Download TURKEY`S ENERGY STRATEGY AND

BUSINESS OPPORTUNIES IN
THE TURKISH ENERGY
INDUSTRY
Prof.Dr.Hasan Kazdağlı
Prof.Dr.Mehmet Baha Karan
Prof.Dr.Selçuk Geçim
Hacettepe University, Turkey
1
CEVI ( CENTRE FOR ENERGY
AND VALUE ISSUES)
GOALS OF CEVI:
1.
2.
PLATFORM FOR ACADEMICS
PLATFORM FOR PRACTITIONERS
2
Introduction

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The lands of Turkey are located at a point where Asia, Africa and
Europe are closest to each other, and straddle the point where
Europe and Asia meet, for which reason it is located in a
geographical position of great strategic importance.
Turkey’s unique geo-physical location does not only connect two
continents but also, makes it a natural "energy bridge" between
major oil and natural gas producing areas in the Middle East and
Caspian Sea regions and consumer markets in Europe.
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Turkey is different from other countries currently queuing for
EU entry: it is big, fast-growing and strategically placed.
Turkey’s accession will add to the EU in many ways: its
young, dynamic economy could give a boost to an ageing,
sclerotic EU market; it can help the EU to bring stability to the
Middle East, the Caspian and the Caucasus; and it could add
to the EU’s energy security by acting as a bridge to the
resource-rich regions in its neighborhood.
Turkey’s development as a European energy hub looks
natural, given its lucky location between countries that
harbour 70 per cent of the world’s oil and gas reserve to its
east, north and south, and one of the world’s biggest energy
markets in the west.
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After leaving 2001 economic crisis behind,
the Turkish economy has managed to grow
rapidly during the last couple of years. That
brings higher energy demand and new
investments needs which require better
structured energy sector.
Although the current economic crisis slowed
down the Turkish ecomomy, but high
economic growth is expected after 2010.
5
Turkey and the Sides of
Energy Bridge

Demand Side



The European Union
The United States
Supply Side

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The Caspian Basin
Russia
The Middle East
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Turkey’s Energy Strategy

Turkey has concentrated its efforts for the
transportation of Caspian oil and gas reserves to
Western markets on the realization of the East-West
Energy Corridor, often referred to as the Silk Road of
the 21st Century.
The pipeline projects linking
the Caucasus and Central
Asia to Europe will be
essential for the region’s
integration with the West.
Secure and commercially
profitable pipelines will help
bring stability and prosperity
to the region.

7
Pipelines and Energy Security of Europe
8
Turkey as an energy hub

Through the completion of the
projects, it is anticipated that 6
to 7 % of global oil supply will
transit Turkey by 2014 and
then Ceyhan will become a
major energy hub and the
largest oil outlet terminal in the
Eastern Mediterranean. The
Ceyhan Terminal has already
been designed to receive the
crude oil reaching Ceyhan from
Kirkuk, Baku and Samsun.
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Turkey’s Energy Profile

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With a rapidly growing economy Turkey has become one
of the fastest growing energy markets in the world (20012007).
The primary energy consumption, which reached around
92 million tons of oil equivalent (toe) in 2006 will rise to
126 million toe in 2010 and 222 million toe in 2020.
The limits of Turkey’s domestic energy sources in light of
its growing energy demand have resulted in dependency
on energy imports, primarily of oil and gas.
At present, around 30 % of the total energy demand is
being met by domestic resources, while the rest is being
satisfied from a diversified portfolio of imports.
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Turkey’s Energy Profile


Turkish energy policy
has made impressive
progress after the
Helsinki Summit of 1999
where Turkey was
declared a candidate for
accession to the EU.
Turkey attaches great
importance to more
efficient and rational
functioning of the energy
sector for promoting the
competitiveness of the
national economy.
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Turkey’s Energy Profile



Substantial progress has been achieved in restructuring and
liberalizing the Turkish electricity and gas markets in pursuance
with the EU Directives for the purpose of integration with the EU
Internal Energy Market, since the enactments of the Electricity
and Natural Gas Market Laws in 2001.
With the Petroleum and LPG Market Laws, competition oriented
mechanisms has been put into place.
An independent regulator, The Energy Market Regulatory
Authority (EMRA) has been established to be in charge of
regulation and supervision of the electricity, gas, petroleum and
LPG markets.
12
Turkey’s Energy Profile


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
Concerning renewable energy sources, the Law on the Utilization of Renewable
Energy Sources for the Purposes of Generating Electricity has been adopted in
2005 for promoting electricity production from the renewable energy sources in
liberalized energy markets.
A new legislation is preparing to support renewable energy sources (2009).
In order to use energy efficiently, prevent waste, mitigate the burden of energy
costs on the economy, and increase the efficiency in the use of energy
resources and to protect the environment, the Energy Efficiency Law was
enacted on 2 May 2007.
Turkey aims at fully utilizing its indigenous hard coal and lignite reserves, hydro
and other renewable resources such as wind and solar energy to meet the
demand growth in a sustainable manner. Integration of nuclear energy into the
Turkish energy mix will also be one of the main tools in responding to the
growing electricity demand while avoiding increasing dependence on imported
fuels.
Nuclear power plants corresponding to a total installed capacity of 5000 MW
are expected to be constructed very soon.
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Turkey’s Energy Profile
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To meet the growing demand, Turkey needs lots of investments and
that requires huge financial support. There are many license
applications received by Turkish Energy Market Regulatory Authority
(EMRA) especially for wind, hydro and coal.
Most of them are EU and US origin companies such as,
International Power (British), Edison (Italy), EON (German), OMV
Australia, BASF Verbung (German), Iberdrola (Spain), EnBW
(German), Enel (Italy), Württemberg (German), AES (USA), GE
Energy (USA), and Berggruen (USA).
Russian investors consider Turkey as an investment magnet.
Russian companies’ investments in Turkey reached $3.5 billion in
2008.
14
Some Foreign Energy Companies
Invest and Interest In Turkey
15
Turkey’s Energy Profile


Energy imports constitute one-fifth of the nation’s
import bill. In 2007, Turkey spent $33.9 billion on the
import of energy supplies, including fossil fuels,
lubricants and related materials, according to the
Turkish Statistics Institute.
Privatization is viewed as the key for Turkey’s future
energy development. The government is also
encouraging private companies to build power
plants to meet their own needs, and construct larger
power plants sell electricity to other neighboring
companies and to the state and to take over existing
government-run facilities to help maintain growth in
energy.
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Turkey’s Energy Profile
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In addition to its power distribution companies, the government is
planning to sell 26 large hydroelectric dams and coal-fired power
plants and 56 small river dams that have completed their
economic life span. It is encouraging private companies to build
and operate new hydroelectric dams and natural gas-fired power
plants, operate state coal mines and geothermal facilities.
Natural gas distribution rights are privatized in more than 154
cities, and began to transfer the multi-billion dollar natural gas
import contracts of the state petroleum pipeline corporation
BOTAŞ to private operators.
Turkey also wants private companies to build new oil refineries,
in addition to the existing private oil refineries concern, Tüpraş,
which operates the country’s four oil refineries.
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Turkey’s Energy Profile
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Electricity demand in Turkey increased 8.4 percent in
2007, the world’s second highest growth rate after
China.
The government must spend about $4.5 billion
annually on new power projects and $1 billion annually
for power transmission to avoid an energy crisis.
A crash program to develop power plants, with an
increased role for private and foreign investors, is key
to Turkey's continued economic growth, energy
planners say.
Turkey will need a large infusion of foreign capital to
increase its generating capacity.
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Turkey’s Energy Profile

The government hopes to carry out many of
the projects under Build-Operate-Transfer
(BOT) or Build-Operate (BO) models, where
contractors would line up financing for power
plants, and build and operate them as a
concession for certain period of time, such as
15 years, after which they would turn them
over to the Turkish state.
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Turkey needs to spend $128 billion on energy investments by the end of 2020,
including $91.276 billion on new power generation facilities, to keep pace with
its rapid-growth economy, but the government can only set aside $500 million a
year from its tight budgets,
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Turkish Electricity Sector
Electricity Demand vs GDP Growth
15.0%
Turkey has become one of the
10.0%
fastest growing energy markets in
5.0%
the world (8% yearly growth rate)
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
0.0%
-5.0%
-10.0%
GDP Growth (%)
Electricity Demand Growth (%)
Electricity Consumption per capita (kWh)
7,000
6,599
Source: TEİAŞ
6,070
6,000
5,480
5,765
5,000
Despite significant growth in recent years,
Turkey still has the lowest electricity
4,000
3,000
2,000
consumption per capita in Europe.
3,637
3,325
1,656
1,000
0
Turkey
Turkey
Poland
Poland
Czech
Republic
Hungary
Czech Republic
Hungary
Russia
Russia
European
Average
European Average
Israel
Israel
21
Source: IEA
Turkish Electricity Sector
Low-Demand Scenario (6.3% annual growth)
Electricity Demand & Capacity Projections (TEIAS)
Turkey is expected to face electricity supply shortage by 2011 based on low-demand scenario…
400,000
350,000
300,000
250,000
200,000
Source: TEİAŞ
150,000
100,000
50,000
0
2007
Existing
2008
2009
2010
Under Construction
2011
2012
Licensed
2013
2014
Add. Cap. Required
2015
2016
Demand
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Turkish Electricity Sector
Electricity Generation by Primary Energy Source (2007)
Sector
Natural Gas is the primary source of electricity generation
(191,558 GWh in 2007) in Turkey. Especially, private sector
relies heavily on imported natural gas. This trend should
change in line with private sector’s increasing focus in hydro
and coal-fired power plants.
Jeo + Wind,
0.3% Other, 0.1%
Liquid Fuels,
3.4%
Coal, 27.9%
State-owned Company, EUAS
Jeo + Wind,
0.1% Other, 0.0%
Liquid Fuels,
2.4%
Natural Gas,
49.6%
Hydro, 18.7%
Natural Gas,
25.2%
Installed Capacity
2007
Thermal
Hydro
Geothermal
Wind
Total
Sector
MW
27,272
13,393
23
146
40,834
%
67%
33%
0%
0%
100%
EUAS
MW
12,525
11,349
0
0
23,874
%
52%
48%
0%
0%
100%
Coal, 38.8%
Hydro, 33.6%
Source: EÜAŞ
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Aims in Electricity Market
 More private sector presence in the market,
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Increase in foreign capital investments,
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Decrease in public sector investment budget,
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Increasing responsibility in the protection of environment,
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Increasing renewable sources in electricity production
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Formation of the energy prices in a competitive environment,
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Increase in efficiency,
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Increase in service quality,

Improvement in availability,
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Investment Opportunities In Electricity
Production Market.
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Privatization of State owned generation.
Thermal Power Plants Using Domestic and Import Coal.
Hdroelectrical Power Plants.
Wind Power Plants.
Geothermal Power Plant.
Solar Power Plants (Prosedure will be announced very soon)
Purchasing shares or facilities of private investors
(Mergers & Acquisition Transactions).
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NEW GAS MARKET STRUCTURE
SUPPLY
MARKETING
Export
Import
Wholesale
Domestic
Production
CONSUMPTION
Eligible Customers
Distribution
Non-Eligible Customers
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Current Situation in Natural Gas Market
PUBLIC
NATURAL GAS DISTRIBUTION
% 56
PRIVATE
% 44
WHOLESALE
% 98
NATURAL GAS IMPORT
%2
10%
90%
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Sectoral Gas Consumption
Sectoral Consumption
(2008)
Natural Gas Consumption in 2008: around 36.8 bcm
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DISTRIBUTION LICENSE TENDERS
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Natural Gas Market

The market opening level is 80 %

Natural gas wholesale price is determined freely by
the parties.

LNG import is libearalized and the new
amendments are on the way to import natural gas
without any limitations.
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OPPORTUNITY IN GAS
DISTRIBUTION MARKET

The infrastructure for reaching 40 million customers
is completed.

Foreign investors are interested in gas distribution,
and there is a great potential for new merging and
acquisitions.

Such as; the shares in Kayseri, Bursa and İzmit
municipality gas distirbution companies were
already sold to foreign investors in 2008.
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Why Shall Invest in Power Market ?
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High and rapid growth in demand
Robust and well designed legal infrastructure
regarding of primary and secondary legislation
Compliance with the European Union
Legislation
Competitive, stable, financially reliable, and
transparent business environment without
discrimination
Independent market surveillance and regulation
by Energy Market Regulatory Authority (EMRA)
which is independent in its decision making
process, financially and administratively
autonomous body
Good governance principles
Cost-reflective tariff system
32
Some Foreign Energy Companies
Invest and Interest In Turkey
33
Turkey Wind Capacity and Utilisation
Turkey
Wind Power Capacity
Turkey
433
500
400
300
100
MW
147
200
19
0
2006
2007
2008
Turkey’s Wind Atlas
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Solar Energy Potential
Average annual solar radiation:1,311 kWh/m².
Average annual sunshine duration:2640 hours.
Technical potential :405 000 GWh, (DNI> 1800 kwh/m2-year).
Economic potential :131 000 GWh, (DNI> 2000 kwh/m2-year).
Solar energy is used especially as a thermal energy in Turkey.
•
400,000 Toe solar heating produced by 11 million m2 collectors, second in the
world.
•
annual production capacity is 1 million m².

Total installed photovoltaics capacity is approximately 1000 kW and
But it is expected to increase PV usage next future.

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New Draft Renewable Energy Law in Turkey
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The General Investment
Incentive System in Turkey

Incentives generally comprise a mix of tax
and non-tax incentives. The investors may
qualify for the following general incentives
based on the location, scale, and other
qualifications of the investment;

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Investment allowance
Exemptions from customs duties and fund levies
VAT exemption for machinery and equipment
Exemption from certain taxes, duties and fees
Grant of subsidized credits
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Incentives for priority
development regions
Incentives granted to investors are as follows:
• Free land allocation
• Income tax relief
• Employer's share for social security relief
• Energy support
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WHY TURKEY?
More stable political environment.
Improved Economic and investment climate.
Strategic geopolitical position between Asia and Europe.
Main bridge between Energy Sources(Caucasia and Middle East) and
Indusrialized Countries(Europe).
Friendly Bureaucracy.
Growing economy with increasing demand for energy.
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WHY TURKEY?
-Transparent Regulatory Environment
-Available Infrastructure
-Trained technical manpower available
-Present gap and growing demand in
electricity.,
-Sufficient wind and solar sources.
-Comittment for the renewable energy
investments.
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