Transcript Presentation - Competition and Regulation in Network Industries

THE EVOLUTION OF
TURKISH ELECTRICITY MARKET REGULATION
DR. REFIK TIRYAKI
COMPETITION AND REGULATION IN NETWORK INDUSTRIES
6TH ANNUAL CONFERENCE - 22 NOVEMBER 2013 - BRUSSELS, BELGIUM
outline
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Historical introduction
1st step reforms (Introducing private participatition)
2nd step reforms (new regulatory design / 4628)
 Reasons
 templates
 creation of new market structure
 policy documents
Last reform attempt (6446)
Comments on reform efforts
Historical introduction
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2 kW watermill in 1902
Ottoman Elect. Corp. - 15 MW Coal PP - 1915
Concession contracts
Republican Era starts in 1923
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Concession contracts continued + new entries
Policy shifting after 1930s
State institutions, decentralised electricity system
During 1940s expropriation movement
1953 1st National Energy Congress
1963 Ministry of Energy and Natural Resources
1970 Turkish Electricity Institution (TEK)
(vertically integrated national incumbent – except distribution)
1982 incorporation of distribution to TEK
Landmark dates
1923
Foundation of the Republic of Turkey
1953
National Energy Congress which had shaped subsequent developments until 1984
1963
Foundation of the Ministry of Energy and Natural Resources (MENR)
1970
Foundation of TEK, national incumbent (incorporation of distribution, in 1982)
1984
Introduction of the reform policies within BOT structure for electricity industry
1993
New statutory legislation for BOT projects for utility industries
1996
New regulatory, later on statutory attempt for generation segment via BO Projects
1999
Constitutional amendments for public services to be pursued via private law
2001
New phase for electricity market reform policies via the Law, No: 4628
contracts
2004 First Strategy Document initiating a new path for the implementation of reform policies
2009 Second Strategy Document initiating partial restoration for reform policies
2013
Enhancement of electricity market reform policies via the Law, No: 6446
1st step reforms introducing private participatititon
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Reforms for ‘capital search for investments’ +
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Reforms initiated in 1984 via the Law, 3096
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growing faith in the market economy
inadequate investment budget (new + maintanence)
BOT
: for new generation investment
TOOR : for rehabilitation and operation of existing
generation and distribution facilities
auto-producer licence : enhancing captive generation
capacity into industrial facilities
New attempt in 1993 via the Law, 3996
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BOT contracts for various infrastructure sectors with new
incentives
1st step reforms introducing private participatititon
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A new attempt via the Decree, No: 96/8269
Introducing BOO model for thermal PPs
 Conseil d’Eta’s Stay of Execution Decision in 1996
New statutory initiation of BOO model in 1997 via the Law,
4283.
 Success with BOO model,
 1999 Constitutional Amendments about private law
contracts for public services .
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such as private law contracts, direct treasury guarantees
Constitutional Court Decision on the Law, 3996 and public
service concept.
1st step reforms introducing private participatititon
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Considerable amount of generation investments acquired via
BOT (2500 MW) and subsequent BOO (6000 MW) schemes
during 1990s
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However, the reform efforts didn’t
• brought the effect of lifting financial burden from Treasury
• create favourable investment climate for private enterprises
despite their introduction in 1984.
2nd step reforms –reasons–
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As a result of previous reform efforts
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Financially overburden on Treasury stemming from design deficiency
inefficient operation of the distribution system
TEDAS’s financial weakness
• stems from high level of technical and non-technical –mainly theft –
losses
repeating macroeconomic crisis
Lack of competition
Loopholes such as unsolicited projects, investor completed feasibility
studies, false demand scenarios.
New concepts at international level
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Success of ideology and politics towards wider liberalisation
Sympathetic regulators,
gas turbines, and
poor accountability of SOEs.
Application of competitive markets theory at European level.
2nd step reforms – templates–
Jamasb& Pollitt, 2005, 13.
Restructuring
Competition
and markets
Regulatory
reform
Ownership
reform
 Vertical unbundling of generation, transmission,
distribution and retail supply activities
 Horizontal splitting of generation and retail
supply
 Wholesale market and retail competition
 New entries in generation and retail supply
 Establishing an independent regulator
 Provision of third party network access
 Incentive regulation of transmission and
distribution networks
 Allowing new private actors
 Privatising existing publicly owned businesses
figures
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Installed capacity reached to 60 GW (2013)
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Consumption was 242 TWh (2012)
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Increase in electricity demand is about 7 - 8 %
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Monetary value of consumption is about 30 billion US$
2nd step reforms new regulatory design
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Restructuring or creation of new market structure
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Market model is based on voluntary bilateral agreements completed
with the balancing mechanism.
Unbundling existing TEAS into 3 companies
• TEIAS for transmission
• EUAS for generation
• TETAS for wholesale supply
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• TEDAS for distribution and retail sale; regional DISCOs stipulated .
Competition and Markets
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Eligible consumer application
20% market share limitatiton
Retail sale and retail sale services activities and licences for wider
playing field and private law application to all activites.
2nd step reforms new regulatory design
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Regulatory reform
Creation of EMRA as independent administrative agency
( Board + Agency),
 Regulated third party access to the network, without
discrimination,
 independent transmission system operator for transmission,
 tariff applications for network activities,
 No price regulation in the wholesale & balancing markets.
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Ownership reforms
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Designation of market activities and relevant licences
generation – transmission – distribution – wholesale – retail sale – retail
sale services – import & export
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Market activities performed under particular licence. Each
activity or facility requires saparate licence.
Policy documents
SP2004 Strategy Document
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Crucial role of competition in the market approach pushed
back, and privatization of energy assets gained primary
role.
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Designating method, timetable and preparatory design of the
sector for privatization works.
Three modalities (i) multi-year tariff implementation periods, (ii)
a tariff equalization mechanism (iii) vesting contracts to be
signed among EUAS, TETAS and regional DISCOs.
Modalities distorted all costs and price signals (see fig 2).
Dominant position of state entities with predatory pricing
operandi distorted all likely investment decisions.
Amendments to Law No: 4628 and transition period
initiated.
Policy documents
SP2009 Strategy Document
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New mechanisms; capacity mechanism, security of supply and
necessary mechanisms in relation, e.g. central contest, extension
of the transition period, vesting contracts, reorganization of
generation assets, separation of activities of regional distribution
companies, multi-year tariff scheme with price equalization
mechanism.
Significant policy orientations, e.g. improvement of transmission
system conditions and realization of UCTE/ENTSO-E
membership, natural resource utilization targets, targets for state
generation assets investments, efficiency and saving targets.
Importance of this document, the roadmap about restoration of
the functioning voluntary bilateral contracts market, foremost
aim of the market reform in 2001.
Voluntary bilateral contracts market completed by the end of 2011.
6446
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Two main aims during drafting period
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deepening the liberalization process
re-orienting EMRA to its regulatory function.
Restructuring –
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Unbundling of retail sale and distribution activities
entrenched.
New boundaries for distribution and retail sale companies.
Neither any company engaged in a market activity nor a
distribution company cannot directly become a partner in
respected counter one.
Distribution companies cannot perform any activity other
than distribution.
6446
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Restructuring –
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Regional distribution companies are obliged
• to operate the distribution system “in a manner facilitating
competition for electricity generation and sale”.
• “provide services on a non-discriminatory basis among equal
parties” to the system users, connected or to be connected to the
system.
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EMRA empowered to divest and/or terminate the
ownership due to market power criteria
Competition and Markets
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introducing a new market activity, market operation
activity, covers the operation of any OWEM.
an OWEM may be an OTC market, an organized market, a
market bounding some segments of those beside ancillary
services market which entrusted to TEIAS.
6446
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Competition and Markets
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creating a new company for new trading platform, EPIAS, a
spun off company from TEIASs market opertor branch
empowering national stock company (BIST) for derivative
markets,
The law abolished retail sale services activities and
incorporated several competitive activities, such as counter
reading and billing, maintenance services into distribution
activity.
6446
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Regulatory Reform
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Law regulates tariffs for both network and commercial
activities.
Market operation and last resort supply tariffs are newly
introduced tariffs to the system.
Market operation tariffs based on the principles of meeting
revenue requirements and financial sustainability of EPIAS
for operating an OWEM.
Last resort supply will aim to encourage consumers to
conclude bilateral contracts with suppliers as introducing
interim utilization and expensive prices.
6446
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Ownership Reform
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The law stipulated two new licences and repealed two
existing ones
Market operation licence covers operating an OWEM
which primarily covers the operation of a trading platform
Supply licence, covers operating both in wholesale and
retail sale segments of market.
Wholesale and retail sale licences repealed
A new licensing method for generation licences, i.e. interim
licence fo max. 2 years period prior to generation licence.
Expropriation powers of EMRA is transferred to related
public authorities
6446
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Ownership Reform
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New procedural guarantees for licence applicants, such as
notification of clear and full justifications when their
application rejected.
Threshold for unlicensed generation activities increased one
fold to 1 MW. The Council of Ministers is authorized to
increase the threshold limit to five fold.
Comments
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Regulations complies, to a great extent, with EU acqui
requirements
Convergence between electricity and natural gas markets was
taken into consideration during the organization of trading
platforms.
IRA are massively empowered via market power criterion to
regulate and supervise the market.
There are some controversial issues, bearing risk to bring
complications about economic freedoms, constitutional
limitations or discretionary power of administrative institutions.
Exemption of keeping books and accounts and regulation of auto
producers may negatively affect EMRAs competence on market
power surveillance, by posing risk to create potential market
power.
National tariff mechanism with cross subsidies is under
application until the end of 2015, possibly till 2020.
Comments
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Evolution of the electricity market regulation displays an ‘ebb
and flow’ character.
Turkish electricity market regulation mainly focuses on
alleviating measures to existing symptoms rather than curing
original problems.
The prevailing political commodity character of electricity has
always played an important role both for drafting and
implementation periods of documents, whether legal or political.
Thank you for your interest.
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