EMRA - Turkish energy market. An investors' guide, 2012 (ENG)

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EMRA - Turkish energy market. An investors' guide, 2012 (ENG)

  1. 1. TurkishEnergyMarket:An InvestorsGuide 2012 ENERGY MARKET REGULATORY AUTHORITYMuhsin Yazıcıoğlu Cad. No: 51/C06530 Yüzüncüyıl - Ankara / TURKEYwww.epdk.gov.tr www.epdk.org.tr
  2. 2. TurkishEnergyMarket:An InvestorsGuide2012 ENERGY MARKET REGULATORY AUTHORITY www.epdk.gov.tr www.epdk.org.tr
  3. 3. Table of Contents Introduction 05Institutional Framework 10 Electricity Market 14 Natural Gas Market 30 Oil and LPG Markets 44 Green Opportunities 54 Conclusion 62
  4. 4. IntroductionT he Republic of Turkey presents a very attractive investment environment for the investorsowing not only to her political stability but also to her growing economy and economic sectorsmost of which have been undergoing a massive program of restructuring and liberalization. Asof 2011, Turkey is the sixth biggest economy in Europe with its more than $376 billion foreigntrade volume and exports its goods to more than 200 countries two thirds of them beingadvanced economies (Treasury, 2012).After a steady growth since 2002 and a peak level of $340 billion in 2008, trade volumestepped backed from its peak in 2009 due to the negative impact that the global financial crisishad on the international trade. As the negative implications of the global crisis faded awaygradually, the trade volume started to increase again and reached $376 billion as of the end of2011 including $135 billion exports and $241 billion imports (Treasury, 2012). Turkish economystarted to recover swiftly just after the global crisis in 2009 and grew 8.9% and 8.5% in 2010and 2011 respectively (TUIK, 2012). Turkish economy has been able to produce approximately780 billion USD GDP in 2011. FDI INFLOWS Source: Treasury 25,0 15,7 20,0 Billion USD 15,0 10,0 5,0 0,0 2003 2004 2005 2006 2007 2008 2009 2010 2011Foreign direct investments are seen as crucial for Turkeys economic develop-ment. In thiscontext, Turkey has taken the necessary measures to improve the conditions for the investorsand committed itself to the materialization of these measures. By the time this booklet is being T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E 05
  5. 5. Introduction Introduction written, there is no discrimination against the international investors in favor of their domestic timetable has been set by the Electricity Market Reform and Strategy Paper published by the counterparts. There are no barriers against the free market entry, no limits on capital or transfer Government in 2004 for the privatizations of the generation assets. of capital and on procurement or transfer of foreign exchange. Owing to these favorable conditions, the interest shown by the foreign investors on Turkish economy started to ENERGY BALANCE OF TURKEY accelerate especially after 2005. The total amount of FDI poured into Turkish economy within Source: MENR the last five years reached almost at $105 billion. Data revealed by Turkish Treasury 109.266 107.627 106.421 106.138 demonstrates that, the amount of FDI had dropped in 2008 and 2009 just because of the 120.000 99.642 91.074 global financial crisis after a steady growth since 2002 and started to grow again in 2010 and 87.818 83.826 83.372 82.746 2011. In the meantime, the number of companies in Turkey with foreign capital has already 100.000 80.574 79.642 78.331 77.441 75.402 71.510 exceeded 26,000 (Treasury, 2011). In order to have a better grasp of Turkish economy figures 69.005 64.990 regarding the inflation and unemployment are depicted below. 80.000 59.486 Thousand TEP 56.048 INFLATION UNEMPLOYMENT 60.000 (Source: Treasury; OVP) (Source: Treasury; OVP) 80,0% 15,0% 40.000 71,6% 14,0% 70,0% 14,0% 62,7% 60,0% 13,0% 20.000 11,9% 50,0% 12,0% 10,8% 40,0% 11,0% 10,2% 10,4% 11,0% - 30,0% 10,0% 10,6% 10,3% 9,8% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20,0% 9,0% 10,5% 10,0% 5,2% 5,0% 5,0% 8,0% Total Production of Primary Energy Sources Total Final Energy Consumption 2* 4 5 6 7 8 9 0 1 0,0% 200 200 200 200 200 200 201 201 201 1983-1994 1995-2001 2002-2011 2012* 2013* 2014* The sheer size and the expansionary trend in Turkish energy market are so evident that the In conjunction with rapid economic growth and urbanization, energy demand and the need for potential investors, both domestic and foreign, are likely to find invaluable investment new investment in energy sector has also been increasing and the sector becomes opportunities herein. The primary energy consumption in Turkey has been steadily growing increasingly attractive for investors, domestic and foreign alike. Having its roots In 1980s and within the last decade and reached at 83.4 MTOE in 2010. In 2011, Turkish economy gained momentum at the outset of the new millennium, the efforts to liberalize the energy consumed 229.3 billion kWh electricity and 44.2 BCM natural gas. Crude oil refined in Turkish sector has been one of the crucial elements that paved the way for greater interest shown by refineries in 2011, on the other hand, was almost 21 million tons (EMRA, 2012). A glance at the investors in investing in Turkish energy sector. These efforts, to a great extent, succeeded per capita production numbers shows that, Turkey still has lower per capita production levels in achieving its goals and Turkey became a country with a growing, transparent, competitive compared to the averages prevail in OECD and EU countries. According to data revealed by the and attractive energy market. MENR, per capita electricity production was 2,685 kWh in gross terms in 2009. This number corresponds to one fourth of IEA average and it is expected to grow in parallel with the The liberalization process has also been accompanied by a massive privatization process. The growing economy and energy demand. Indeed, gross electricity production per capita in 2010 privatization process in electricity sector is noteworthy in particular. In Turkish power market reached at 2.865 kWh. the privatizations have almost been completed in distribution segment while a concrete06 T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E 07
  6. 6. Introduction Turkey: 2.685 kwh GROSS ELECTRICITY PRODUCTION PER CAPITA OECD: 9.595 kwh 60.000 50.000 40.000 kwh 30.000 20.000 10.000 - AVUSTRALYA AVUSTURYA BELÇİKA KANADA ŞİLİ ÇEK CUMHURİYETİ DANİMARKA ESTONYA FİNLANDİYA FRANSA ALMANYA YUNANİSTAN MACARİSTAN İZLANDA İRLANDA İSRAİL İTALYA JAPONYA KORE LÜKSEMBURG MEKSİKA HOLLANDA YENİ ZELANDA NORVEÇ POLONYA PORTEKİZ SLOVAKYA SLOVENYA İSPANYA İSVEÇ İSVİÇRE TÜRKİYE İNGİLTERE ABD With respect to energy intensity, Turkish economy consumed 0.11 Toe in 2008 in order to produce one dollar of GDP While this level is 12% lower than lEA-Europe average, it has followed a relatively stable path during the last years due to the fact that the increasing share of services sector in the economy and the increasing population of the country worked in opposite directions and offset their respective effects (IEA, 2010). It is estimated by IEA that, Turkey will likely see the fastest medium to long-term growth in energy demand among the IEA member countries (IEA, 2010). Ministry of Energy and Natural Resources (MENR), on the other hand, estimates that total final energy demand and the total primary energy demand will more than double and reach at 170.3 and 222.4 MTOE respectively by 2020. It is also estimated that electricity, natural gas and oil demand will reach at 398-434 billion kWh, 59 BCM and 59 million tons respectively. In order to meet such an immense growth in energy demand, huge levels of investment is required as well in all three sectors alike. Turkish governments prioritize the private sector in financing these investments and have taken the necessary steps to facilitate the investment environment in which the investors could make their investments in a transparent, predictable, liberalized and competitive framework.08 T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E
  7. 7. Institutional Framework Institutional Framework such that Energy Market Regulatory Authority (EMRA) was established in 2001 in order to W ith its fast economic growth, Republic of Turkey is not only an important consumer of energy but also a regional actor in distribution of the energy resources in its region. Only one- perform the regulatory and supervisory functions in the market. The fundamental objective of EMRA is set forth in its founding document as follows: to ensure the development of financially third of primary energy supply out of a total 109 MTOE was met by domestic sources in 2010 sound and transparent energy markets operating in a competitive environment and the while the remainder was imported from various producer countries. In this context, a huge delivery of sufficient, good quality, low cost and environment-friendly energy to consumers and level of investment is needed to feed the Turkish energy market such that huge amounts of to ensure the autonomous regulation and supervision of these markets. As an independent energy resources should be procured from other countries and transported into Turkish regulator, EMRA is endowed with regulatory functions such as licensing to transcribe the market. entries and exits to the market; regulating the market to assure non-discriminatory third party access to the monopolistic infrastructures such as grids; ratemaking to inhibit monopoly rents; Such an immense activity requires concomitant levels of investment and Turkish policymakers and supervising and penalizing (if necessary) to make sure that the market participants are in have shown their commitment and willingness in private sectors participation in funding these compliance with the rules and regulations. investments. As a result of the concrete steps taken during the liberalization process, the share of private To this end, the share of state-owned enterprises in energy sector has been gradually reduced, sector in petroleum refining and distribution activities has reached almost 100%, while more especially after 1980s, thanks to the winds of liberalization that took place then and than half of the electricity produced in Turkey has become privately-operated generation. As afterwards. From an historical perspective, traditionally state-owned and close to private for electricity distribution, on the other hand, all of the 21 distribution regions have been either participation and competition, Turkish energy sector has been undergoing tremendous reforms transferred to private sector or the privatization process has been finalized and expected to be and the share of private sector has been increasing gradually but steadily. An increased role for transferred soon. In natural gas market, the process developed relatively slow due to the private sector in Turkish energy market is one of the most important policy goals of Turkish structural reasons pertinent to the market. As of 2011, 4 BCM gas import contract previously politicians. The steps taken in 2001 and 2005 are particularly important in this sense. Thanks to owned by BOTAS has been transferred to four private companies, one year extension has these revolutionary steps, the obstacles against competition and private participation in been put in place for another expiring contract due to the fact that private companies failed to electricity, natural gas, petroleum and LPG markets have been removed to a great extent and a qualify to take over the responsibilities of a new contract and to get an import license from favorable investment scheme has been established in which the investors face a transparent EMRA, LNG imports have been completely liberalized and further studies are being conducted and highly predictable market structure. in order to transfer additional volumes of contract in order to open more room for competition The most important feature of the liberalization process is the unprecedented interest that the and private participation. At the distributional level, all of the pre-existing regions except two of private sector has shown in Turkish energy sector. In fact, not only the private funds poured them have been privatized and distribution licenses have been granted by EMRA for 62 into the privatization processes of electricity and natural gas distribution assets but also a regions. considerable number of the giant industrial conglomerates have decided to enter into energy It is worth-mentioning here that one of the crucial issues that should be taken into business in Turkey and set strategic targets to be met in the foreseeable future. Turkish consideration in assessing the investment environment in Turkish energy market is the policymakers are well aware of the fact that the persistence of the involvement of the private accession process between Turkey and EU for full membership. The compliance of the sector, especially during the generation privatizations and meeting the increasing demand, is regulations in Turkey with the EU directives pertinent to electricity and gas markets have been crucial if the reform process is to succeed. periodically assessed by the EU institutions as a part of negotiation process initiated in 2005. In The state structure in Turkey, which is withdrawing itself from the market as an investor except this context, the yearly progress reports and the 2007 Energy Chapter Screening Report are extraordinary circumstances, has reorganized itself as far as the energy sector is concerned particularly important. These documents confirm that the Turkish legislation and regulations10 T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E 11
  8. 8. Institutional Framework are in compliance with the EU electricity and gas directives. In other words, the EU documents confirm that regulations pertinent to energy sector in Turkey are compatible and in compliance with the EU directives which present one of the most advanced stage in terms of market liberalization and competition. Another tenet of Turkish energy sector that also has implications for the investment environment is the geographical convenience that the country has to have access to primary energy resources which is crucial to security of supply concerns. Turkeys enthusiasm for the cooperation and collaboration in international and regional multilateral energy projects is particularly important in this context. When we think of the energy value chain in its entirety, it is no surprise to come to the conclusion that it is crucial for a refinery to have easy access to crude oil or for a combined cycle power plant to natural gas in terms of getting inputs in a secure and uninterrupted manner. Seen from this perspective, Turkey is adjacent to Middle East and Caspian region (including Russia) that have tremendous amounts of oil and gas deposits in addition to the friendly political and economical relations between Turkey and the countries placed in these regions. The strategy of becoming an energy bridge between east and west adopted by Turkish policymakers provides further conveniences for the potential investors as far as the input security is concerned. Turkey, furthermore, involves in most of the international projects which are being conducted or planned and actively put its efforts to enhance regional energy cooperation in compliance with its energy bridge strategy. These projects include, among others, BTC crude oil pipeline, Nabucco natural gas pipeline, Greece- Turkey interconnector and the interconnection between the Turkish and European electricity grids. Another most recent agreement between Azerbaijan and Turkey envisaged the establishment of a pipeline company (TANAP) in order to build a gas pipeline trough Anatolia from Azerbaijan to Turkey and Europe to market and monetize the potential of Shah Deniz II.12 T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E
  9. 9. Electricity Markets The private sector contributed to more than three-forth of the capacity additions made and 1- General Framework played a key role in increasing the installed capacity from 31,846 MW in 2002 to 49,524 MW in 2010 and 53.211 MW at the end of 2011 (EMRA, 2012). The breakdown of installed capacity as of April 2012 which is 53,910 MW, is given in the below figure. T urkey, with the aim of replacing the state dominated vertically integrated power market with a competitive one, introduced competition gradually in the electricity sector with the BREAKDOWN OF INSTALLED CAPACITY enactment of Law No 4628 in 2001. The Law and the secondary legislation enacted by EMRA WIND; 3,5% envisaged the transformation of the market from a single buyer model to full retail competition which is basically a bilateral contracts model supplemented by a balancing mechanism. OIL PRODUCTS; 2,5% HYDRO (RUN-OF-RIVER): 7,0% The espoused model, to a great extent, is in place currently owing to the established legal framework as well as the commitment of Turkish policymakers to the competitive market model. The new market design requires the dominance of the private sector in power market COAL;22,9% except transmission and espouses a market structure which is competitive, stable and HYDRO (DAM); transparent. In this context, the share of private sector in electricity market in Turkey has 25,5% gradually increased thanks to the privatization process as well as the fact that the capacity GEOTHERMAL; 0,2% NATURAL additions are becoming increasingly private sector-originated. The private funds offerred for GAS+LNG; 30,4% the privatization of 18 distribution regions have already reached $16 billion despite biddings for HYBRID (LIQUID+NATURAL GAS); 6,6% some regions have to be restarted. RENEWABLE+WASTE;0,2% HYBRID (SOLID-LIQUID); 1,2% CAPACITY-CAPACITY GROWTH Source: TEİAS The role of the private sector has been especially evident in 2009 that is 98% of the 2,944 MW 60000,0 14,0% additional capacity is built by private companies. The interest of the private sector in Turkish 50000,0 12,0% electricity market remained intact in 2010 and 2011 as well and the total capacity added by 10,0% private sector has reached 4,948 MW and 3,716 MW respectively. On a cumulative basis, 40000,0 8,0% private sector additions to total installed capacity has been 16,367 MW between 2003 and MV 30000,0 2012. On the other hand, funds (fixed capital investment) invested by the private sector in 6,0% 20000,0 generation and distribution segments of the market was 5 billion TL in 2008 and 8 billion TL in 4,0% 10000,0 2009 and 2010 each (EMRA, 2011). Together with the existing and planned privatizations, the 2,0% share of private sector has been increasing so far and it is expected to increase for the 0,0 0,0% foreseeable future. 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 April14 T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E 15
  10. 10. Electricity Markets Electricity Markets CAPACITY ADDED BY PRIVATE SECTOR TOTAL ELECTRICITY PRODUCTION Source: EMRA 6.000 250.000 4.948 5.000 Cumulative capacity added by the private 200.000 investors between 2003-2011: 16.367 MW GWh 4.000 150.000 MV 3.000 3.716 2.881 100.000 2.000 1.183 569 619 50.000 1.000 388 384 963 0 - 2003 2004 2005 2006 2007 2008 2009 2010 2011 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 The electricity production in Turkey was approximately 228.4 billion kWh in 2011 while electricity consumption was 229.3 billion kWh by the same year. Out of this, 171 billion kWh POWER GENERATION Liquids; 1,67% (74.8%) was based on thermal plants and the remainder 58 billion kWh (25.2%) was Coal; 10,99% (2011) produced by renewable sources such as hydro, geothermal and wind. A closer analysis of the fuel mix in power generation reveals the increasing importance of Hydro; 22,80% natural gas. In 2011, 44.7%, 28.3%, and 22.8% of total production was based on natural gas, coal (hard coal and lignite including asphaltit as well), and hydro respectively while the shares of oil derivatives and wind were 1.7% and 2.1% respectively the remainder being other Wind; 2,07% Natural Gas; 44,71% sources such as geothermal (TEİAS, 2012). A comparative approach reveals that, the power generation based on natural gas and coal increased between 2004 and 2010 while the share Geothermal; 0,29% of renewables (especially hydro) and oil derivatives declined in the same period. Concrete Lignite; 16,90% targets have been set and certain policy measures have been taken to promote the use of domestic lignite and renewables for the power generation purposes as well as to include Natural gas has become the fuel of choice in power generation in Turkey due to Turkeys nuclear-based power generation in Turkish fuel mix. In fact, an international treaty has been geographic proximity to reserve-holder countries and the advantages that the natural gas concluded with the Russian Federation to build a 4*1200 MW nuclear power plant in Akkuyu presents in terms of efficiency and environment. As a consequence, the gas-based power and studies has already been began to build the power plant. In addition to this, it is planned to generation has increased by 52 billion kWh between 2001 and 2011 and reached 102 billion build two more nuclear power plants in Turkey in the medium term and a cooperation kWh as of the end of 2011. agreement has already been signed with the Peoples Republic of China in Beijing in April 2012. In fact, simultaneous negotiations are being conducted with South Korea, China and Japan.16 T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E 17
  11. 11. Electricity Markets Electricity Markets EMRA has been gradually reducing the eligibility threshold since 2002 to allow that privately- ELECTRICITY PRODUCTION FROM NATURAL GAS produced power is sold in the free market. The most recent reduction was made at the beginning of 2012 and customers more than 25,000 kWh annual consumption became 120.000 60,0% eligible to choose their suppliers. Put it another way, customers more than 25,000 kWh annual consumption are allowed to have direct access to wholesale market and procure their 100.000 50,0% Share in Total Production electricity via bilateral contracts with their suppliers under free market conditions. The 25,000 kWh eligibility threshold freed 77% of total load to choose their suppliers. Further reductions in Million kWh 80.000 40,0% eligibility threshold are expected from EMRA so as to increase the share of customers free to 60.000 30,0% choose their suppliers. In fact, it is stated in the Electricity Market and the Security of Supply 40.000 20,0% Strategy Paper that all customers until 2015 will become eligible (Electricity Market and the Security of Supply Strategy Paper, 2009). 20.000 10,0% - 0,0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ELIGIBILITY THRESHOLD-MARKET OPENNESS (%) From an ownership point of view, it is observed that the share of state-owned generation 10000 90 company EUAS has steadily been decreasing at the advantage of privately-operated power 9000 9000 77 80 75 generation. In 2011, EUAS and its affiliates produced 40% of total generation while 60% of 8000 7700 70 total generation was produced by power plants operated by private companies. 63 Eligibility Threshold (MWh) 7800 7000 Market Opennes (%) 6000 60 6000 49 50 PRODUCTION COMPANIES (2011) 5000 39 41 40 4000 30 32 28 3000 30 Production 3000 23 Companies 20 and Autoproducers; 2000 EUAS and Affiliates 480 40,43% 32,29% 1000 1200 100 30 25 10 0 0 BO-BOT-TOR; 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 27,28% Market Opennes Eligibility Threshold In order to secure the access of the free market players to the infrastructure such as distribution and transmission lines, further regulations have been introduced by EMRA and the right to access to this infrastructure has brought under regulation. The intermediary roles of distribution and transmission companies between buyers and sellers are unambiguously18 T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E 19
  12. 12. Electricity Markets Electricity Markets defined via regulated tariffs. In order to secure the neutrality of the transmission function, GDP GROWTH-ELECTRICITY DEMAND GROWTH TEIAS has been restructured in a separate and independent form and its functions are 15 confined to grid and system operations. Similarly, in order to secure the non-discriminatory 10 behavior of distribution network companies and the free and easy access by the users to the grid, certain rules and regulations compatible with the competitive structure of the market are 5 introduced such as unbundling, TPA and tariffs. Last but not least, Turkish government proved 0 % to be committed to put an end to its presence in the distribution sector completely and in 0 1 2 3 4 5 6 7 8 9 0 1 200 200 200 200 200 200 200 200 200 200 201 201 -5 generation to a great extent (Electricity Market and the Security of Supply Strategy Paper, 2009). -10 Mean: 4,36% Mean: 5,68% -15 There have also been eye-catching developments in the wholesale electricity markets. A GDP Growth Electricity Demand Growth bilateral contracts market supplemented by a balancing and settlement mechanism is envisaged by the design introduced by Law 4628. The commitment to the implementation of From an historical perspective, in addition to the fact that the electricity demand growth rate this design has been reiterated by the statements take place in the Strategy Paper announced and GDP growth rate are highly correlated, the former outstripped the latter by 1.3% on in 2009. Within this framework, it is essential that suppliers that provide electricity to average between 2000 and 2011. According to TEIAS projections, the electricity demand will distribution companies with retail licenses and eligible customers are to secure their reach 398 or 434 billion kWh by 2020 depending on the high or low scenarios. The capacity to purchases from power producers via bilateral contracts. As a complementary mechanism, meet the peak demand should be at least 61-67 GW in order to meet such a huge growth in current balancing and settlement scheme implemented by Market Financial Settlement demand (TEIAS, 2012). Taking into consideration the required capacity additions and the Center (PMUM) has initially been developed as day-ahead market and real time balancing maintenance-expansion requirements in grid infrastructure as well as the privatization process market. In this regard, day-ahead market became operational as of December 2011. In reveal the fact that potential investors face a free and competitive market with tremendous contrast to the previous stage which is day-ahead planning, the newly adopted day-ahead investment opportunities. market mechanism includes a collateral mechanism and allow for demand side participation together with the opportunity to submit bloc-offers. In order to give the market participants risk-hedging opportunities, trading of electricity future contracts has been launched within the DEMAND FORECAST (TEIAS) Turkish Derivatives Exchange as of 26 September 2011. Studies are ongoing to extend the 500.000 exchange traded electricity futures to the OTC markets and to introduce capacity markets to 450.000 398 to 434 billion KwH=2020 support the market mechanism that lean on energy trading. In addition, studies to establish 400.000 “energy exchange” in which only energy and energy derivatives would be traded have been 350.000 300.000 accelerated. 250.000 200.000 150.000 100.000 50.000 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Demand H (GWh) Demand L (GWh)20 T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E 21
  13. 13. Electricity Markets Electricity Markets Willing to reap the benefits of such opportunities, many private companies, domestic and than one license or the legal persons performing the same activity in more than one facility are foreign alike, got involved in Turkish energy markets and set strategic targets for their energy obliged to keep separate accounts and registers for each licensed activity or facility. businesses in Turkey. The energy sector in Turkey, especially the electricity market, has increasingly become too attractive and promising that no investor can ignore in their business It should be mentioned that, the legal persons to be engaged in licensed activities in the strategies. electricity market are required to have been established as joint stock or limited liability companies in accordance with the provisions of the Turkish Commercial Code no. 6762 and In addition to the opportunities in the domestic market, Turkeys involvement in regional the shares of the joint stock companies except for the ones traded on the stock exchange cooperation with its neighboring countries especially with the EU enables the market must be registered. participants to get involved in cross-border trade. Turkey has already established grid connections with all of its neighboring countries as well as obtained the ability to work a) Generation License: synchronal-parallel with the EU grid under the umbrella of ENTSO-E which means that the market participants in Turkish power market are able to engage in cross-border electricity It is the license that the generation companies are obliged to get from EMRA for the trade with the neighboring countries as well as the EU. generation and sale of electricity in the each existing and to be constructed generation facility. The generation licensees may be grouped into two; 1) EUAS and its affiliates, 2) Private sector Last but not least, Turkish electricity market requires 193 to 225 billion TL capital investments generation facilities. until 2030 depending on different scenarios to meet the growing demand. As mentioned before, it is one of the top political-economic priorities of Turkish policymakers that such a huge The total share of any private sector generation company, together with its affiliates, in the level of additional investment in Turkish energy sector is made by private sector within a market may not exceed twenty percent of the total installed capacity of Turkey for the previous transparent and competitive market framework. year, as published by TEIAS. 2- Licensing The privatization process commenced to privatize the assets owned by the state owned company EUAS is still continuing. In this framework, 141 MW installed capacity of the state The types of licenses to be granted in the electricity market, activities to be made within the owned generation company structured separately as ADUAS has been privatized. Afterwards, scope of the licenses and the general provisions which the licenses are subject to are 19 separate portfolio groups formed within EUAS have been privatized. Since it was decided regulated with the Law No: 4628. The details of licensing are set forth by the Electricity to privatize four big state-owned power plants separately, other EUAS power plants have Market Licensing Regulation approved by the Board. Accordingly, the types of licenses in the been restructured as 9 portfolio groups have been taken into privatization agenda according to electricity market are as follows; the developments in the distribution privatizations. The total installed capacity of these 9 portfolio groups is 12.640 MW and it is envisaged that the 22 big HES will continue to be l License, Generation operated by the state. With the effect of such developments, the share of EUAS in terms of l License, Transmission installed capacity has reduced gradually. With the completion of other privatizations this share l License, Distribution is expected to reduce more and the share of private sector is expected to increase. l License, Wholesale l Retail License, l and Autoproducer Group License. Autoproducer All legal persons shall obtain separate licenses for each activity they are engaged in and for each facility where the same activity is conducted. Besides, all legal persons holding more22 T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E 23
  14. 14. Electricity Markets Electricity Markets herein. Generation and retail activities may only be performed under separate legal CAPACITY GROWTH 70% personalities as of 1.1.2013 (legal unbundling). 29.702 MW 60% %55 50% PRIVATE PRIVATIZATION FEE (Million Dollars) STATE 40% 30% 24.208 MW KAYSERİ 0 AKDENİZ %45 MENDERES 110 ARAS 20% 10% GÖKSU 60 DİCLE 0% YEŞİLIRMAK 441,5 CEDİZ 2006 2007 2008 2009 2010 2011 SAKARYA 600 TOROSLAR EUAS PRIVATE OSMANGAZİ 485 VANGÖLÜ b) Transmission License: ULUDAĞ 940 BOĞAZİÇİ It is the license that the Turkish Electricity Transmission Co. Inc. (TEIAS) should get from EMRA BAŞKENT 1225 İSTANBUL ANADOLU to perform the transmission activity through all existing and to be constructed transmission MERAM 440 facilities. As per the provisions of the network regulation, TEIAS is responsible for determining ÇAMLIBEL 258,5 the merit order to meet the supply and demand, implementing the merit order in line with the FIRAT 230,25 technical and economic load dispatch rules according to the real time transmission ÇORUH 227 congestions and when deemed necessary revising the merit order as per the provisions of the TRAKYA 622 network regulation. TEIAS may not engage in any activity in the market other than transmission. TOTAL 5639,25 c) Distribution License: As of today, Turkey has been separated into 21 electricity distribution regions. 13 of these regions are currently operated by the private sector and the privatization process of 8 regions Distribution companies operate within specified regions. Distribution license is the license that is still continuing. The distribution privatizations planned to be concluded in 2011 have been the legal persons have to be granted by EMRA to perform distribution activity within a delayed to 2012 due to the financial resource problems of the successful bidder companies as specified region. It is stipulated by the Law No: 4628 that the private sector distribution a result of the global financial crisis. The consumption amount in the 13 distribution regions companies, other than distribution and retail activities, may construct generation facilities operated by the private sector corresponds to more than half of the electricity distributed in provided that they get generation license and keep separate accounts and may purchase Turkey. electricity from the generation company (ies) they own or are affiliated with, with a price not exceeding the average wholesale price in the country. d) Wholesale License: Distribution companies may deal with retail and/or retail sale service although there are other It is the license that the wholesale companies are obliged to get from EMRA to deal with retail company and/or companies within their regions, provided that they get a license. The wholesale and sale to eligible consumers of electricity in the market. In the wholesale licenses, distribution companies may not be engaged in any market activity other than those indicated there may be separate parts for provisions allowing electricity import or export to/from the countries where international interconnection conditions are established.24 T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E 25
  15. 15. Electricity Markets Electricity Markets Wholesale licensees may be separated into two; 1) TETAS, 2) Private sector wholesale envisaged in the Law. To indemnify EMRA for the existing generation licenses and license companies. applications is also stipulated in 4628 as a precaution to ensure the timely completion of the investments TETAS is the state owned wholesale company established to take over from TEAS and TEDAS the energy sale and purchase agreements signed within the scope of existing contracts. Another issue to be mentioned is the situation of the Organized Industrial Zones (OIZs). The Besides, TETAS purchases the electricity generated by EUAS for a period determined by organized industrial zone legal persons established as per the Organized Industrial Zones Law EMRA, but not exceeding five years, starting from the termination of the preparatory period No:4562, may engage in distribution and/or generation activities within approved areas to envisaged by the Law. meet the needs of its participants without the obligation of incorporation as per the Turkish Commercial Code no: 6762 provided that they get a license from EMRA. OIZ legal persons are The total share of any private sector wholesale company, together with its affiliates, in the deemed as eligible consumers regardless of their consumption amounts. Consumers market may not exceed ten percent of the total energy consumed in the market in the previous exceeding the eligibility threshold have the right to choose their suppliers provided that they year. pay a distribution fee to the OIZ. e) Retail License: As mentioned earlier, legal persons should get a license from EMRA to operate in the market. It is the license that the legal persons are obliged to get from EMRA to deal with retail and/or The procedures of licensing are set forth in detail in the Electricity Market Licensing Regulation. retail services. In a retail license, where deemed necessary by the decision of the MENR, Accordingly, the stages of the procedure of getting a license is are determined and time limits there may be a separate part for provisions allowing import of electricity at the distribution have been put to conclude the duly filed license applications as soon as possible. The review level. and evaluation process regarding the duly filed license applications shall commence after demonstrating that one percent of the licensing fee is deposited in the Authoritys account and Retail companies shall be engaged in retail and retail services without any limitation of regions. except for the wholesale license applications, the applications are publicized on the web site The distribution companies holding retail licenses shall only be entitled to sell electricity and/or of EMRA on grounds of possible violation of personal interests. capacity to eligible consumers located within the authorized area of another distribution region, provided that their retail licenses include related provisions. The license applications taken under review and evaluation process is concluded within forty five days following the submission of the necessary documents to the relevant authorities f) Autoproducer and Autoproducer Group License: and/or institutions final opinions asked according to provisions of applicable legislation and It is the license that the autoproducers generating electricity to meet their own needs and deemed necessary for granting a EMRA Board decision. If deemed necessary, that period may operating in parallel with the transmission and/or distribution system and the autoproducer be extended by a Board decision and the time extension is notified to the related applicant groups supplying electricity to the group partners are obliged to get form EMRA. After examination and evaluation, license applications are either refused and the related As per the Law, autoproducers and autoproducer groups may sell only twenty percent of the person is notified in writing together with the justifications for refusal or approved and the average yearly electricity generation amount included in their licenses in a calendar year. related person is notified in writing that the license will be granted in case additional EMRA is entitled to increase this amount when deemed necessary only in terms of supply requirements; such as making necessary amendments in the main charter and getting EIA security. (Environmental Impact Analysis) report. To fulfill the requirements 90 days time, and for EIA report 300 days time is given to the applicant. Licenses are granted by Board Decision to the Especially, completion of the generation facility investments within set periods is of utmost legal persons who fulfill the requirements within set time limits. importance for supply security and system planning. In this respect, sanctions including the cancellation of the license related with the investments not realized within the set periods are The detailed provisions regarding license renewal, termination, cancellation and license fees are included in the Licensing Regulation.26 T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E 27
  16. 16. Electricity Markets 3- Tariffs: The market model targeted by the Law No: 4628 envisages a competitive structure where the prices are determined in line with the supply and demand conditions. Within that scope, it is envisaged that the sale of electricity is realized primarily through bilateral agreements. In the generation and wholesale sectors where a competitive market structure is possible, it is foreseen that the prices are determined freely among the parties. It is envisaged by law that EMRA makes tariff regulation in order to encourage the effective operation of the legal persons operating in the fields where a competitive structure is not possible due to natural monopolistic qualifications and to prevent excessive return. Retail tariffs applicable for non-eligible consumers and the wholesale tariffs to be applied by TETAS are also regulated tariffs. The tariffs regulated by EMRA are stated in the Law No: 4628 as follows; l and use of system tariffs, Connection l tariff, Transmission l TETAS wholesale tariff, l tariffs, Distribution l applicable to non-eligible consumers. Retail tariffs The licensees subject to tariff regulation shall prepare and submit to the Authority for Board approval their tariff proposals that include the prices to be effective in the following year and the applicable procedures and principles as per the provisions of the applicable legislation by the end of October every year. The examination and evaluation of the tariff proposals shall be completed by the Authority before December 31 of the current year. If the tariff proposal is deemed appropriate, the tariffs proposals shall be approved. The tariffs approved shall be effective for the tariff period between January 1 and December 31 of the following year. The tariff methodologies adopted by EMRA are shown in the table hereunder; ELECTRICITY MARKET TARIFF METHODOLOGY ACTIVITY METHODOLOGY ACTIVITY METHODOLOGY Transmission Revenue Cap Retail Sales Services Hybrid Distribution Revenue Cap Wholasale Cost-plus Retail Hybrid Connection Project-based28 T U R K I S H E N E R GY M A R K E T: A N I N V E S TO R S G U I D E

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