Turkish power firms cancel bilateral sale contracts

Four major power firms in Turkey cancelled bilateral forward contracts to sell power as the day-ahead prices rose sharply to offer wider margins to sell on the spot instead.

The firms cancelled selling contracts, opting to offer power instead in the day-ahead market, two separate counterparties confirmed. Higher fuels prices have meant a rally in spot prices so far this month.

Firms cancelling contracts may face a backlash from the rest of the sector, with several counterparties stating that they may be reluctant to trade with them in the future. The whole sector may face counterparty risk if major firms struggle in meeting their obligations.

The day-ahead delivered at lira 289.29/MWh ($49.36/MWh) on 1-17 August, on track for the highest monthly average on record, up from TL208.13/MWh in July.

Most utilities have already switched to selling more power in the spot market and volumes in the over-the-counter (OTC) market have tumbled. Volumes in the Turkish OTC market dropped to 7.8TWh over January-July this year, nearly halving on the year.

Turkish energy firms have been struggling because of the recent depreciation of the lira against the US dollar. Several firms with thermal power plants in their portfolio opted for refinancing their debt in foreign currencies. The lira dropped more than 50pc in 2018 and fell as low as TL7/$1 this week, before recovering to TL5.8/$1 today.