A Brief Overview, Recent Privatization and Investment Opportunities
Summary
Turkey has a healthy electricity market with no power blackouts except in some remote areas. According to the latest assessment by the Ministry of Energy and Natural Resources (MENR) over 3,500 MW was added to the installed capacity in 2009, and over 4,000 MW last year, which is a record, with a total investment value of over $ 10 billion. There are many plants under construction, including several, delayed due to various reasons, such as the Deriner HES on Coruh River, in northeast Turkey. There are also many small and run-of-the-river type hydro-electric power plants under construction except several have been stopped or licenses have been cancelled due to the lawsuits brought against them due to environmental reasons. There are many projects under planning stages, including several hundred wind and hydroelectric power and many waste-to-energy plants. More gas-fired and lignite-fired plants are also expected to be built in the near future to reach the goal of doubling the present 48,000 MW capacity by 2023, the 100th anniversary of the Republic of Turkey, with a total investment value estimated to be over $ 210 billion through 2030.
All of the 21 distribution regions are now under the management of private sector at various stages with the continued ownership of the assets by the Turkish Electricity Transmission Company (TEIAS) and overview by the Energy Market Regulatory Authority (EMRA). Late last year, a record $ 5.76 billion was raised with the transfer of four electricity grids, the Bogazici, Gediz, Trakya and Dicle distribution regions. The previous year, seven regions were privatized with a realized revenue of $ 2.7 billion. The remaining 3 regions, Istanbul Anadolu Yakasi, Akdeniz ve Toroslar. were also tendered this year with a record 48 companies showing interest in the tenders, with some of the earlier winners also submitting the highest bids for these, totalling $ 15.8 Billion (Attachment 1). However, some of the transfers have not been completed yet due to difficulties faced with the financing of the transfers. Also, the Chamber of Electrical Engineers has filed suits against some of the tenders, which are ongoing. Kayseri Elektrik, one of the 21 distribution companies, has been under private control since its establishment during Ataturk’s time in 1928.
The emphasis is on the privatization of most of the generating facilities which are now owned and operated by the Electricity Generating Company (EUAS), and will continue ownership of some of the large hydroelectric power plants.
Installed Capacity, Generation of Electricity and Share of Private Sector
At present, there are 5 types of private production type companies active in Turkey besides the EUAS maintaining its dominant status in the market. The first three, Build-Operate-Transfer (BOT), Build-Own-Operate (BOO) and Transfer-of-Operating Rights (TOR). These companies are obliged to realize their annual production they commit to the state in accordance with the long-term agreement (generally 20 years) they sign for the sale of electricity with Turkish Electricity Trading Company (TETAS.) The other two producer groups are composed of Independent Production Companies (IPP) and Auto producer Production Companies (AtoP). The IPPs make their investments with their own means, find their clients themselves in the market conditions, but do not have price and income guarantees. The Auto-producers are established to meet their own electricity need with allowance to sell their excess production to the state or the market.
Installed capacity, yearly generation and the share of the private sector are given below. Although Table 3 indicates 47 % private ownership, the role that the private sector plays in the liberal market is around 11 to 15 % since the BO, BOT and TOR projects have purchase guarantees up to 15 and 20 years and sell electricity at fixed prices without competition (most through 2013 and 2018). Therefore, it will take many more years before the liberal market will actually be in force.
Table 1. Installed capacity (MW), 2010 Figures, (Approximate based on several sources)
Natural Gas – 16,400 34 %
Fuel-oil, Diesel – 1,291 03 %
Lignite and coal – 10,695 22 %
Fosil Total – 28,386 – 58 %
Hydro – 16,000 – 33 %
Wind – 1,200 – 02 %
Geothermal – 95
Other – 2,907 – 07 %
Total 48,588 MW
Table 2. Yearly generation (GWh) and Percentages
Natural Gas – 96,095 – 45 %
Lignite and Coal – 55,685 – 26 %
Fuel-Oil, Diesel – 4,804 – 3 %
Fossil Total – 155,844 GWh – 74 %
Hydro & Wind – 54,338 GWh – 26 %
Other – included
Total 210,182 GWh
Table 3. Ownership of Power generation facilities
State-owned (EUAS and EUAS affiliated) – 53 %
Private (BO, BOT and TOR) – 36 %
Private, Auto-producers and Independent – 11 %
Total – 100 %
Table 4. Electricity Prices
The electricity prices vary between households and industry which is close to 17 cents per kWh for household and 14 US cents for industry, which are quite high considering the annual income of the individuals. These prices include a variety of taxes and fees including a percentage for the energy fund ad even for the privatization of the distribution regions.
Domestic and Foreign Investment in the Turkish Electricity Sector
According to data released by the Turkish government late last year, domestic and foreign investment in the electric power sector exceeded $ 10 billion by 2010, with $ 4.5 billion being foreign investment. Thermal energy sources accounted for over $ 7 billion with the rest in the renewable sector. Among the ongoing investments are the $ 650 million, 775 MW, natural gas power plant that RWE/Turcas will be building starting this year near Denizli, $ 370 million, 270 MW lignite plant near Eskisehir by Adularya Enerji and $600 million, 400 MW CFB Thermal plant which is now being constructed by Yildizlar SSS Holding near Cankiri. Unimar, a consortium of Unit International from Belgium (Turkish owner) and a Japanese company, which owns and operates the 480 MW natural gas BOT plant, will also be building a 920 MW new natural gas plant which has received proposals from ENKA/Siemens and GAMA/GE at a cost of $500 million. Both Siemens and GE are major players in the energy sector.
In addition, Unimar is also planning to build a 1,200 MW imported coal plant near Adana in the south where EnerjiSa is also building a coal plant. Enerjisa, a joint venture between Verbund of Austria and Turkey’s Sabanci Holding, is a major player both in distribution and generation of electricity. Other foreign companies in Turkey include EoN, ENBW, RWE, AES, CEZ, although CEZ has decided to withdraw after signing a joint venture company with Ak Enerji, a major auto-producing energy company. Intergen, one of the early companies that built 3 large BO Projects sold its share to its partner ENKA in 2005, probably the largest private owner of electricity generation facilities in Turkey.
A list of major players in the Electric Power Sector is given in Attachment 2. Of these, the new Turkish Joint- Venture company, Is-Kaya-MMEKA, who won 2 Distribution regions (Gediz Elektrik for $ 2.0 Billion and Bogazici Elektrik for $ 3 billion) could not complete the financing and lost $ 93 million bond recently.
New Investments
The Electricity Market Law requires the new investments in the electricity sector to be carried out by the private sector and does not invalidate the existing energy legislation (i.e. Laws No. 3096, 3996 and 4283 which have allowed the development of Build – Operate, Build – Operate – Transfer, and Transfer of Operating Right projects since 1993); however, it does not create an explicit exemption for the projects outstanding under the existing energy legislation either. The Electricity Market Law requires all the legal entities, which are already in operation and which will enter in the market, to obtain a license from EMRA.
Privatization of the Electric Power sector
Turkey has been trying to privatize the electric power sector and to transfer state-owned assets to the private sector since the 1980s when new laws were enacted to allow the private sector to take the lead in building new facilities. Private power plants under the Build-Opera-Transfer (BOT), Build – Operate (BO) methods were put into service in 1999 and several small hydro-electric power plants an one large lignite power plant was privatized through the Transfer of Operating Rights (TOR) scheme. Initial studies were started in 1997 for the privatization of operating power plants and tenders were issued in 1998, with a target of $3 to $4 billion in privatization revenues. The sale of the State Oil Products Distribution Company (POAS) and the Turkish Petroleum Refining Company (TUPRAS) were realized in 2006 but there were delays in the privatization of the distribution regions and generation facilities for a number of reasons. Transmission is all under the control and management of the state.
Privatization of electric generation and distribution assets were included in the new energy law which went into effect in 2001, ‘’The Electricity Market Law No 4628.’’ Only the transmission assets would be held by the state-owned company, Turkish Electricity Transmission Company (TEIAS.) However, there were delays due to various reasons. Although the privatization of distribution regions are in process, with several already complete, there seem to be problems with the award of contracts which are being challenged in the court by Chamber of Electrical Engineers (EMO). Several articles indicated that the companies who won the contracts may face problems in finding the necessary funds to finalize the deals and EMRA has not agreed to the profit margins requested by the investors. Let us up that these issues will be resolved soon.
Privatization of Generation facilities
EUAS and EUAS affiliated companies operate 28 thermal and 160 hydro-electric power plants. Last year 50 small hydro-electric power plants were privatized. This year MENR has announced that a total of 46 thermal and hydropower plants will be tendered for privatization. These have been grouped under 9 categories. The capacity of the nine groups will be between 356 MW and 2,795 MW. Three of them will be composed of only thermal plants, two will be a combination of thermal and hydroelectric power plants and four will include only hydroelectric power stations. The first to be put up for sale will be the gas-fired Hamidabat (HEAŞ), located in the Lüleburgaz district of Tekirdağ. Next will be Soma A-B, (1,034 MW) Çan (320 MW) near Çanakkale and Seyitömer (600 MW) will be privatized individually.
Major European and American companies are among close to 40 utilities and private companies who have set up joint ventures with Turkish companies and applied for pre-qualification in tenders for the sales. Among these are AES from the United States, E.ON from Germany, ENEL from Italy, IBERDOLA from Spain, Suez-Tractebel from France and many others.
Electricity Market Law No. 4628, Effective since 2001
In March 2001, Turkey enacted Law No. 4628, “The Electricity Market Law”, to provide the framework for the transition from the state-controlled electricity sector to a liberalized electricity market, using the British privatization as a guide. With the new law, a new independent market regulator, The Energy Market Regulatory Authority, (EMRA) was also created. However, the Ministry of Energy and Natural Resources (MENR) still plays a major role which oversees the activities of the major organizations in the energy field including those in the electric power sector and also in related markets, such as petroleum and gas markets.
The Electricity Market Law requires the privatization of the state-owned generation and distribution facilities through the general privatization legislation, Law No. 4046, which permits privatization by way of sale of assets or transfer of shares of the assets of the related institutions such as the Ministry of Energy and Natural Resources, TEDAS (Turkish Electricity Distribution Co.), EUAS (Electricity Generation Company) and all other related authorities and subsidiaries of these institutions. The proposed structure will move most state-owned generation operated by Electricity Generation Company (EUAS) to the private sector, with a State Generation Company retaining the authority to operate nuclear power plants only. However, the Russian company, Rusatom, which was awarded the contract for Turkey’s first nuclear power plant on the Mediterranean Coast, will be building and operating the plant for 15 years.
The Renewable Energy Projects and The Renewable Law No. 5426
A Renewable Law was enacted in 2005 to allow the development of small hydroelectric power plants (up to 50 MW), geothermal, solar, biomass and wind power plants. However, it was soon realized that changes had to be made in order to open the way for more investments. Amendments proposed in 2008 were approved by the Parliamentary Commission on Energy and sent to the Parliament in 2009 was finally approved in December 2010. The biggest issue was the pricing mechanism for wind, biomass and solar power plants, which still did not satisfy the private sector with the approved rate structure of 5.5 Euro already in the law. The proposed 14.00 Euro for biomass power plants has not even been approved either.
Energy Strategy paper
MENR issued a Strategy paper for 2010 – 2014, outlining its goals and strategy through 2023, the 100th anniversary of the Turkish republic. One of the main objectives of the Plan is to increase the share of renewable energy to % 30 from the present % 26.
Wind Energy Projects
According to the latest studies, Turkey’ Wind Sector has received tremendous response from the government initiatives and private sector entities. The studies has further revealed that wind power will continue to be the most preferred investment form among the renewable energy sources in Turkey and with new incentives and tariffs coming into effect, the installations will grow to 20,000 MW by 2023. The sector is developing fast and licenses to numerous wind farm projects have already been issued following a 3 year slowdown when applications for 78,000 MW were received on Nov 1 2007. These all have been awarded following a scheme developed by the MENR with many new companies being established although most lack sufficient financing sources. Some of these companies are listed in Attachment 2.
Moreover, some companies have started domestic sourcing of the wind turbine components for their turbines in Turkey, which is likely to stimulate stronger domestic manufacturing sector, if the installation gets rolling in the country. Some global turbine manufacturers, such as Suzlon, Vestas, etc have started manufacturing equipment and parts, thus showing a positive sign for domestic wind components market growth.
The first wind power plant was put into service in Cesme, near Izmir, in 1995. Despite the efforts of several individuals and pioneering companies, new investments were not made for many years. In 2007, EMRA stopped accepting new applications for wind projects and on Nov 1, 2007, received applications for 751 projects with a 78,000 MW installed capacity in one day, which surprised everyone. There were multiple applications for the same site. After 3 years, EMRA has declared that licenses will be issued for only 8,488 MW capacity. However, according to RESYAD, the inustry association of wind energy investors, only 3,410 MW will be tendered based on competition.
Many countries around the world are emphasizing the development of wind energy, with America taking the lead, followed by China and India. The status of wind energy in the
European countries as of December 2009 are as follows:
Germany 25,777 MW
Spain 19,140 MW
France 4,402 MW
Denmark 3,452 MW
Portugal 3,535 MW
Greece 1,087 MW
Turkey 1,200 MW (2010)
Waste to Energy and Bio-Mass Projects
There are close to 15 Waste-to-Energy facilities utilizing landfill gas in several major cities in Turkey. According to the latest issue of Waste Technologies Magazine (No 10, Vol 1, Sept – Oct 2010), there are only 40 proper landfills among the 2,100 Municipalities in Turkey. Waste-to-Energy facilities that utilizes incineration method turns trash into electricity or steam to heat, cool, light and otherwise power homes and industry through the process of combustion. Modern waste-to-energy plants are clean-burning facilities that benefit the environment and the economy in hundreds of cities across America and Europe. Turkey has not yet built one of these facilities using municipal and commercial solid waste due to various reasons including the high cost but is in the process of planning for future projects that may help to eliminate over a thousand landfills across the country where trash is being stored. There are a number of facilities at present that utilizes gasification process or methane gas released from the landfills to generate electricity.
Geothermal Energy
Turkey has a big potential in geothermal energy with 2 geothermal power plants in operation at present with several in planning stages.
Solar Energy
Although solar energy has been used in many technologies for centuries and has come into widespread use where other power supplies are absent, such as in remote locations and in space, Turkey has not entered the solar age yet. The interest is growing with many companies setting up manufacturing facilities for solar cells and photovoltaic arrays as joint venture companies with foreign partners, especially Chinese manufacturers.
Nuclear Energy
There is a renewed interest in nuclear energy in many countries around the world although Germany has declared the closure of all units by 2022 and Switzerland has followed suit. The accidents at Russian Chernoble and American Three Mile Island nuclear power plants which are still being discussed and this year’s Fukushima Daichi accident following an earthquake and tsunami has resulted in extensive studies on the future of nuclear energy around the world. There have been minor accidents at other nuclear power plants which have not impacted the operation. Close to 450 nuclear reactors are operating with over 60 under construction around the world. New initiatives in nuclear technology are beginning to attract attention and Russia and China are expected to double their nuclear capacities by 2020, and several other countries are building new nuclear power plants.
After almost 40 years of several attempts to build a nuclear power plant, Turkey signed a contract with the Russian company Rusatom, which was approved during a 12-hour debate in the Turkish Parliament in August 2010. The Russian Parliament has also approved the contract this year. Rusatom will build a 4-unit, 5,000 MW facility at the Akkuyu site, picked back in 1970s as the first site, and operate the facility for 60 years with a 15 year purchase guarantee at 12.35 US cents/kWh, starting 2019 at the earliest, with all units to be operational by 2022 or 2023. The Russian Prime Minister stated during a visit to Bulgaria early this year that the Russian government backed nuclear offer to Turkey was offered at the most competetive price with advantage of Turkey.
The MENR had been negotiating with the Japanese companies for a second 5,000 MW facility in Sinop, on the Black Sea coast, which has also been under discussion for many years and the contract signing expected in Seoul during the G-20 meeting earlier this year was not materialized. However, the Japanese have pu a hold on the discussions due to the Fukushima disaster. South Korean Economy Minister Choi Kyung Hwan had stated that the price is the biggest issue while the Turkish Minister of Energy Taner Yıldız said that there was a disagreement over what country should take control of the Project, with both wanting the other to hold a majority. This is a sharp contract to the Russian deal where the Russian company will be 100 % owner and operator of the plant.
Several sources stated that the American companies, the pioneers of nuclear energy, and the Canadian companies shied away due to the electricity sale price which they said can not be met. There have been many speculations on the way the tenders for the nuclear projects were issued, giving only 6 months to submit the proposals. The first Russian offer with a very high electricity price of 21.3 US cent was rejected which is now around 10.5 US cent. The Russian company is obligated to establish a company in Turkey, which is expected to be realized soon, according to media reports. Judging from the way the tenders were issued and the selection was made, Turkey’s dream to build a nuclear power plant and to establish an industry for this is still moving slowly.
Hydroelectric Power Plants
There are over 228 HEPPs in operation, 106 of these owned and operated by EUAS. 94 small HEPPs owned by the private sector, 18 BOT, 3 TOR and 7 with the Privatization Administration. All plants account for 35% of the potential in the hydro sector with a total installed capacity of 13,700 MW. Additional 8,600 MW are under construction and 22,700 MW in the planning stages. 6,000 MW capacity is expected to be operational by 2018.
Manufacturing and Technology in the Energy Sector
Unfortunately, Turkey lags behind industrial nations in manufacturing components in the energy sector. There is only one company that produces hydro equipment, TEMSAN, including hydro turbines up to 50 MW in a factory located in Diyarbakir, in southeastern Turkey. Soyut is producing small wind turbines in a factory located near Ankara with several other new companies entering the market also.
Basic Information on Turkey
The latest Parliamentary election was held on June 12, 2011, with almost 83 % voter participation, which gave the governing party, Justice and Development Party (AKP) the mandate with almost 50 % of the vote to rule for the next 4 years through 2015 with plans to continue through 2023. The Presidential election is set for 2012 or 2014, which has not been settled yet due to confusion on the constitutional amendment passed a few years back.
Population – 76,500,000
GDP – $571 Billion
Per Capita Income (GDP) – $ 7,466
Employment Level – 24.1 Million
Unemployment Ration – 9.5 %
Export – $ 137.5 Billion
Import – $ 202.2 Billion
Foreign Trade Balance – $ (-) 64.7
A Bit of History and Future Developments
Electricity in Turkey was first generated at a small plant near Tarsus in 1909 and the first major fossil power plant was put into service in 1917 in Silahtaraga, Istanbul, which is now a Cultural Center and Museum of Electricity. The installed capacity in 1923 was only 55 MW. The first major hydroelectric power plant was built at Hirfanli which was followed by Keban HEPP and many others, bringing the total usage of potential hydroelectric capacity to around 35%. There are also large lignite and comparatively small hard coal reserves, but only 30% has been developed. Both of these natural resources are planned to be used in the generation of electricity in order to reduce Turkey’s dependence on imported natural gas, which has increased to over 45% of total generation this year.
Energy Conferences and Symposiums
Over seven national and international conferences and symposiums were held in 2010 and several are planned for this year in various cities including Izmir, Ankara and Istanbul. The attendance at the conference held in Ankara Oct 21-12, 2010 was over 1,000 representatives of government, private sector, universities and manufacturers. A conference on the 2nd Waste Technologies Symposium was held on Nov 4-6, 2010 and another conference, entitled ‘’Energy Policies in Turkey towards 2030 and Future of Energy regulations’’ was held in Ankara in early 2011, followed by “Conference and Fair on Energy and Management on June 15-17, 2011, attended by close to 10,000 participants and company representatives. Notes from the last conference are given in Attachment 3.
A Waste-to-Energy Conference is planned in Northern Cyrus on Sept 7-9, 2011, a conference on Renewable Energy with Effective Use of Energy is scheduled for Oct 6-8 in Istanbul, and waste Management Conference in Istanbul on Nov 4-6, 2011.
Yuksel Oktay, PE
Energy Consultant
Washington Township, NJ, USA
July 6, 2011