POWER June 2015 - 74

POWER TURKEY
Global Business Reports
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This issue, notably, has underscored the role which vested interests
continue to play in shaping the regulatory structures that govern Turkey's
energy sector. Yosmaoğlu, who recently petitioned Turkey's energy
regulator for a redress of unlicensed energy projects, explained:
" Upon bringing the issues associated with the lack of regulation of
unlicensed projects and the attendant conlict that they create with
Turkey's legal system to the attention of EMRA, the regulator announced
that a requirement would be imposed in line within the
legislation governing fossil fuel ire cogeneration, that the proportion
of electricity that could be traded would be limited to 40% of total
unlicensed production. Later, EMRA back-stepped, issuing
a statement stating that the size of these projects
did not necessitate a regulatory framework. The
rationale diving this: the Minister himself, many
of the MPs, several heads of municipalities
and igures within EMRA have applied for
unlicensed projects. "
So why then, in spite of these many
challenges, should Turkey attract investors?
The answer to this is nuanced and lies in
both the fundamentals of Turkey's energy
market and the country's political and economic
framework.
Turkey is a burgeoning energy market. Dr. Zafer
Demircan, the Republic of Turkey's General Director
of Energy, said: " Economic expansion, rising per capita income
levels, positive demographic trends and the rapid pace of urbanization
will continue to drive domestic energy, which is expected
to increase around 6% per annum until 2023. "
Indeed, Turkey offers a young population - the youngest of
any European nation - and a GDP that the government projects
will increase by 4% in 2015 and 5% in 2016. Owing to
this, the government targets for energy generation to
reach 120gW by 2023. This will necessitate a projected
$110 billion of investment into the country's
energy sector. With the country currently
indulging in several other massive infrastructure
projects, a large proportion of this capital
must come from foreign markets. The
government is thus expected to respond.
Beyond this though, the foreign investor
must also place the challenges currently faced
by the country's energy sector in context. The
domestic energy market of ten years ago - statecontrolled
and highly regulated - was far different
from the energy market of today. Issues associated with
the country's natural gas market, its transmission system, and the
energy sector's licensing and tender process are not symptomatic
of a country unsure of the role of private sector participation in its
development, but rather the nascence of its new institutional power
structures. Should foreign investors seek further reassurance, they
need only look to the country's regulatory processes as a whole.
Ferhat Melik, board member at Vis Hydro, explained: " Taken collectively,
the legislative climate of Turkey is similar to that of the
European Union. The government has justiied its position with past
performance and there are few inconsistencies to be found in pol6
Global
Business Reports // POWER TURKEY
Dr. Zafer Demircan, Republic of
Turkey, general director
of energy
icy making. Turkey offers no legal or legislative risks but the added
beneit of returns found only within emerging markets. That is the
beauty of Turkey. "
Mehmet Ali Neyzi, CEO, at STFA, one of Turkey's largest distributors
of natural gas with signiicant holdings in generation, conirms: " Turkey
has a vast population and low penetration for energy. There is a
huge growth potential in electricity and per capita usage of energy.
With EMRA regulating the market, we will have more transparency.
The energy market is quite sophisticated, so for a foreign investor
there is a great incentive to invest in Turkey. Turkey is an emerging
market and it is easy to conduct business here as opposed
to other developing countries. It is a lucrative market
with limited legal and inancial restraints. "
The beauty of Turkey's energy sector also rests
in that quality which has made the sector,
at least initially, dificult to navigate: its market
liberalization process. The early stages
of market liberalization present investors
with an opportunity to enter into segments
of the market that would otherwise, in more
mature markets, possess high barriers to entry.
This is observed in the case of retail electricity
distribution.
Historically controlled by the Turkish Electricity
Distribution Company (TEDAŞ), Turkey's retail electricity
market opened to investors through the tender of six distribution
companies in 2010, since when several businesses have
established themselves in the segment. Among those was Bis Energy,
which currently stands as the sector's 6th most proitable
business with revenue of £636 million in 2014 through its 486mW
of generation capacity and which entered into the retail market
through the establishment of its subsidiary, Bisen Energy,
in 2011. Underscoring the company's decision to
establish Bisen Energy were the lucrative
prospects offered by a market just opening. Mesut
Alparslan, CEO of Bisen Energy, explained
that, " Market liberalization presented our
parent company, Bis Energy, with an opportunity
to enter a market at a very early stage
in its development. The proits, and lack
of competition, offered by the retail electricity
market, if compared against the instituMesut
Alparslan, CEO,
Bisen Energy
tional market for energy, are larger. Moreover,
retail consumers show far less sensitivity to
energy prices than institutional customers. While
a discount of 1% might spur an institutional consumer
to switch accounts, the grounds upon which energy retailers
compete are more solid. The sector also offers, comparatively,
far less risk. "
This is not to say that the impediments faced by Turkey's energy
sector should not be given due consideration. The role that the
government plays in addressing these structural issues will determine
which path the country takes at its current juncture. Yet in
opening its energy markets to investors ten years ago, the country
already set its footwork on the path of reform. For this, Turkey
demands consideration.
June 2015
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POWER June 2015

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