Turkish lira tumble triggers electricity curtailment fears

LONDON (ICIS)–Fears are mounting over possible electricity curtailments in Turkey as the local currency has been in free fall against the euro-dollar basket over the last week, lifting energy costs to unsustainable levels.

As the currency tumbled by one fifth against the US dollar in the past week alone, the price of natural gas was spiralling out of control, boosting costs for gas-fired generators beyond an affordable threshold and prompting hydro generators to ramp up production to cover soaring summer demand.

“The utilisation rate of hydro generation is very worrying and we have reached levels that are close to those seen in previous years before the electricity and gas grid operators issued curtailment orders,” a market source said.

Earlier this month the government set the baseline gas tariff for gas-fired generators at $270.00/kscm, which means that when converted into Turkish lira, the cost is now close to TL1860/kscm.

At the beginning of August, that cost denominated in the local currency would have been TL1,350/kscm.

Even though the lira-denominated fuel price has now increased steeply since the beginning of the month, gas-fired producers cannot recoup costs because prices to end consumers are regulated, while prices on the free market are subject to a soft cap held by the electricity incumbent EUAS.

An electricity market source said EUAS had raised the soft cap on spot prices from the TL300 – 330.00/MWh range last week to a new range of TL325-360.00/MWh, but added that the cap should be at least close to TL400.00/MWh to allow independent gas-fired generators to break even.

The source noted that due to the high costs only five out of 11 efficient independent gas-fired power plants were generating on Monday.

He said the five power plants were operating only because they won capacity in daily auctions to operate in the secondary market, which meant they were paid higher prices than on the main market.

He pointed out that any other gas-fired output was generated by plants operated by the recently merged state company EUAS-TETAS.

The drop in gas-fired generation was visible in the data published by the grid operator TEIAS.

Gas-fired production was hovering around 297GWh in the first ten days of the month, compared to 378GWh over the same period last year.

Meanwhile, average daily hydro generation was 195GWh, some 45GWh higher than over the same period last year.

An increase in wind generation this month is also offering some relief, as plants are operating at 55-60% capacity, nearly double the long-term utilisation rate.

A source said there were concerns that with hydro power ramping up, there may not be any water left for the colder season, particularly if the autumn months turn out dry.

Daily demand currently hovers around 960GWh/day, one of the highest levels so far this year.

Nevertheless, a source said consumption may weaken in the upcoming days as the country is preparing for religious holidays next week.