• Insight Into Turkey's Energy Market and New Energy Exchange 'EPIAS'
  • September 17, 2013
  • Law Firm: HERDEM Attorneys At Law - Istanbul Office
  • In parallel with electricity market,  demand in natural gas market has also been triggered with share reduction of state-owned companies. On the other hand,  the reality indicates that energy generation and distribution should be bolstered by a well acting trading market for hedge effectiveness and competitive market pricing mechanism. Also, Turkey is aimed to be benchmark electricity market for trading spot and derivatives contracts  amongst Europe, Middle East and Central Asia. At this point, Turkish lawmakers has taken further steps with the new energy market introduction 'EPIAS'.

    What brings New Exchange into Market ?

    Formerly, market players are able to buy or sell derivates contracts in Borsa Istanbul at a fixed price in the future with regard to their price expectations Apart from Borsa Istanbul, EPIAS is expected to be the market operator where day ahead and intra-day spot transactions will take place.  The Turkish Government is keen to compose a harmonised energy market to whet investor  appetite for Turkey. Determination of reference prices will be the key strategic target for energy sector in Turkey provided with more transparent, liquid and competitive market conditions. Also this new energy exchange will create new opportunities in terms of energy portfolio optimization, IT solutions, forecasting and modelling processes.

    EPIAS is expected to commence operations by 2014. Turkish Energy and Natural Resources Ministry Undersecretary stated that  EPIAS will be established with 30% share of EPIAS,  30% share of Borsa Istanbul and 40% share of private sector partnership structure. Hence, this partnership is projected to possess advanced corporate governance standards. Many economists assert that electricity prices will fall after EPIAS starting-up in Turkish market.

    Incentives for Renewable Energy Investments in Turkey

    Turkish Parliament has adopted the" Renewable Energy Law" at the end of 2010 including feed in tariffs and subsidies in the renewable energy sector (Law No: 6094).  In accordance with this law, renewable energy producers that operates between 18 May 2005 and 31 December 2015 are under guaranteed of Turkish Government substantial purchasing power prices determined by Ministry of Energy and Natural Resources.  The most striking subsidy appears in solar energy and biomass power plants investments with  USD 13.3 cent per kWh. Providing that a renewable energy producer obtains operations license before 31 December 2015, they are entitled to acquire additional incentives on condition that they apply local equipments and technology for their plants. Additional subsidy ranges from USD 0.004 to USD 0.035 per kWh. Future predictions indicate that fixed minimum electricity prices will reach up to EU standards in near future.

    A New Beginning with Nuclear Power Plant Projects

    Turkish Government strategically geared up nuclear power plant projects in order to meet rapidly increased energy demand in Turkey .Initially, Russian state atomic energy corporation Rosatom, was entitled to build Turkey's first nuclear power plant in 2010 . The total cost of investment will be around 20 billion USD dollars and expected to start operations in 2019.Furthermore, Türkiye Elektrik Ticaret ve Taahhüt A.S (TETAS) guaranteed the purchase 70% of generated from the first two units and 30% of from the third and four units at price of 12.35 USD 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 $22 billion and envisaged completion time is by 2023. In consequence of these projects, Turkey anticipates 15% of power generation from nuclear plants by 2030. As distinguished  from expected returns, Turkish Government introduced an investment model "Build-Operate Own" will also provide reducing financial risks of these projects that should be considered by the contractor company.

    Challenges in Turkish Energy Market

    Despite Turkey took concrete steps on extending vision in energy industry, there are some drawbacks below made investors more prudent on decision making:
    • Turkey is highly dependent country particularly imported natural gas.
    • Turkish renewable energy policies and legislation should be more consonant with EU countries' practices.
    • Subject to geopolitical position of Turkey, government should intensify the surveillance to ensure energy infrastructure security.
    • Strict disclosure requirements on licensing procedure may discourage investors to invest in large-scale energy projects in Turkey.