24 – 02 – 2010
A concerted effort to both increase the country’s generating capacity and increase the proportion of capacity in private hands makes Turkey’s power sector an area few would want to miss out on. Opportunities abound in 2010 and beyond. By Mark Kolmar.
Turkey only escaped the inconvenience and ignominy of electricity shortages in 2009 due to lower demand amid lower economic activity. Demand is expected to return to growth in 2010, at rate of between 4% and 6%, and continue at 6%−8% per year between now and 2017. The Ministry of Energy and Natural Resources (MENR) has estimated that the country will need between 40GW and 56GW of additional power on top of its existing 41GW by 2020 − at a cost of US$100bn.
Average per capita consumption is very low in Turkey compared with many of its Western neighbours, suggesting room for demand to grow that urbanisation and a young, growing population will fill. Electricity consumption in the country grew by 92% between the mid-1990s and mid-200s – a rate that only China and South Korea exceeded.
The prevailing conditions of demand growth mean that not only is the dampening effect of the economic downturn temporary, but it is minimal. One local banker estimates when the economy drops by 5% or 6%, electricity demand drops perhaps 1% – when the economy is rising again, demand growth will outpace it.
Inevitably, the result of this predicament is greenfield investments. With the demand so clear, banks are very interested. The quantity of new capacity required in the short to medium-term also means that thermal, typically coal-fired, plants will be providing the bulk of the additional generation in the foreseeable future. Many thermal plants postponed in recent years are returning to the market.
Evonik Steag, Germany’s fifth largest power firm, and Oyak, Turkey’s armed forces pension fund (and both the country’s first and still-largest privately-owned pension fund) are developing a new 625MW plant to go alongside their existing project, the 1,320MW hard coal-fired Isken power plant at Iskenderun bay in the south-east of Turkey. Royal Bank of Scotland is financial adviser.
The new Ayas project will cost US$1.35bn, financed through a combination of equity, ECA-covered debt and commercial debt. Sinosure is covering, backing China National Machinery and Equipment Import and Export Corporation’s (CMEC’s) involvement as EPC contractor on a turn-key, fixed-price deal. Bank of China, China Construction Bank and ICBC have been mandated on the Sinosure facility. Turkish and international banks are poring over details of the commercial facility.
The new plant will be split between Evonik and Oyak on the same 51/49 basis as the Isken plant, which has been operating since 2003. A critical difference is in the off-take, however. Where Isken, one of the original build and operate (BO) schemes tendered in 1997, is backed by a Treasury-guaranteed 20-year power purchase agreement (PPA) with state utility TEAS for 85% of the power, Ayas will sell on a merchant basis. Even given the agreed need for additional power in coming years, market-risk will be an important consideration for lenders.
The merchant route is expected to become increasingly common for plants. A number of the existing BOTs have price guarantees, but those are all coming to an end over the course of the next decade. Evonik and Oyas are aiming for a Q2 financial close for Ayas.
RWE and Turcas are developing a 775MW plant in Denizli, in Western Turkey. RWE is the majority shareholder on the combined cycle gas turbine plant with a 70% stake. Greek firm Metka has the EPC; Siemens will supply major components. Projected cost is €450m, and commissioning is scheduled for 2012.
Also on the way is a 900MW gas-fired plant being planned by Akenerji. Akenerji bought a 98.99% stake in Egemer Elektrik Uretim in March 2009, giving it control of Egemer’s licence for a 900MW natural gas-fired plant in Hatay. ING is advising on the plant financing, which is scheduled for operations in Q4 2012.
The financing is likely to be heavily backed by export credit agencies (ECAs). Akenerji is 37.5% owned by Czech utility CEZ, and co-owned by Akkok Group, as well as being quoted on the Turkish stock exchange. It is looking to double its 358MW power output over the next two years, and to be generating 3GW within six years.
Others with more embryonic plans include Anadolu Group, which is planning a 1,200MW coal-fired plant in the north, as part of a €2bn investment in energy projects to boost its generating capacity to more than 2GW. It is in talks with equity partners for a number of initiatives. Park Teknik has applied to build an 864MW natural gas power plant in Mersin, and Suez-Guney Elektrik (owned by Tractebel, Mimag and Samko) plans to build a 1,320MW coal-fired plant in Adana.
The difficulties that coal plants, particularly lignite-fired examples, present in meeting carbon obligations and EU entry requirements on clean energy, combined with high gas prices, give renewables a great boost in attractiveness. A draft renewables law is on its way to shape the environment for new green power, determining feed-in tariffs for wind, hydro, solar, although much investment will inevitably be delayed until this is in place.
Doğan, Doğuş and Unit signed a US$750m loan with four local banks for the US$1bn 513MW Boyabat hydropower project last month (PFI 426). Due to the 65.4km2 reservoir being above eligible size, the project will not benefit from the offtake price guarantee, which typically provides a 5.5 euro cents per kWh price for the first 10 years of production.
New hydro generation totalling 60TWh−100TWh is targeted by 2023, but developing can be expensive due to taxes, including a tax of up to US$0.047/kWh to State Hydraulic Works (DSI) for water use. Accordingly, wind generation is also an attractive option.
Since 2007’s energy efficiency law, installed wind capacity has grown from 50MW to more than 800MW. The Ministry of Energy and Natural Resources estimates that the country has potential for 48GW, and wants windfarms’ contribution to total energy production to grow from 15% to 34% by 2020.
The contribution nuclear power can make to Turkey’s energy mix is less clear. Tetas cancelled the tender for a 3GW–5GW nuclear power plant in December, after a court ruled the tender invalid due to disputes over pricing the electricity. An Inter RAO/Atomstroyexport/Park Teknik consortium had been awarded the contract in September 2008, after a three-month tender process in which it was the only group to submit a bid.
As well as new generation capacity, the country is pushing to reform the wider electricity sector. In June, the World Bank approved a 23.5-year, €548.4m loan aimed at supporting policies of improving sustainable electricity supply security, ensuring financial viability of the electricity sector, improving operational efficiency and the conditions for attracting enhanced private investments, and improving energy efficiency in supply and consumption. Key to improving operational efficiency and conditions for private investment are the privatisation plans for both distribution companies and generation plants.
Last week, four televised auctions saw the Vangolu, Firat, Camblibel and Uludag power distribution grids privatised. Limak won the largest on offer, the Uludag grid, with a US$940m bid. Uludag is the country’s fifth largest grid with a 10,940GW capacity.
Aksa Elektrik won the smallest, Vangolu, as well as Firat, with bids of US$100.1m and US$230.25m respectively. Kolin Insaat Elektrik’s US$258.5m bid was the highest for the Camlibel grid. The Firat and Camlibel grids each have about 700,000 customers and a 2,100GW capacity.
The auctioned grids highlight the wildly varying efficiency of the network – the Vangolu grid has the second highest rate of loss in the country, suffering a 55.9% lost or stolen rate in 2008. Firat, Camlibel and Uludag have comparatively low corresponding figures of 10.5%, 8.8% and 6%.
The sales follow three previous auctions in November, in which Eti Gumus was highest bidder at US$485m for the Osmangazi grid (which consumed 5,042GWh in 2008), Calik Enerji bid US$441.5m for the Yesilirmak grid (4,063GWh) and Aksa Elektrik bid US$227m for the Coruh grid (2,268GWh). The sales will fund investment in the grid. The pace is intended to increase in 2010, with receipts totalling US$7bn targeted after poor market conditions last year inhibited activity.
As well as distribution grids, generating plants are also to be sold. Most of the country’s generating capacity is privately owned, and it is hoped that sell-offs will not only raise funds, but increase efficiency, competitiveness and encourage foreign direct investment.
Plants totalling 16GW are to be privatised within the next three years, at a cost of between US$16bn and US$20bn. It is hoped that 3GW−4GW of that will be sold this year, at a cost of US$6bn, although the chunkier portions of this will be towards the end of the year. Citigroup, Oyak, Master and SOCOIN won the advisory mandate for the sale of EUAS’s power assets in September.
Plants are being divided into portfolios according to capacity for the sales, with the smallest, plants of less than 10MW, coming first. The first phase is made up of small run-of-the-river hydros. The total capacity involved in this market-testing first round is 142MW, split between 19 groups of assets each containing one or more hydros each.
Bids came in on February 19. Although small, the package will be a test-case of market appetite for the larger packages coming later in the year and beyond. The first phase auction is expected to last about six months. Approximate prices of US$1.0−$1.5 per MW are expected.
Power plants being lined up for the first of the larger portfolios are expected to include the 1,120MW gas-fired Hamitabat scheme, the 1,034MW Soma coal-fired scheme, the 600MW Seyitomer coal-fired scheme and the 320MW Can thermal project. NRG was near to buying the Seyitomer plant in 1999 under a previous privatisation drive.
A great number of players are eagerly awaiting the arrival of these larger plants on the market. Gama Energy is planning an IPO this year for 30%−35% of the company in order to provide funds for new projects and to take part in the power privatisations.
www.hbc.com.tr/index-4_PFI_ElectrifyingTurkey.html
