulated price.
TETAS, in turn, sells the electricity to distribution companies, which then
offload the volumes to various types of consumers. The system will naturally
die out within the next five years as BOs and BOTs reach their shelf life.
The supply pattern for 2014 changed compared to 2013, as the bulk
of consumption was covered from costlier thermal rather than cheaper
hydro production because of the ongoing drought.
This, combined with a gas and electricity tariff hike at the beginning
of October, boosted the average 2014 delivery value on the exchange
PMUM by nearly 8.5% compared to the 2013 median out-turn.
Throughout the year, Turkey added 3.1GW of thermal generation
(natural gas and coal/lignite), 1.14GW hydro production, 815MW wind
production and 134.2MW of geothermal production, according to ICIS
calculations.
One of the most important changes to Turkey’s generation profile
was the commissioning of the 882MW gas-fired Egemer power plant in
Erzin, southern Turkey, last summer. The plant is operated by Akenerji.
In response to rising electricity demand, a total of 307 producers re-
ceived a generation licence in 2014, of which 198 were for gas-fired pro-
duction totaling 7.97GW. The second most popular fuel was imported
and domestic coal, where 23 applications were received by the regulator
EPDK totalling 3.04GW.
Renewable generation attracted less interest with 22 applications
for hydro production worth 801MW, and three applications for wind
amounting to 76.2MW.
DEMAND
Demand has been on an upward trend for the last ten years, continued
its ascent in 2014, rising by an average 5-6%. The increase came largely
from the industrial sector – particularly construction, steel and cement
production, although the economy has been slowing down, largely
under the impact of slumping EU markets, traditionally Turkey’s largest
trading partners.
Non-eligible consumers with an annual consumption of 5,000KWh or
less, such as households, are supplied by EUAS. If the regulator scraps the
threshold this year as expected, they will be able to choose their suppli-
ers. However, the regulator has not moved to do this to date.
CROSS-BORDER TRADING
Turkey already has active borders with Bulgaria and Greece , and cross-
border capacity typically provides another source of electricity from
imports. Border capacity is usually oversubscribed, with 12 companies
typically active each month.
Under current arrangements Turkey imports 550MW from Bul-
garia and Greece and has an export capacity in the reverse direction of
400MW. Two-thirds of this covers the Bulgarian interconnection, while a
third is earmarked for the Turkey-Greece link.
Cross-border exchanges remain a favourite with Turkey’s wholesale
companies, who have actively taken positions in the monthly auctions
organised by the grid operator TEIAS for the Greek and Bulgarian bor-
ders. However, as the TEIAS exchanges continue to be conducted in a
trial environment overseen by the European Network of Transmission
System Operators (ENTSO-E), the body overseeing the interconnections,
the cross-border capacities remain limited.
This means that companies did not have enough flexibility in import-
ing and exporting energy to and from Bulgaria and Greece to respond to
demand-supply fluctuations.
On Turkey’s eastern border with Georgia, GSE allocates export capacity
to Turkey for each month a year ahead, with TEIAS nominating any Turkish
exports, and these capacities are agreed in November the year before.
If there is more interest in exporting electricity from Georgia than
allocated capacity on the border into Turkey, such as during the summer
months, then GSE as the exporting grid holds a tender. Bidders attend
the tender in person, which is held in Georgia.
Georgia started delayed exports of energy in July and was expected
to crank up capacities on the Borcka-Akhaltsikhe line to 700MW
throughout the summer. However, the allocated capacities were rather
modest and Turkish traders said Georgia was facing limitations on its
energy generation caused by the regional drought. GSE declined to com-
ment at the time.
However, Georgia can also transit energy to Turkey from Russia,
Azerbaijan or Armenia.
The first of these tenders occurred at the end of November, when
the Georgian transmission system operator held a tender for 300MW
of transit capacity during December, awarding it to Global International
Energy Corporation, an off-shore registered company, for electricity
sourced in Russia and flowing to Turkey.
The Russian seller was state company Inter RAO, while the buyer in
Turkey was Karcal Enerji, an Ankara-based subsidiary of the Georgian
transmission system operator.
The auction was decided via closed-envelope bidding, with the ten-
der announced on Friday evening, the bidding closing on the following
Monday, and the decision announced on Wednesday of the same week.
It was unclear what the selling price was, nor where in Russia the
energy was sourced. ICIS later revealed that less than a third of the pro-
posed capacity was eventually allocated by Georgian grid operator GSE,
as the PMUM price in December was lower than expected.
GSE organised a similar auction on 26 December for the transit of
energy on the same 400kV Borcka-Akhaltsikhe line, but failed to attract
any interest.
TRADING FORUMS
The OTC market is gradually expanding its share as more players are
increasingly attracted by the flexibility granted by this arrangement.
Companies continue to trade on broker screens, the most active be-
6. 6 European Power Trading Report: Full year 2014
ing Turkey-based Balkaner, VOLT and Zen, as well as London-based desks
in Tradition and GFI.
Bids and offers are generally posted on screens by brokers. Traders,
however, like to give bids and offers via phone, e-mail or Yahoo Mes-
senger rather than posting to screen.
A large share of trading activity was carried out on the day-ahead ex-
change, PMUM, thanks to more robust delivery prices, although companies
say that the bulk of trading continues to happen on the bilateral market.
Plans to launch EPIAS, the new day-ahead market, were delayed be-
cause of a bureaucratic process involving the platform’s shareholding and
governance structure as well as the calculation of financial contributions
for each participating shareholder.
MARKET TRANSPARENCY
TEIAS, as the operator of the PMUM exchange, has begun to increase the
volume of data published on its website, bringing more clarity on traded
bilateral volumes as well as code instructions issued to power plants for
operating at any given time.
Real-time demand and supply data, however, are still published with
a day’s delay.
OUTLOOK
Gas supply remains an issue in Turkey, causing volatility which could
affect liquidity.
Pipeline volumes via the Western Line remain critical and any inter-
ruptions or reductions could prompt the electricity grid operator TEIAS to
issue load shedding instructions to temper demand.
However, Russian Western Line supplies should be more secure since
transit country Ukraine has pre-paid its own Russian January imports,
easing concerns over supply disruption, despite tensions between Russia
and Ukraine.
There are also rumours that capacity at the BOTAS and the privately
operated Marmara and Aliaga LNG terminals had been fully booked until
the end of February, meaning that the gas system should be well supplied.
Hydro levels were reduced last year amid a severe drought, but ap-
pear much healthier this year, providing the opportunity to compensate
for any potential gas supply reductions, which could also offset volatility
and maintain trading levels.
At the same time, it is important to note that the electricity incumbent
EUAS would aim to use its hydro capacity to cap prices. EUAS typically
sells the bulk of its generation under long-term contracts, but has previ-
ously ramped up sales of hydro generation on the PMUM Day-ahead
market. Low hydro levels in 2014 prevented this, leading to greater
volatility, although reserves have since recovered.
Turkish regulator EPDK is considering scrapping the eligible consumer
threshold, currently pegged at 5,000KWh/year.
This has been gradually reduced over the years, and is likely to be en-
tirely eliminated, creating a theoretical full market opening and encourag-
ing more market participants.
Offsetting this encouragement, many renewable generators have
switched from the free to the regulated market, potentially removing
more need to hedge production on the market. Last December, the
regulator EPDK said a record 5.57GW of wind, solar, hydro, biomass and
geothermal producers had opted to sell under the regulated incentives
scheme, which offered them a fixed tariff at the dollar-equivalent rate on
the day of payment. The flight was prompted by a record depreciation of
the Turkish lira against a euro-US dollar basket.
In examining potential for new suppliers in Turkey, plans by EUAS to
auction off generation will not materialise. EUAS tested the water last
year when it tendered 100MW worth of production, and was expected
to organise subsequent auctions for more volumes. However, this is un-
likely, at least not in the first three quarters of 2015, as EUAS will retain
its generation to ensure security of supply.
Turkey’s privatisation programme also offers opportunities for more
counterparties and greater trading liquidity. The Turkish privatisation
administration OIB has tendered over 5GW of state-owned thermal
capacity in the last two years, and the plan is to privatise 16.5GW of
state-owned generation in total.
The OIB is looking to sell at least 1.5GW of gas-fired generation and
some of the 6GW of state-owned hydro capacity in the new year.
The 1,442MW Bursa combined-cycle gas plant (CCGT) in the north-
western region and the 50MW Hopa gas-fired plant in the east have
been lined up for immediate privatisation, although a firm date is yet to
be announced.
The OIB is also expecting to offload part of the 6GW of hydro genera-
tion held by the incumbent EUAS. The capacity has been divided into 13
portfolios, the smallest one including 238MW and the largest 759MW.
Despite great hopes pinned on the promised increase in cross-
border capacity with Bulgaria and Greece, which has proved attractive
regional traders in search of profit ever since limited commercial flows
started in June 2011, these are unlikely to be fulfilled, at least not in
Q1 2015.
Turkey is finalising its interconnection tests with the European Network
of Transmission System Operators (ENTSO-E), but there is no definite time-
line for stronger links. Plans to more than double the current capacity to
2GW will come once the membership is achieved. Even if Turkey achieves
this goal, grid operator TEIAS is unlikely to crank up the capacity in one go,
as it still needs to upgrade the system to ensure its stability.
At the opposite end of the country, Georgia started its electricity
exports in July 2014, but will not sell any domestically produced energy
until March when it allocated 43.3MW on the line. However, Georgia
may organise further transit tenders from Russia or even Azerbaijan and
Armenia from February.
Finally, the launch of the much-expected day-ahead market, EPIAS,
which will replace the existing PMUM is likely to happen in the first half
of the year, although this vastly depends on finalising its shareholder and
governance structure as well as the technical transfer of logistics from
the old to the new platform. Aura Sabadus