Turkish July spot expected below OTC

Turkish July day-ahead prices are expected to settle below the level at which July base load is trading in the over-the-counter (OTC) markets.

The day-ahead Epias is expected to be TL138.45/MWh ($47/MWh) on average in July, according to an Argus survey of 32 market participants. This is at a TL4.05/MWh discount over the July physical base load's last trade yesterday.

A total of 120MW of July base load has traded in June with the contract price hovering in the range of TL140.15-144.50/MWh. July traded at its lowest in the OTC market at TL140.15/MWh on 3 June, as the contract shed some risk premium following lower-than-expected spot prices from market operator Epias' new day-ahead algorithm that was launched for 1 June delivery. At this price July was at a TL1.70/MWh premium to the expected spot average for July according to the survey.

A total of 47pc of the respondents to the Argus survey said they expect July spot in the TL136-140/MWh band and 25pc in the TL131-135/MWh band (see chart).

The average expected range for June spot was calculated at TL136.88-140.03/MWh in a previous survey. June's current spot average is TL123.83/MWh.

The expected lower bound for July spot concentrated on the TL131-135/MWh and TL136-140/MWh bands, with 78pc of the participants expecting it at these levels. And 56pc of respondents said they expected the upper limit in the TL136-140/MWh and 16pc in the TL141-145/MWh band (see chart).

It is unclear whether Tetas will start purchasing lignite-fired output from independent private producers (IPPs) on 1 July and at what volumes. If Tetas' purchases start next month, this could have an upside effect on prices if the company decides to reduce the power it purchases from state-run utility Euas or the Tetas plants with which the firm has concessionary contracts.

Tetas also has the option of selling additional power it buys from lignite-fired generators to the wholesale markets, but it is unclear whether the company has developed sufficient capacity to expand its trading operations in the short run.

Further on the upside, some large storage hydropower plants may choose to keep water for offering power to the balancing market during peaking demand days in August, encouraged by new rules of the renewable support scheme Yekdem which took effect on 1 May.

Low demand for power during the Bayram holiday on 5-7 July — prolonged to 4-8 July for the public administration — is likely to reduce the spot. And further pressure could come from an expected contraction in tourism this summer that could reduce peak demand for cooling.

Newly added capacity will also pressure July spot prices. A 700MW unit at the imported-coal Zetes 3 power plant is due online at the end of June, and a 280MW unit at the Kirikkale gas-fired plant started testing this month.

Turkey has added more than 1.9GW of capacity between January and May. But average hourly demand between January and May has increased by only 0.9GW compared with the same period last year, with oversupply affecting the spot.

Higher solar capacity may also play a peak-shaving role on hourly prices during summer months. Unlicensed solar power capacity was 443MW at the end of May, up by 335MW compared with the end of June last year.

OTC-to-spot premium up for June

The premium of average OTC front month prices to the average spot delivery price narrowed for April and May (see table), possibly because of a reduction in volumes sold by state-run wholesale trading firm Tetas to distribution companies of around 2GWh/h on average for the second quarter that supported off-peak prices. Participants have also probably adjusted their expectations in line with stronger renewable output in the first two months of the year.

But the spread has widened for June so far, as spot prices for 1-15 June averaged TL123.83/MWh which is at a TL16/MWh discount to the June base-load contract's average assessment during May. The spread may narrow in the second half of June, as maximum temperatures forecast to rise by up to 1.4-9°C above season norms will offer some support to spot prices.

Turkish July spot expectations distribution pc