Turkey: Insight Into Turkey's Energy Market And New Energy Exchange 'EPİAŞ'

Last Updated: 2 October 2013

Turkey's liberalisation of the electricity market has demonstrated its ambition to become an energy hub in the heart of Europe and the Middle East.

According to the Türk Eletrik İletim Anonim Şirketi (EPİAŞ) report, electricity demand in Turkey will grow to 398-434 billion kWh by 2023.

The relaxation of state ownership has seen a growth in the natural gas sector, but energy generation and distribution should be bolstered by a functioning market for hedge effectiveness and a competitive pricing mechanism.

Turkey aims to be a benchmark electricity market for spot trading and derivatives in Europe, the Middle East and Central Asia, and Turkish lawmakers have been gearing up for the changes.

What brings the new exchange into the market?

Formerly, market players were able to buy or sell derivates contracts in Borsa İstanbul at a fixed price based on cost forecasts.

Apart from Borsa İstanbul, EPİAŞ is expected to be the market operator for spot transactions. The Turkish government is keen to create a harmonised energy market to inspire investors' appetite for Turkey.

Determination of reference prices will be the key strategic target for the energy sector in Turkey, providing more transparent, liquid and competitive market conditions.

Also this new energy exchange will create new opportunities in terms of energy portfolio optimisation, IT solutions, forecasting and modelling processes.

EPİAŞ is expected to start operations by 2014. The Turkish Energy and Natural Resources Ministry Undersecretary said that it will be established with 30% share of EPİAŞ, 30% share of Borsa İstanbul and 40% share of private sector partnership structure for advanced corporate governance standards.

Many economists believe that electricity prices will fall after EPİAŞ launches.

Incentives for renewable energy investments in Turkey

The Turkish Parliament adopted the Renewable Energy Law at the end of 2010, including feed in tariffs and subsidies in the sector (Law No: 6094).
Accordingly, renewable energy producers in operation between 18 May 2005 and 31 December 2015 are guaranteed substantial purchasing power prices, determined by the ministry of energy and natural resources.

The most striking subsidy is in solar energy and biomass power plants with investment of $13.3 cent per kWh.

Providing that a renewable energy producer obtains an operations licence before 31 December 2015, they are entitled to acquire additional incentives on condition that they use local equipment and technology for their plants.

Predictions indicate that fixed minimum electricity prices will reach up to EU standards in the near future.

A new beginning with nuclear power plant projects

The Turkish government increased nuclear power plant projects in order to meet the rapidly increased energy demand.

Initially, the Russian state atomic energy corporation, Rosatom, was contracted to build Turkey's first nuclear power plant in 2010. The total cost of investment is around $20bn and is expected to start operations in 2019.

Furthermore, Türkiye Elektrik Ticaret ve Taahhüt A.Ş (TETAŞ) guaranteed the purchase 70% of generated power from the first two units and 30% from the third and four units for 12.35 cents per kWh.

The remaining power will be sold in the open market by the producer. In addition to Akkuyu project, Turkey signed another agreement with a Japan-France consortium led by Mitsubishi Heavy Industries and Arveva.

The estimated cost for this project is $22bn and completion is expected in 2023. Consequently Turkey anticipates 15% of power generation from nuclear plants by 2030.

The Turkish government has introduced an investment model called "Build-Operate Own", reducing the financial risks of these projects.

Challenges in Turkish energy market

Despite Turkey's long-term vision for the energy industry, there are some drawbacks for potential investors. These are:

  • Turkey is highly dependent on imported natural gas.
  • Turkish renewable energy policies and legislation should be more consonant with EU countries' practices.
  • Owing to Turkey's geopolitical, the government should intensify surveillance to ensure energy infrastructure security.
  • Strict disclosure requirements on licensing procedure may discourage investors to invest in large-scale energy projects in Turkey.

Previously published in Global Trader

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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