Turkey: New Era: Cross Border Electricity Trade between Turkey And ENTSO-E’s Continental Europe Synchronous Area

Last Updated: 16 June 2011
Article by Ayşegül Önol

On 18 September 2010, the Turkish power system was synchronized with the interconnected power systems of Continental Europe. The parallel trial operation consisting of three phases was intended to last one year. However, the stabilization period, the first phase of the parallel trial operation, lasted longer than expected. The second phase, non-commercial energy exchange between Turkish ("TEIAS") and Bulgarian ("ESO") and Greek ("HTSO") transmission system operators ("TSOs"), began in late February 2011 and was completed in mid-April 2011. Finally, ENTSO-E announced that the third phase, the limited commercial energy exchange between Turkey and Greece and Bulgaria would start on June 2011.

The commercial exchange starts on 20 June 2011. When the exchange starts, the cross-border trade will be possible in four directions: Bulgaria-Turkey, Turkey-Bulgaria, Greece-Turkey and Turkey-Greece. Sixty-five percent of the total capacity will be allocated for trade between Turkey and Bulgaria while the trade between Turkey and Greece will constitute thirty-five percent of the total capacity.1

The rules and principles of cross-border trade are mainly regulated by the import and export Regulation, the auctions documents which were recently published for the year 2011 and the Electricity Market Balancing and Settlement Regulation (the "BSR").

1.New Regulation

In order to regulate the cross-border energy trade in line with the new development stated above and to comply with the European Union Regulation No 714/2009 on Conditions for Access to the Network for Cross-border Exchanges in Electricity, the Electricity Market Import and Export Regulation dated 1 June 2011 (the "New Regulation") abrogated and replaced the old import and export regulation dated 7 September 2005 (the "Old Regulation").

Similar to the Old Regulation, the New Regulation states that the export activities may be performed only by private wholesale companies and the state-owned wholesale company, TETAS (Turkish Electricity Wholesale Company), whereas import activities may also be performed by retail license holder companies provided that the electricity is imported via lines having a tension level equal to or below 36kV. Under the Old Regulation, no separate license was required for performing import and/or export activities. However, the companies had to apply to the Energy Market Regulatory Authority (the "EMRA") with certain documents and information about the planned export or import activity and obtain a permit which was inserted into their licenses by the EMRA. The New Regulation makes a distinction between the requirements for import and export activities in synchronous versus non-synchronous parallel interconnections. While the application procedure for a company to use the non-synchronous parallel interconnections remains the same as the Old Regulation, under the New Regulation, companies will not need to obtain any special permission in order to perform import/export activities using synchronous parallel interconnections. Accordingly, all the wholesale licenses will include a provision which will entitle the companies holding such license to participate in the auctions for the capacity allocations in synchronous parallel interconnections. On the other hand, the wholesale licenses obtained by companies before the New Regulation entered into force will be automatically amended by the EMRA free of additional charge. In addition, Temporary Article 4 of the New Regulation permits these companies to participate in the auctions until the EMRA makes the required amendments to the existing wholesale licenses.

2. Auctions

In accordance with the New Regulation, the cross-border capacity allocation between Turkey and Greece or Bulgaria will be performed via auctions. The auctions will be announced by the system operator, which is TEIAS. Therefore, TEIAS prepared a platform created specifically for this purpose, namely the T-CAT Platform. The documents regarding auction rules will be renewed annually and for the time being, the auctions will be conducted as monthly capacity allocations. After completion of the trial parallel operation, daily or yearly allocations will also be possible. As per the New Regulation, TEIAS will prepare the procedure and principles regarding the capacity allocations and send them to the EMRA Board for approval within thirty days from the entry into force of the New Regulation. At the time of writing, such procedures and principles had not been announced yet.

a. Pre-conditions to participate in the auctions

In order to participate in the auctions, a company must hold a wholesale license granted by the EMRA. These companies must sign an interconnection usage agreement with TEIAS, sign the auction documents and deposit a performance guarantee of 50,000 Euros for each of the four directions they would like to perform cross-border trade. These performance guarantee fees will be returned to the companies only at the end of March 2012. New guarantees will have to be provided each year by such companies. Other conditions required in order to participate in auctions are: (i) obtaining an electronic signature, (ii) obtaining an EIC code from TEIAS, (iii) being registered at Market Financial Settlement Center ("PMUM"), (iv) not being bankrupt or liquidated, (v) not having outstanding debt to TEIAS, (vi) not having been previously excluded from the auctions or nominations, and (vii) not having been denied the right to participate in the secondary commercial transmission right market by TEIAS. The market participants fulfilling all the conditions stated above are registered in the T-CAT Platform and are qualified to participate in the auctions.

Turkish companies should also fulfill the participation conditions stated above even if they will perform electricity trade with companies awarded commercial transmission right ("CTR") from the ESO or HTSO instead of participating in the auctions made by TEIAS. However, in this case, such Turkish companies will not have to deposit the performance guarantees required in the auction documents.

b. Auction Process

The auction process will be operated as follows: TEAIS will determine the available capacity as per its settlement with Greece and Bulgaria and announce in the T-CAT platform the quantity, period and direction of the capacity to be made available. After the wholesale companies fulfilling the above mentioned pre-conditions offer their bids, the bids will be listed from the highest to the lowest price. The final offer price completing the capacity shall be the clearing price for the CTR. In the event that the sum of the quantities of all the offers does not cover the entire capacity, then the clearing price will be 0 Euro. The companies to which transmission capacity is allocated by TEIAS should also pay an interconnection usage price at the import and export tariff rate. However, if a Turkish company trades electricity with a company awarded CTR from ESO or HTSO, it will not pay an interconnection usage price.

It is also important to mention that a wholesale company may make several offers, the price and the quantity of which differ from each other. As the use-it-or-lose-it principle is adopted in the New Regulation, a company is not obliged to use its CTR but in the event that it does not make the notification in the T-CAT platform that it will use the allocated capacity within the time frame stated in the auction documents, the company will lose its right to use such capacity. The auction rules for the capacity allocations between 20 June and 31 December 2011 (the "Auction Rules for 2011"), entitle the companies to transfer the CTR allocated to them completely or partially to other registered companies in the secondary market provided that both the transferors and the transferees notify TEIAS of such transfer on time via the T-CAT platform. In the event that the capacity to be transferred exceeds or differs from the capacity purchased by the transferor company, the CTR transfer transaction will be deemed invalid. As per the New Regulation, the procedures and principles with respect to the secondary CTR market will be prepared by TEIAS and will be sent to EMRA within thirty days from the entry into force of the New Regulation in order to be approved by the EMRA Board. At the time of writing such procedures and principles had not been announced yet.

As per this system, in order to perform the cross-border trade, a wholesale company has two options: It may buy CTR from the Turkish side, TEIAS, and contract with a company from Greece or Bulgaria in order to sell or buy electricity depending on the direction. Alternatively, it may contract with a company which has been awarded CTR from the Greek or Bulgarian side. Either way, a wholesale company should notify TEIAS promptly concerning with which company it is conducting the cross-border trade (the "Counter-Party"). This notification requirement is limited to information about the company; details about the transaction quantity are not required.

c. Nomination

The market participant using the CTR allocated by TEAIS, ESO or HTSO should post their schedules (nomination) via the T-CAT platform by 10 a.m. CET of the day prior to the energy transfer. On the other side, the Counter-Party in Greece or Bulgaria will also have to notify the TSO of its country. These nominations made from both countries should match and errors, if any, should be corrected. Nominations failing to match the counter nomination made by the Counter-Party will not be accepted. In such a case, the nomination of the CTR owner will be deemed to be 0 MW.

It is possible that the CTRs allocated may be decreased in emergency situations. As per the Auction Rules for 2011, if the transmission capacity right is decreased before 10 a.m. CET of the day prior to the energy transfer, due to an extension of the scheduled maintenance period, for network security reasons or due to service outages, then the price of the reduction of the CTR is reimbursed to the company to which such capacity was allocated. However this rule only applies if the change occurs before 10 a.m. CET of the day prior to the energy transfer; if the change takes place after 10 a.m. CET it is assumed that the scheduled transfer already took place, thus no decrease can be made by TEIAS. Force majeure events or scheduled maintenances in the related interconnections, however, constitute exceptions to the obligation to pay the price of decreased CTR by TEIAS.

3. Balancing and Settlement

As per the New Regulation, companies performing import and export activities are subject to the provisions of the BSR with regards to the balancing mechanism.

When a cross-border electricity sale contract is executed between a Turkish and a Greek or Bulgarian company, once the nominations from both sides match and are finalized as explained above, the Turkish company will also have to notify the PMUM of the bilateral contract executed with the Counter-Party in accordance with the BSR. However, as the Greek or Bulgarian company cannot be part of the balancing and settlement mechanism in Turkey, MYTM (National Load Dispatch Center), a unit of TEIAS shall be intermediary as the counter-party of the bilateral agreement as the seller or the buyer in the notification made to PMUM instead of the Greek or Bulgarian company.

According to the Auction Rules for 2011, in the event that the final nomination in T-CAT platform and its notification made to PMUM are not the same, the company causing imbalance due to incorrect notification will have to pay the imbalance price in accordance with the BSR.

As per a recent amendment in the BSR made in February 2011, the balancing and settlement rules and exceptions in relation to the import and export activities for the electricity allocated from neighbor countries will be determined in the "Procedures and Principles of Balancing and Settlement with regards to Import and Export" which will be approved and published by the Board of EMRA. As of the writing of this article, the procedures had not been published yet.

4. Conclusion

The start of the cross-border trade with Greece and Bulgaria through the interconnected lines between Turkey and ENTSO-E's Continental Europe Synchronous Area may be pointed out as the beginning of a new era in the Turkish electricity trade market. However, it should be also noted that this recent development constitutes only one step. Many other reforms are also expected to take place in the near future such as the start of the day-ahead market, intra-day market, constitution of over-the-counter platforms where trade of bilateral agreements will take place, a derivatives market including the futures and forwards. As a result of hard work on the part of governmental authorities and market participants, the Turkish electricity trade market is on the way to achieve all these targets one by one.

Footnotes

1 Recently, TEIAS provided a training program on 9 May 2011 in this respect. Please see the presentations on the website: http://www.teias.gov.tr/ENTSOE/May2011.htm for further information.

2 https://tcat.teias.gov.tr/

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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