10th Anniversary

Overview of Turkish Energy

Market

Policies – Projections - Targets

10th Anniversary

www.epdk.org..tr

Agenda

Policy Aspects & Prospects

Main Features of Electricity Market

The Regulator - EMRA

Market Model

Market Indicators

Conclusion

10th Anniversary

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Energy Policy

MissionTo ensure efficient, effective, safe and environmentally-friendly use of energy and natural resources in a way that reduces import dependency of our country and makes the greatest contribution to our country’s welfare.

VisionTo make our country the leader of its region in energy and natural resources.

10th AnniversaryTurkish Energy Sector

174,8

55,3 56,8

30,6

5,6 7,6

262

120,6

96,9

224,6 6,9

0

50

100

150

200

250

300

China Türkiye India World EU OECD

%

Total Demand Increase Rate2000 - 2009

Electricity Gas

Rapid growth in demand: investment challenges and

opportunities• Per capita consumption is 2 890

kWh/year which is well behind the EU average.

• Despite the economic crises in 1994, 1998, 2001 and 2008, the installed electricity generation capacity has quadrupled in the last 25 years.

High level of import dependency: Need for more domestic resources, in particular the renewables Need for diversification of resources

Relatively high figures for energy intensity: Potential for improvement of energy efficiency (but also linked to the structural issues related to economy)

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Economic Growth vs. Electricity Demand

•GDP growth rate was 4.2% and electricity demand growth rate was 8.4% on average between 1970 and 2010

-10,0%

-5,0%

0,0%

5,0%

10,0%

15,0%

20,0%

%

GDP Growth Rate Demand Growth Rate

-1,5%

6,2%

7,0%

8,5%

8,0%

7,1% 9,3%

9,1%8,6%8,9%9,7%10,1%

6,7%

11,4%

6,5%

4,0%

-3,4%

-6,3%-5,0%

-3,9%

6,3%

4,9%

8,5%

12,1%

7,5%10,0%

11,9%

8,1%8,0%8,5%

7,7%7,6%

9,8%

5,9%

9,7%

6,3%5,7%

8,1%

3,8%3,2%

4,2%

7,0%

2,6%

0,9%

-7,0%

-14,7%

-7,8%

-2,8%

5,9%

12,0%

10,3%

5,2%

9,2%

-20,0%

-15,0%

-10,0%

-5,0%

0,0%

5,0%

10,0%

15,0%

2004 I

2004 II

2004 III

2004 IV

2005 I

2005 II

2005 III

2005 IV

2006 I

2006 II

2006 III

2006 IV

2007 I

2007 II

2007 III

2007 IV

2008 I

2008 II

2008 III

2008 IV

2009 I

2009 II

2009 III

2009 IV

2010 I

2010 II

2010 III

2010 IV

GDP Growth Rate vs. Demand Growth Rate (Quarterly)

Electricity GDP

10th Anniversary

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Strategy On Electricity

All non-residential consumers will be eligible by the end of 2011. Full market opening until 2015: All consumers will be eligible to choose their suppliers. Legal unbundling of distribution companies will be completed by the end of 2012. Completion of distribution privatization in 2011. Commencement of generation privatization in 2011. Source diversification.

10th Anniversary

Ensure security of supply

Keep the costs & prices at a level suitable to support economical growth

Decrease the environmental effects to the lowest possible level

2023 Targets in Electricity Market

Exploitation of known lignite and charcoal reserves

Decreasing share of gas in generation mix

Introduction of nuclear energy Achieving 30% share for

renewables in generation mix Full utilization of

economically and technically feasible hydroelectric potential

Reaching 20.000 MW wind capacity

Commissioning all of geothermal potential

Introduction of solar power plants

10th Anniversary

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Agenda

Policy Aspects & Prospects

Main Features of Electricity Market

The Regulator - EPDK

Market Model

Market Indicators

Conclusion

10th Anniversary

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Goals in Electricity Market

More private sector presence, Increase in foreign capital investments, Decrease in public sector investment, Increasing responsibility in the protection of environment, Formation of the energy prices in a competitive environment (Competition in the Market), Increase in efficiency, Increase in service quality, Improvement in availability, Decrease in technical & non-technical loss levels.

10th Anniversary

Electricity Market Law: From a vertically integrated state monopoly to a liberal market environment

EMRA: An autonomous regulator in charge of issuing secondary legislation, granting licensing, approving tariffs, monitoring, auditing, etc.

Unbundling: Legal unbundling regime among market activities supplemented by privatization of distribution and generation assets.

Third Party Access: Regulated TPA regime. Transmission and distribution companies should allow open, guaranteed, and non-discriminatory access to their networks, which is backed by Regulator’s oversight.

Wholesale Market Design: Bilateral contracts market complemented by a residual balancing mechanism. Introduction of a day-ahead market and an exchange.

Mitigating Market Power: Static precautions in terms of limiting market share. Generation 20 percent, wholesale market 10 percent.

Fundamentals of Electricity Market

10th Anniversary

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Agenda

Policy Aspects & Prospects

Main Features of Electricity Market

The Regulator - EPDK

Market Model

Market Indicators

Conclusion

10th Anniversary

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EPDK/EMRA

Who is EPDK/EMRA? EMRA is the sole regulator of electricity,

gas & petroleum markets

What does EPDK/EMRA do? EMRA;

• Issues secondary legislation• Grants licenses to market players• Approves tariffs• Monitors, supervises and audits markets and

market players

What are EPDK/EMRA’s objectives? EMRA’s main objective is to provide;

• Financially viable, stable and competitive energy market• Sufficient energy at good quality• Low cost• Reliable and environmental friendly manner

10th Anniversary

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Agenda

Policy Aspects & Prospects

Main Features of Electricity Market

The Regulator - EMRA

Market Model

Market Indicators

Conclusion

10th Anniversary

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Electricity Market Structure

Captive Consumers

Captive ConsumersGenerationGeneration

Retail SaleRetail Sale

Wholesale

Market

Wholesale

Market

Retail MarketRetail

Market

Eligible Consumers

Eligible Consumers

TransmissionTransmission DistributionDistribution

Regulated Activities

Competitive Activities

After Full Competition

Old Structure vs. New Market Model

Subject Old Structure New Structure

Structure Monopolistic Competitive

Tariff structure Not cost-reflective Cost-reflective

Market entranceBidding / submission of feasibility studies

Licensing

Regulation By the Ministry and related organizations

By the independent regulator - EMRA

Role of stateInvestment & Operation & Auditing

Auditing

Market risks borne by The State Market participants

Private participationBOO, BOT and TOOR with state guarantees

Privatization and new companies

10th Anniversary

Balancing MarketBalancing Market OTC MarketOTC MarketSpot MarketSpot Market Futures MarketFutures Market

ExchangeExchange

Ref: Challenges in Pricing of Electricity Risk, Juri Hinz

PMUM: Market Financial Settlement Centre

VOB:Turkish Derivatives Exchange

Approach to Wholesale Markets

10th Anniversary

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Agenda

Policy Aspects & Prospects

Main Features of Electricity Market

The Regulator - EPDK

Market Model

Market Indicators

Conclusion

10th Anniversary

www.epdk.gov.tr

Oil Products3,4%

Domestic Coal16,9%

Imported Coal6,4%

Gas36,6%

Hydro33,1%

Wind3,1%

Others0,4%

Breakdown of Installed Capacity(as of Sept.30)

51,076 MW

Oil Products1,9%

Domestic Coal18,4%

Imported Coal9,3%

Gas45,2%

Hydro22,9%

Wind1,9%

Others0,5%

Breakdown of Electricity Generation(Last 12 Months - as of Sept.30)

222.1 TWh

Turkish Electricity Market

10th Anniversary

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Turkish Electricity MarketkW

h/p

ers

on

$/person

GDP per capita & Electricity consumption per capita

10th Anniversary

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Transmission Network & Interconnections

BLACKSEA

MEDITERRANEAN

ALTINKAYA

EREĞLİ

AMBARLI

BULGARİSTAN

FILIPPI

H.UĞURLUKAYABAŞI

ÇANKIRI

TİREBOLU

BORÇKA

GÜRCİSTANBATUM

ERMENİSTAN

GUMRI

BALIKESİR

SOMA

ALİAĞA

DENİZLİ

YATAĞAN

KEMERKÖYOYMAPINAR

SEYDİŞEHİR

KONYA

ADANAERZİN

G.ANTEP

ANDIRIN

ELBİSTAN

KANGAL

YEŞİLHİSAR

KAYSERİ

ÇAYIRHAN

GÖLBAŞI

KEBAN

KARAKAYA

ATATÜRK

DİYARBAKIR

Ş.URFA

BATMAN

HAKKARİ

KARS

ÖZLÜCEERZURUM

HORASAN

IĞDIR

D.BEYAZIT

DIMODICHEV

SURİYE

DERİNER

İSKENDERUN

İRAN

IRAK

HALEP

PS3

ZAKHO

KESEK

KHOY

BAZARGAN

BABEK

KALKANDERE

KOCATEPE

TEİAŞ-APK 2008

220 kV EİH154 kV EİH

HES (PLANLANAN)

HES (MEVCUT)

TS (MEVCUT)

TL (MEVCUT) TL (PLANLANAN)

TS (PLANLANAN)

Y.TEPE

ALİBEYKÖY

TUNÇBİLEK

D.PAŞA

KARABİGA

ADA-GEBZE

PAŞAKÖY OSMANCA

GÖKÇEKAYA

TEMELLİ

SİNCAN

BABAESKİHAMİTAB

AT

ÜMRANİYE

BURSA

AYDIN

YENİKÖY BİRECİK

SEYİTÖMER

IŞIKLAR

ADAPAZARI

YUN

ANİS

TAN

KIZILTEPE

AĞRI

Z.KÖY

TEPEÖREN

UNIMAR

HİLVAN

ILISUDOĞANLI

ÇUKURCA

CİZRE

VAN

ERMENEK

MERSİN

HATAY

İKİTELLİ

A.ALANI

KAPTAN

UZUNDERE

HİSAR

GÜRSÖĞÜT

KARGI SİVASDEÇEKO

YUSUFELİ

KAVŞAK

İSDEMİR

BOYABATAMASRAKARABÜK

X

BEYKOZÇARŞAMBA

HOPA

VARSAK

MANİSA

HABİPLER

SAMSUN DGKÇBORAS

CO

SAN-SEL TES

SAMSUN TES

CENGİZ

SİNOP TES

AKFEN

ÇAYLI TES

ÇAN

İÇDAŞ

İÇDAŞ

AKSA

SİLOPİ TES

K.KALE DGKÇ

İÇANADOLU DGKÇ

BAĞLUM

KAYRAKTEPE

YEDİGÖZE

İAKSU

ARKUN

AKINCI

ORDU-2

TATVAN

ÇETİN

ARTVİN

2 500 MVA290 MVA

570 MVA

260 MVA

790 MVA

1 000 MVA

1 500 MVA

Turkish power system was synchronized with the interconnected power systems of Continental Europe (ENTSO-E)

The parallel operation within the Continental European Synchronous Area will increase the quality and security of the electricity supply in Turkey, and is foreseen to eventually provide access to the European Electricity Market.

410 MVA

10th Anniversary Growing Electricity Sector

•Installed Capacity•28 332 MW in 2001•49 523 MW in 2010

0

10.000

20.000

30.000

40.000

50.000

60.000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

MW

Capacity Build-up

D. Coal Imp.Coal Oil Gas Hydro Wind O. Renew

•Breakdown of added capacity•27% renewables•35% renewables + domestic sources

10th Anniversary

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0

50.000

100.000

150.000

200.000

250.000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

GW

h

Electricity Generation

D. Coal Imp.Coal Oil Gas Hydro Wind O. Renew

•Generation increased 71% between 2001 and 2010

Growing Electricity Sector

Breakdown of generation increase•28% renewables•30% renewables + domestic sources

10th Anniversary

Developing Electricity Market9.000 7.800 7.700

6.000

3.000

1.200

480

100

30

23

2830

32

3941

49

63

75

1

10

100

1000

10000

0

10

20

30

40

50

60

70

80

2003 2004 2005 2006 2007 2008 2009 2010 2011

Retail Market Opening

Eligibility Threshold (MWh) Market Opening Degree (%)

•Market is functioning along its dynamics•Market is continuously enlarging

10th Anniversary

Pace of Liberalization

- 24 -

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

2004

2005

2006

2007

2008

2009

2010

Sep

t.20

11

Share of Producer Groups in Meeting Demand

Public Contracted IPP

July 2011

10th Anniversary

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Electricity Demand Growth

299.

768

433.

809 62

2.91

0

886.

885

209.

891

295.

953

405.

515

548.

474 73

5.29

1

294.

357

378.

013

529.

544 70

6.27

9GW

h

2010 2015 20302020 2025

-5,0%

0,0%

5,0%

10,0%

15,0%

20,0%

1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 2026

%

Demand Growth Rate

High

Low

Generic

Actual

10th Anniversary

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Agenda

Policy Aspects & Prospects

Main Features of Electricity Market

The Regulator - EPDK

Market Model

Market Indicators

Conclusion

10th AnniversaryWhy Shall Invest inTurkish Energy Market ?

Sound legal framework (from constitutional level to secondary legislation level),

Reliable member of international community, High and rapid growth in demand, Compliance with the European Acquis, Competitive, stable, financially reliable and transparent

business environment, Non-discriminatory approach guaranteed by an

independent regulator, Good governance principles, Cost-reflective tariff system.

10th Anniversary

Turkey pursues its goal of market liberalization in energy sector enthusiastically,

Achievements made electricity sector is more than satisfactory vis-à-vis the EU directives.

Regional cooperation and integration regards to the energy sector and participation in the energy-related international institutions are among the highest-priority of Turkish policymakers.

M&A is a key opportunity area in Turkish power market.

Conclusion

10th Anniversary

Thank you…Q&A