Key Trends in the Turkish Energy Market: Potential Opportunities and Pitfalls for Investors
 

Key Trends in the Turkish Energy Market: Potential Opportunities and Pitfalls for Investors

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Key Trends in the Turkish Energy Market: Potential Opportunities and Pitfalls for Investors Key Trends in the Turkish Energy Market: Potential Opportunities and Pitfalls for Investors Presentation Transcript

  • 1 “We Accelerate Growth” May 2014 Key Trends in the Turkish Energy Market Potential Opportunities and Pitfalls for Investors
  • 2 Key trends in the Turkish energy market Source: Frost & Sullivan analysis. Key Trends in the Turkish Market 1 Demand for power will continue to rise at approximately 7% per year, necessitating new capacity additions 2 The market reform process is progressing with private companies keen to expand their presence in the market 3 Turkey’s fuel mix will diversify, with greater investment in renewables. Coal and gas will remain a key element of the fuel mix 4 Once a functioning bureaucracy is in place, the solar power market is expected to boom fuelled particularly by the 'below 500 kW regulation'. This regulation will unlock a significant amount of investment 5 Power generation is dominated by local, diversified industrial groups. While several international utilities are partnering with Turkish companies, most projects are run solely by local companies, involved in the construction industry 6 New competitors are continuing to emerge though and international investors are also keen to expand their presence 7 With most equipment imported from abroad, Turkey is an attractive market for equipment OEMs. The presence of Chinese players is increasing 8 There remains a bottleneck around financing, but this can be overcome as global lending conditions improve
  • 3 Source: ETKB, Frost & Sullivan analysis. 2001 2005 2010 2015 2001—Electricity Market Law 2001—Establishment of EPDK 2005—Renewable Resources Law 2007—Energy Efficiency Law 2010—Significant Amendments in Renewable Energy Law Major steps taken to realize market reform Investment Opportunities in the Turkish Energy Market: Reforms Timeline, 2001–2015 2008— Beginning of Distribution Privatisations 2012—Beginning of the Privatisations of 16 GW Generation Assets 2015—Fully open market (all consumers will be eligible) 2013—Legal unbundling of distribution and retail 2009—Electricity Energy Market and Supply Security Strategy Paper The market liberalisation process continues…..
  • 4 Electricity Demand Forecast, Turkey, 2010–2020* Source: TEIAS,EU website, Frost & Sullivan analysis*Based on the high scenario in TEIAS projections 6 6.5 7 7.5 8 8.5 9 0 100 200 300 400 500 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Growth(%) EnergyDemand(TWh) Years Energy Demand (TWh) Growth(%) Consistently strong electricity demand growth forecast – approximately 7% per annum
  • 5 0 3 000 6 000 9 000 12 000 15 000 18 000 21 000 2011 2023 InstalledCapacity(MW) Expansion of Coal, 2011 and 2023 Installed Capacity by Share of Coal, 2011 Source: ETKB,TKI, Frost & Sullivan analysis. * * 17.5 GW is the set target of the government which is stated as 17-18 GW until 2023. 12.4 GW 12.4 GW 17.5 GW Coal 24% Others 76% Of the 12.4GW of capacity, 8.5GW utilises domestic coal reserves. Turkey has 11.8 billion tonnes of reserves; 1.3 billion tonnes of hard- coal and 10.8 billion tonnes of lignite. Coal plants built between 1980 and 1990 are currently being privatised. A further 7GW of capacity is being lined up to be tendered to the private sector. Despite government pronouncements on using domestic coal, a high amount of investment is planned based on imported coal, determined from the licences currently under assessment and examination. Project developers are preferring to utilise higher calorific valued-coal, in order to ensure higher returns and a shorter ROI. Recent study predicts 5GW of additional coal capacity to be online by 2023
  • 6 Natural Gas 31% Others 69% Expansion of Gas, 2011 and 2023 Installed Capacity by Share of Gas, 2011 Source: ETKB,TKI, Frost & Sullivan analysis. From a supply side, Russia is the main source of gas, but Turkey also has connections to Caucasus's and Iran. Although Turkey is heavily dependent on imports, it is also an important transit country to Europe. State-owned Botas dominates the local supply market, but there are plans to liberalise the market in future, creating new opportunities. Although gas only accounts for 31% of capacity, 48% of the electricity was generated by gas-fired power plants in 2011. A total of 8,120MW worth of licences have been approved and much of this is under construction. Massive expansion of gas-fired generation, with foreign investors increasing presence in the market 16.3 GW 38.5 GW* * Installed capacity in 2023 is calculated conservatively taking into account only the licences under construction and approved. The licences that are under consideration and in applied category have not been included. . 0 10 000 20 000 30 000 40 000 50 000 2011 2023 InstalledCapacity(MW) 16.3 GW
  • 7 Client need  Our client, a European utility, wanted to investigate the market opportunity for Energy from Waste incineration plants and Biomass plants in Turkey. It also wanted to identify and profile potential partners that could reinforce its market entry efforts. Approach and results • The work was performed over 10 weeks and was managed from our London office and fulfilled primarily by our local office in Turkey. • The analysis was structured primarily from discussions with key market players, local municipalities, government ministries and private investors. We leveraged on our extensive contacts in the country and carried out mostly face to face interviews but also telephonic interviews to gather key intelligence and gauge stakeholder interests. • A detailed assessment of the Turkish energy sector was carried out to assess market opportunities and challenges for waste incineration and biomass and position its development in the fuel hierarchy. • An initial long list of potential partners was also generated - this was shortlisted in accordance with our clients requirements and fit to their capabilities. • The partner targets were then profiled in detail to determine key strategic capabilities and plans. Outcome • Our client has decided to proceed further with its strategic drive and wants to meet potential partners and interested customers. • We are currently arranging meetings with interested parties and will facilitate face to face meetings in Turkey in the next few weeks. Case Study: Energy from Waste and Biomass market opportunity and partner selection study in Turkey Overview of Key WtE stakeholders Market Opportunity Overview İstanbul Kocaeli Sakarya Eskisehir Ankara Samsun Erzurum Izmir Antalya Konya. Mersin Adana Kayseri Gaziantep Diyarbakır Bursa 5.2 1.4 2.2 0.2 0.3 0.3 0.3 0.6 0.6 0.7 0.8 0.8 0.4 0.4 0.4 0.5 High Opportunity Medium Opportunity Low Opportunity 44 İstanbul Metropolitan Municipality, İzmir MM, Ankara MM, Antalya MM, Gaziantep MM, Bursa MM Municipalities EPC Companies Regulatory Companies IPPs Autoproducers Waste Disposal Companies The Turkish Energy from Waste Market WtE Key Players ITC (Switzerland),Ortadogu Energy CEV (South Korean), Ekolojik Energy Cargill, ESES Cement Factories : Akcansa,Cimsa,Askale, Batısoke İzaydas,İstac , Inte Waste Management Center, Aten Waste Management MENR ( Min. of Energy), EMRA ( Energy Market Reg. Authority), MOEU ( Min. of Env .& Urbanization),EUAS ( Electricity Gen.Co. Inc.), TEIAS ( Electricity Trans. Co. Inc.), TEDAS ( Electricity Dis. Co. Inc). Artas, Iltekno, UMDE
  • 8 Hydro 32% Others 68% Expansion of Hydropower, 2011 and 2023 Installed Capacity by Share of Hydropower, 2011 The current installed capacity as of 2011, was 17.1GW, with 15.2 GW of hydropower plants under construction. On the equipment supply side, Turkey has increasingly become a battleground as Chinese manufacturers have been increasing their presence in the market, especially supplying hydro turbines below 15MW. Over 15 MW, the investors tend to work with the Western OEMs such as Voith Hydro, Alstom, and Andritz Hydro. Challenges facing the market include: • Poor coordination between the responsible corporations • Public protest based on the environmental impacts • Lack of control mechanism of the hydropower plants during feasibility, construction, and after commissioning period. Significant expansion of hydropower + refurbishment work makes Turkey a key European market 17.1 GW 0 10000 20000 30000 40000 50000 2011 2023 InstalledCapacity(MW) Years 17.1 GW 45 GW* *45 GB represents the government’s set target in the 2009 strategy paper. The projects in the pipeline indicate that things are on track as planned and the target is reachable if conflicts stemming from environmental problems can be solved with necessary precautions.
  • 9 Wind 4% Others 96% Expansion of Wind, 2011 and 2023 Installed Capacity by Share of Wind, 2011 As of the end of 2013, EPDK has granted 209 licences corresponding to 7,479 MW capacity including the operational and under- construction plants. The Turkish government has set a target of 20GW of wind capacity by 2023. However major challenges faced in the market include: • High number of permits at the construction stage • Priority given to exhaustible resources (gas and coal) • Obligation to provide an estimate of electricity output 13 hours in advance, which is hard to provide with accuracy considering the intermittency of wind power • Bureaucratic difficulties during licence period Wind power faces significant challenges in meeting 2023 target 2.0 GW 0 5 000 10 000 15 000 20 000 25 000 2012 2023 InstalledCapacity(MW) 2.0 GW 20 GW * * 20 GW is the target announced by the 2009 Strategy Paper. However, Turkey promises a good potential to utilise wind power; a more settled, functioning bureaucratic system and upgraded infrastructure can pave the way for to reach to that target capacity.
  • 10 The Client: A Global Tier 1 Supply of Wind Turbines The Challenge Project Objectives A leading global supplier of wind turbines has recently entered the market in Turkey. Given its late entrance to the market, the company wanted to gain detailed insights into the market trends and dynamics to ascertain the realistic market opportunity. In addition, our client wanted to understand the operational activities of competitors in order to ramp up its business in an optimal manner through best practices and lessons learned in the market. • To assess the market opportunity of the wind power plant services market in revenues; • To forecast the market size to 2017 (with 2012 as the base year) • To identify key trends, revenues drivers/enablers and restraints and how this will impact the market; • To identify key competitors and provide detailed profiles on their operational architecture; and • To provide key conclusions and actionable recommendations for our client to maximise their success in this market. Our Approach and Work Frost and Sullivan initially utilised data from out internal studies, key public sources and databases. These were used as a platform on which the remaining market intelligence was built. Our analysts used detailed expert interviews with key market participants to uncover the details and provide insightful results. Overall, 30 interviews were conducted. Outcome and Business Impact The client will use the data to plan its next operational investments in Turkey to build its wind power services networks most effectively incurring the least investments that will have the maximum coverage for its customers. The intelligence will feed into the structured roll out of team build up and the ramp up of its capabilities. Case Study: Strategic Analysis of the Wind Power Services Market in Turkey
  • 11 State company EUAS still a substantial player in the market, but diverse ownership exists…… Market Shares and Capacity of Leading Electricity Generation Producers (%), 2012 EUAS: State-owned power generation company BOO: Build-Operate-Own BOT: Build-Operate-Transfer IPP: Independent Power Producers TOR: Transfer of Operation Rights As of 2012, EUAS is still the biggest power generation company in Turkey. However, this will change once its assets are acquired by private investors during the continued privatization. The second largest group is independent generation companies, which we will see their shares increasing in the future as companies proceed with commissioning new plants and acquiring power plants within privatization portfolio. . Source: EUAS, Frost & Sullivan analysis. EUAS 32% Generation Cos 27% BO 20% EUAS Affiliates 8% BOT 6% Autoproducers 5% TOR 2% Producers Generation (GWh) EUAS 73,509 Generation Cos 62,077 BO 44,938 EUAS Affiliates 18,823 BOT 12,810 Autoproducers 11,708 TOR 4,566 Total 228,431
  • 12 Capacity of top 25 players to double in 5 years. Market ripe for acquisition and consolidation involving int. players Tier Company Tier I Enka Power, Aksa Enerji, Cengiz Enerji, Enerjisa, Akenerji Tier II Gama Enerji, Eren Holding, Oyak, Ciner Energy & Mining Group, Içdaş, Zorlu Enerji, Limak Enerji, Unit Enerji (Unimar) Tier III Baymina Enerji, Sanko Enerji, Bis Enerji, Çalık Enerji, Metcap, Ayen Enerji Altek-Alarko, Colakoglu, Akfen Holding, Bilgin Enerji, AES-Entek, Turcas Source: MENR, EMRA, Frost & Sullivan analysis. Tier I 40% Tier II 36% Tier III 24% Tier I 46% Tier II 43% Tier III 11% % Share of Power Producers in Installed Capacity by Tier, 2012 Forecast % Share of Power Producers in Installed Capacity by Tier, 2016 19.4 GW 35.9 GW In a recent publication, we recently rated and analysed the leading players in the Turkish market into three tiers of competition (EUAS excluded) Capacity of leading 25 players set to double in five years through a combination of new investments and acquisitions. Market is ripe for acquisition and consolidation, particularly for European/international utilities looking for expansion opportunities.
  • 13 Recent Frost & Sullivan study provided detailed analysis of leading players Category Tier I Tier II Tier III Company overview Background Key statistics Group companies Focus markets and geographic scope Power generation portfolio Geographical spread Operational and planned plants Installed capacity by fuel (2012–2016) Procurement strategy New investment analysis Sourcing practices Supplier selection criteria Partnerships Future Snapshot Key success factors and strengths Not includedIncluded Disclaimer: For some companies, the information might not be in the same standard as other companies because of its unavailability. Source: Frost & Sullivan analysis.
  • 14 Sample of the key output for each company
  • 15 0 20 40 60 80 100 120 140 160 180 200 2011 2012 2013 2014 2015 2016 2017 Industry 3.6 3.9 4.2 4.5 4.9 5.4 5.9 OIZ 6.4 7.2 7.8 8.5 9.5 10.6 11.5 Gas & Water Distribution 8.3 9.2 11.1 12.1 13.0 13.8 14.6 Power Distribution 62.0 71.3 75.1 80.7 86.5 93.0 100.5 Power Tranmission 9.7 7.6 8.1 10.2 9.9 10.6 10.9 Power Generation - - 4.3 6.9 10.3 15.3 22.1 TotalMarketRevenues(€Million) Total Market Revenues by Sectors, 2011 - 2017 CAGR: 10.8 % Massive investment forecast for T&D, as Turkey seeks to boost grid performance
  • 16 The Challenge Project Objectives A world leader for smart grid and automation equipment wanted to assess the market opportunity and develop a strategic road map for Smart Grids Services and Solutions in Turkey. The client wanted to assess 5 key customer segments namely; power generation, power transmission, power distribution, organised industrial zones and infrastructure and transportation. • Provide a top level macro analysis of the Turkish electricity market • Assess the regulatory landscape and determine key legislative impacts on future smart grid deployment • Analyse the potential market opportunity for Smart Grid Services and Solutions to 2020 (2011 base year) •Identify key competitors and profile market leaders; and • Provide key conclusions and recommendations for our client to develop an effective market development strategy. Our Approach and Work Frost & Sullivan developed the analysis from both a ‘bottom –up’ approach, where customer bases were concentrated and through a ‘top-down’ approach where industry databases were available and the customers base was highly fragmented. Interviews were conducted with 100 key market participants (competitors and customers) to ascertain current requirements and spending plans. In addition, extensive desk research was used to cross check and supplement the analysis. Outcome and Business Impact • The project lasted for 12 weeks and this involved close interaction (weekly onsite work) with the client. • Frost & Sullivan presented the data to the key strategy development stakeholders •These inputs will be used in our clients yearly business strategy development plans. Case Study: Strategic Analysis of the Smart Grid Services and Solutions Market in Turkey
  • 17 O&G Generation Power and Water Transmission Renewables Distributed Power End Users and Back-up Waste Streams OUR COVERAGE & VISION: IDENTIFYING OPPORTUNITIES FROM UPSTREAM TO POINT OF USE • Unconventional Gas and Shale • Natural Gas • Oilfield Services • Offshore and Subsea • Prime movers and rental markets • Water and Shale • Water and &G • Gas Turbines • Steam Turbines • Power Plant Services • O&M and MRO • Total Energy and fuel mix forecasts • Electric grid T&D • Smart grid • Transformers • Switchgear • Substations • Metering and AMI • Water/Waste Water • Smart Water • Wind • Solar • Fuel Cells • Biofuels and waste to energy • Alternative energy Convergence Themes • Generator sets • Power rental • Batteries • Ultracaps • UPS • Back-up power • Microgrids • CHP and microCHP • Waste to Energy • Smart buildings/ smart homes • Facility management • Energy management services • IFM • Fire & Safety • Residential/C&I water treatement Smart Cities Water/Waste Water Across Industries Green Energy Shale Gas Phenomenon Globalization Data Center Energy
  • 18 Turkey specific energy studies published since 2012 Source: Frost & Sullivan analysis. Report Update of the Renewable Energy Market in Turkey 2014 Impact of Carbon Regulations in Turkey 2014 A snapshot of waste to energy market in Turkey 2014 Global Oil & Gas Pipeline Services Markets 2014 The future of smart grid and cities in Turkey 2014 LED Lighting Market in Turkey 2014 Analysis of the Top 25 Fastest Growing Power Producers in the Turkish Market 2013 Strategic Analysis of the Renewable Energy Energy Market in Turkey 2012 Opportunities in Green Buildings in Turkey 2012 Generator Sets Market in Turkey 2012
  • 19 Melih Nalcıoğlu • Melih Nalcioglu is a research manager in Frost & Sullivan's Turkey office with 12 years consulting experience on Turkey market cross industries. Before joining Frost & Sullivan, Melih was involved in boutique consulting projects mainly for European companies that would like to enter Turkish market. Melih has managed approximately 25 consulting projects for Frost & Sullivan. Ozge Ozeke • Ozge has been working as a Senior Research Analyst in Frost & Sullivan’s Energy & Environment team in Turkey for 3 years. She has participated in several consulting studies in smart grid, wind, waste to energy, building technologies, power back-up systems and authored research reports on renewables, investment opportunities in energy and green buildings in Turkey. Hikmet Cakmak • Hikmet is an Industry Analyst and has been working in cross industry studies and projects, mostly in Energy & Environment and Automotive & Transportation. He has participated in projects on smart grid, wind and back up power, electric vehicles and urban mobility. He has authored reports on gas and diesel gensets and lighting. The team in Turkey is supported where required from our European offices. Local European project management is also available. Key members of the Turkish Energy team
  • 20 Key questions for investors in the Turkish market – the basis for future discussions Source: Frost & Sullivan analysis. Independent opinion Investment decisions should be supported with research and verification from an independent source – crucially a company with a local presence in the market and access to senior industry figures. Appetite for risk Turkey offers excellent potential, given the strong pace of economic development and electricity demand growth. But investors need to consider that the regulatory climate is less certain than Western Europe and poses significant challenges. Identifying the right sub segment It is vital to understand the political, social, economic and legal factors that are shaping the market through a reliable forecast on future developments. Market segments that are attractive in other country markets may be not be as attractive in Turkey and vice versa. Local Partner Local partners are essential for non-Turkish companies to do business in Turkey. Picking the right partner that fits with your company’s corporate ethos and strategic vision is key. Expertise Western European, North Asian and American companies are seen as bringing expertise and vision that is not necessarily present amongst indigenous players – this is something that can be exploited to the benefit of the investor.
  • 21 About Frost & Sullivan
  • 22 The Frost & Sullivan Story 1961 1990 Today Emerging Research 1961–1990 Pioneered Emerging Market & Technology Research • Global Footprint Begins • Country Economic Research • Market & Technical Research • Best Practice Career Training Growth Partnership • Growth Partnership Services • GIL Global Events • Growth Consulting • GIL University Growth Partnership 1990–Today Visionary Innovation Today–Future Visionary Innovation • Mega Trends Research: Macro to Micro • TechVision 2020 • GIL Global Community + +
  • 23 Our Global Footprint 40+ Offices Scanning the Globe for Opportunities and Innovation
  • 24 Our Services Market, Business, Technology Research & Analysis Growth Consulting Implement- ation Relevant and actionable concepts and strategies Comprehensive, accurate and up-to-date intelligence Growth Implementation, Training, Coaching Growth Consulting Growth Partnership Services
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  • 26 Contacts Jonathan Robinson Senior Consultant Energy, Environment & Building Technologies +(44)207.915.7883 jonathan.robinson@frost.com Chiara Carella Head of Corporate Communications Europe, Israel and Africa +44 (0) 207 343 8314 chiara.carella@frost.com