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 Turkish Electricity Market
The electricity industry is a large, high-growth sector in the Turkish economy. The industry contributes significantly to the country’s GDP and is a USD 12 billion industry at current end-user prices. The sector’s share in the Turkish economy has been growing rapidly, given the 8% per annum growth in electricity demand over the past two decades. This rate of demand growth has been higher than the growth rates seen in other major Turkish industries and outstrips growth in the Turkish economy overall.
In 2004, the Turkish electricity sector recorded approximately 151 billion kWh of gross consumption (161 billion kWh in 2005) and 121 billion kWh of net consumption (excluding loss/theft and internal consumption). The industrials customer group represent approximately 50% of the total demand, while residential customers consume slightly less than a quarter of the total. Commercials customer group, excluding public institutions, is placed third in terms of consumption with a 13% share.
Distribution losses of the system, which amounted to 19.8 billion kWh in 2004, are high compared to international benchmarks. Accordingly, one of the primary objectives of the electricity sector reform has been defined as reducing the loss/theft ratio to OECD levels. Electricity generation, imports & exports, distribution losses and the net consumption of main customer groups in 2004 are summarized in the following chart.
Electricity consumption growth has historically been less volatile than the overall economic growth in Turkey. Between 1980 and 2004, GDP growth displayed a wide variance with a standard deviation of 4.7% around an average growth rate of 4%. Consumption growth in the electricity sector during the same time period displayed a lower standard deviation of 3.2%, around a higher average growth rate of approximately 8%. As can be seen in the next chart, electricity consumption was negative only in a single year over the past 25 years.
Despite increasing demand, Turkey’s per capita gross consumption is still very low at 2,090 kWh compared to the EU average of 6,460 kWh. According to the Ministry of Energy and Natural Resources (“MENR”) 2004-2020 projections that assume a continued cumulative annual growth rate of 7.7% in gross demand, per capita consumption is forecasted to reach 5,700 kWh by 2020.
During the 1980s, average consumption growth was the same for all customer groups around 8%. After 1990s, however, consumption growth for residential and commercial customer groups outpaced that of industrial customer group. Nevertheless, the industrials segment still accounts for approximately 50% of electricity consumption in Turkey. The next chart illustrates consumption growth for each customer group over the past two and a half decades.
The forces that fuel growth in the sector are continued economic and industrial development, population growth and improving income levels. According to projections prepared by the national transmission company TEIAS on the growth of supply, there is sufficient generation capacity at least until year 2009. Required investments for more capacity are expected to be covered primarily by private sector investments. Should this not take place, the State will take necessary measures to provide additional capacity, including imports and rehabilitation of existing plants to provide supply assurance, as stated in the Strategy Paper.
Turkish electricity sector was dominated by the State-owned vertically integrated company Turkiye Elektrik Kurunu (“TEK”) until the early 1990s. In 1993, in view of market liberalization and privatization, TEK was separated into TEAS (generation, transmission and wholesale) and TEDAS (distribution). Then, with the enactment of the Electricity Market Law in 2001, TEAS was further unbundled into EUAS (generation), TETAS (wholesale) and TEIAS (transmission), each being organized as a separate legal entity.
For more information regarding potential investment opportunities in the Turkish energy market, a law firm should be consulted.
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