The most significant characteristic behaviour of an emerging
market is displaying volatility in electricity market. As a
consequence of market price risks on electricity markets, market
players keen on hedging risk by applying financial derivatives.
Derivatives in energy act an essential part by the reason of
managing the risk with more transparency and liquidity across the
globe. The vital issue is how global markets players and energy
traders can turn into opportunities?
In 2012, total volume of global energy futures reached to 827.8
million contracts, is dominated by US by a half market share of
energy futures. ICE and CME are the largest energy exchanges which
are based in US. Apart from US, Multi Commodity Exchange of India
constitutes of 10% transaction volume of futures.
For the time being, Turkey's energy policy is not limited
with physical attitude, also target to constitute a deepen energy
market by applying financial derivatives as electricity futures.
Under the guidance of electricity futures, investors, consumers,
producers and distributors will be capable of determining their
position in terms of their market expectations. Since September
2011, Electricity Futures started to operate after Capital Market
Board ("CMB") approval.
Base Load Future Contract which is the fundamental contract type
in Turkish Derivatives Exchange ("TURKDEX") based on 1
Megawatt of energy per hour calculation method. The delivery of
receipt of underlying asset is based in relevant hours of days.
The pricing of the electricity futures will be determined by
Turkish Electricity Transmission Company
("TEİAŞ") in the light of day ahead hourly
prices' average started . All calendar months are included with
regard to analyze day ahead pricing of electricity market.
The size of contract is calculated by days number of hours in
the contract month multiplied with 0.1 MWh. In this type of future
contract, the tick size of the contract will be 0,10 which means
10% percentage price range shall be applied. Initial margin for the
electricity future is 1200 TRY whereas maintenance margin level is
75% of initial margin.
The day hours of electricity calculation is changeable in terms
of summer time and winter time. Transition from winter time to
summer time the calculated hours shall be accepted as 23 whereas it
should be implemented as 25 hours in the transition of summer to
Daily Settlement Price Mechanism
There are some requirements which shall be taken into account by
calculation of daily settlement price:
The average price of last ten minutes trading activities are
In condition of less than trades execution in last ten minutes,
last ten trades will be taken into account as settlement price
Unless ten trading transactions are generated, the weighted
average price of all the trades will be valid.
If no trade activity executed during whole session, previous
day will assign settlement price.
Assessment of Turkish Electricity Derivatives
Due to the lack of electricity spot markets in Turkey,
Derivatives are not being priced with regard to spot market.
Day-ahead electricity pricing mechanism may not reflect real market
prices in some cases. Underlying derivatives prices should be
driven by spot markets.
Turkey's derivatives market shall be much more profound
with another types of financial instruments such as electricity
forward contracts, swaps and vanilla options.
Competitive transactions costs and fees should be revealed with
the purpose of creating attractiveness to the electricity
In accordance with Law No: 6446 Turkish Authorized Wholesale
Markets are being exempt from stamp duty 0.825 % that will provide
low cost opportunity for investors.
Beside of future contracts in energy sector, forward contracts
should exist after establishment of new stock exchange (
"EPİAŞ") in Turkey. Mostly, swaps are applied
as forward contracts that will trigger to boom of Bilateral Over
The Counter ("OTC") trades through contract counter
An integrated information system shall be structured to manage
contracts with relevant forecasting and optimization
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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Under Regulation (EU) No. 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories ("EMIR")...
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