Turkish power prices rally on fuels, weaker lira

Forward prices in Turkey's power market extended their rally into this week as the increase in regulated gas prices and the tumbling Turkish lira lifted the outlook.

The contract for delivery in October-December rose by 59 Turkish lira /MWh ($11.40/MWh) from 30 July to trade at TL294/MWh on 6 August. Higher fuel costs were the main driver, after state-owned gas firm Botas raised August's regulated tariffs by 50pc last week. The lira's sharp drop against the US dollar also supported prices, as Botas fixed tariffs to $270/'000m³. The Turkish currency slumped by 36pc against the dollar to a record low of TL5.18 today. This also lifted costs for imported coal-fired generators that buy in dollars on global markets. Gas and imported coal covered more than 50pc of total power generation in January-July. The year ahead contract followed near-curve gains to add TL43/MWh, closing at TL300/MWh. This compares with this year's Turkish day-ahead contract's rolling average of TL188.86/MWh.

Firmer day-ahead prices in August also pushed the forward market higher. Turkey's Exist day-ahead price delivered TL62.41/MWh higher in August — at TL270.54/MWh, compared with the previous month.

The rise in crude-indexed prices and weaker lira probably fuelled expectations for further hikes in regulated gas tariffs to put more upwards pressure on forward prices. The benchmark Brent crude price consolidated gains above $70/bl in 2018, closing at $73.90/bl on 3 August.

Hikes in gas prices weighed on spark spreads, suggesting imported coal-fired units will have an advantage over gas-fired plants in the months ahead. September spark spreads for 55pc-efficient gas-fired plants closed TL45.19/MWh below dark spreads for imported coal-fired units with a 40pc efficiency, which were at TL51.78/MWh. Dark spreads held their edge over sparks last week as coal prices fell to offset the lira's losses. The price of coal delivered to Turkey dipped below $100/t for the first time since late June, closing at $98.50/t.

Turkey front quarter TL/MWh