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Turkey’s gas-fired generation nears six-year low

15 May 2018 16:41 (+01:00 GMT)
Turkey's gas-fired generation nears six-year low

London, 15 May (Argus) — Gas-fired power generation in Turkey is likely to fall to the lowest in six years this month as stronger hydropower displaces thermal output pressured by higher costs.

Generation by gas-fired units fell to 7.2GW this month, compared with the 2014-17 May average of 10.2GW. Rainfall picked up in hydro-rich regions of Turkey in May, supporting storage and run of river generation. Independent gas-fired generators reduced output as they are facing higher costs because of three tariff hikes by state-controlled supplier Botas since November 2017. Some independent units opted to buy gas from private-sector firms after revising their requests from Botas lower for spring months and some of these contracts are flexible to enable utilities to avoid losses.

State-controlled generators also reduced output compared with last year as storage hydro output by Euas increased. State-run trading firm Tetas opts to buy day-ahead power instead of running its own gas-fired units when spot prices turn out below costs.

The outlook for thermal generation remained stronger for summer months as recent rainfall levels may have only lifted hydro stocks closer to seasonal averages. Reservoir levels remained below average this year because of low rain fall. State-run generator Euas increased its storage output to the highest since December at 3.8GW this month. This may deplete stocks Euas may need in the summer months to limit price spikes. Euas has been holding hourly prices from rising above 230 Turkish lira/MWh but it is expected to increase its ceiling price in the summer to provide profitable margins for thermal power. The lira's sharp depreciation against the dollar this month may prompt Botas to increase regulated gas tariffs in the coming months, likely after the elections at the end of June. The lira depreciated by 8pc in May to lift its losses this year to over 15pc. Higher gas prices will put more pressure on gas-fired units' profitability.

Narrowing spreads

Rising hydro generation and weaker demand weighed on day-ahead prices to narrow spreads for thermal units. Day-ahead spark spreads for a 58pc efficient gas-fired plant narrowed to TL31.07/MWh on 1-15 May, against TL51.36/MWh last month. Botas charges 20-25pc higher prices for units exceeding 50pc of their requests for 2018, putting more pressure on gas-fired power.

Dark spreads also came down in May on the back of the weakening lira and an increase in coal prices delivered to Turkey. Day-ahead dark spreads for an imported coal-fired unit with 40pc efficiency fell to TL32.86/MWh and this was just TL1.79/MWh above spark spreads. Day-ahead dark spread premiums over spark spreads held at TL10.10/MWh in April. Prices for coal delivered to Turkey reached its highest in more than two months at the end of last week at $93/t.

A swift increase in solar capacity this year and a large storage hydro unit due to come on line this month may help renewables displace some conventional generation in the summer. Turkey added over 1.2GW of solar capacity this year to 4.6GW. The 627MW Yukari Kalekoy storage unit will come on line this month to lift storage hydro capacity to 20.5GW.

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Turkey gas-fired generation GW

Turkey independents vs. state-controlled GW

Turkey hydropower generation GW