The Turkish Energy Sector

1. The Turkish Energy Sector Zurich, 15th of November 2007 Dr. Arnold Hornfeld

2. Agenda • Short overview about Turkey’s economical situation • Turkish energy sector • Development and actual situation of the energy market • Projection of electrical energy demand in the future • Hydroelectric power • Wind power • Geothermal power • Solar power • Nuclear power

3. TURKISH ECONOMY Selected Indicators & Brief Overview

4. Background Closed economy World War II Post-war experience in economic development: Average GNP growth at 4.7% IMF program, continued under a military government: Massive devaluation of the Turkish Lira, substantial hikes in indirect taxes 1980-1983 Market reforms, breaking the administrative structures of the command economy. Strong basic infrastructure, esp. in telecommunications and transport. 1983-1989 Liberalization of the capital account: Populism, 1994 crises, dollarization 1989-1996 Customs Union: Open market economy, persisting macroeconomic instability, 1999 crisis 1996-1999 Stabilization efforts: 2001 Economic crises followed by the launch of IMF program. 1999-2002 The European Commision published the 2004 Progress Report and recommended to begin the membership negotiations with Turkey. 2004 2005 Effective beginning of the EU accession process on October 3. Strong economic expansion with a yearly average 7.5% growth. 2003-2008 Secondary strong growth era. 2008-2013 Full membership to the EU. January 1, 2014

5. A Snapshot of theEconomy As of 2006 • GDP: US$ 403 billion • GDP per capita: US$ 5,566 • Population: 73 million (population growth rate: 1.5%) • Labor force: 24.6 million • Labor force participation rate: 49% • Overall unemployment: 10% (Unemployment in non-agricultural sectors 12.5% (2006) • Life expectancy: 68.7 years • Infant mortality: 3.8% • Literacy rate: 88.3% • Gini coefficient: 0.40 • Undernourishedpeople (% of population): 1.3

6. A Snapshot of theEconomy For the new 10 members of the EU the share of agriculture in GDP is less than 5%, while the industry and services are 30% and 66%, respectively.

7. Population by regions (2006) 7,9 M 20,9 M 6,5 M 11,3 M 9,5 M 7,4 M 9,5 M GDP by regions (2000) 5-10% 35-40% 0-5% 15-20% 15-20% 5-10% 10-15% Introduction Land Area: 769,604 sq km Total Population (2006): 73 millions Total GDP (2006): US$ 403 billions US$5,600 per capita State Institute of Statistics (SIS) Source:

8. Around 2015, Turkey’s population is projected to stabilize at the level of approximately 80 millions. The size of the adult population is offering the window of demographic opportunities. The population growth rate is decelerating considerably. Population of selected age groups (1000 persons) Population growth rate, % 3.0 1990 2000 2010 2015 1945-50 1950-55 1955-60 1960-65 1965-70 1970-75 1975-80 1980-85 1985-90 1995-00 2000-10 2010-25 2.5 0-4 6,610 6,568 6,640 6,667 2.0 5-14 13,328 13,149 12,775 13,278 1.5 1.0 15-64 34,022 44,410 51,408 54,394 0.5 65+ 2,243 3,659 4,455 5,495 0.0 TOTAL 56,203 67,804 75,278 79,834 Source: SIS, TÜSİAD “Turkey’s Window of Opportunity: Demographic Transition Process and its Consequences”,1999 Demographics

9. Trade Partners European countries are the biggest export partner of Turkey. Germany ranks first among the export partners followed by England and Italy. Main export countries are located in the west. Exports to Iraq and Russia are higher including the unrecorded trade.

10. Trade Partners European countries are again the biggest import partners of Turkey. Share of imports from Asia is constantly increasing. The reason is obviously China. It became the third biggest import partner of Turkey, as of 2006.

11. Inflation Turkey has suffered from chronic inflation since 1970s. However, with the launch of the stabilization program following 2001 crisis, the inflation rate declined dramatically. Despite the deviation from target in 2006, inflation is back at 70s’ levels.

12. Interest Rates Interest rates have fallen parallel to the amelioration in the macroeconomic fundamentals. However, the Central Bank has a prudential attitude for a further decrease in interest rates.

13. GDP-Inflation-Budget Balance

14. Industrial Production Overall industrial production is increasing for the last five years. However, production in labour intensive-sectors such as manufacture of textile products or wearing apperals is decreasing while technology-intensive sectors is increasing. The increase in production of vehicles, trailers etc. is the main driver of the surge in manufacturing production.

15. Foreign Trade The main driver of the current account deficit has been the rising foreign trade deficit. The imports of intermediary goods has been increasing since 2001 parallelto robust economic growth. The imports of consumption goods have also surged with the recovery of demand.

16. GDP-Current Account

17. External Balance Revenues gained from services sector, excluding tourism, is not enough to offset the foreign trade deficit. While the deterioration of the trade balance is the primary factor of the current account deficit, the fall in net invisibles’ revenues is making it worse.

18. External Balance The increase in foreign direct investment level has eased the finance of the current account deficit. Long term borrowing ability of the banks and the private sector in general improved the quality of finance resources.

19. EU Membership ...The EU accession process lays the ground for the tremendous scope of the reforms... ...alignment of the domestic legislation with the EU acquis provides opportunity to make necessary regulations...

20. EU-TurkeyComparison

21. EU-TurkeyComparison GROSS VALUE ADDED BY SECTORS

22. Turkey as an Energy Gateway

23. Turkey as an Energy Gateway

24. Turkey as an Energy Gateway Turkey is a strategic actor with regards to the energy security of Europe as; 73% of the crude oil and 72% of the natural gas reserves of the world lie in the Caspian and Middle East regions and Russian Federation, surrounding Turkey. EU currently imports more than 40% of its natural gas needs and 30% of its oil needs. The import dependency for natural gas is expected to become 67% by 2020 and to 81% by 2030. And the import dependency for oil is expected to become 50% by 2020 and to 60% by 2030. Turkey already plays an important role in the East-West energy corridor with 3368 km’s of crude oil pipelines carrying over 130 million tones of crude oil per annum and around 4000 km’s of natural gas pipelines transferring over XX bcm of natural gas. Current pipelines include; Baku-Tblisi-Ceyhan (BTC), COP Blue Stream NGP Shah-Deniz NGP (Baku-Tblisi-Erzurum) Iraq – Turkey COP Tabriz-Erzurum NGP Pipeline Projects include; Azerbaijan NGP Project Egypt-Turkey NGP Project Iraq- Turkey NGP Project Jordan-Syria-Turkey NGP Project South European Gas Ring (Turkey-Greece NGP project with Italy extension) Nabucco Project (Turkey-Bulgaria-Romania-Hungary-Austria) Turkmenistan-Iran-Turkey Natural Gas Pipeline Project NGP: Natural Gas Pipeline, COP: Crude Oil Pipeline, bcm: billion cubic meters, bpd: barrel per day

25. Conclusions • The political and economical structure of the country had undergone a renovation. • The political stability delivers safety to market operations and encourages competition. • Primary surplus policy compels a fiscal discipline. • The growing independence allows the CB to focus on price stability. • Banking sector is heading to reassuring grounds both with recovery in balance-sheets and domestic and foreign mergers. • Autonomous regulatory institutions fortified the competition conditions in the public and private sector. • Privatization process led to an increase in efficiency in the public sector while its expected to induce achievements on competition terms. • EU process will further improve the investment environment and strengthen the judicial and institutional foundations.

26. Conclusions (continued) The EU process requires a 6-7% growth in the next 8 years. Thus we should: • not be satisfied with the achievements in hand • preserve the stability atmosphere • proceed reforms • Two main tools: • IMF program • EU accession process • However, the continuation of the growth trend will depend on an economic policy that will demand • More decisiveness and • Higher attention and expertise in design and implementation.

27. Turkish Energy Sector

28. Peak Load and Electricity Consumption between 1996-2005

29. Peak Load and Electricity Consumption between 1996-2005

30. Estimated Development Rate and Operation GrowthDevelopment Rate % Period Development Rate % Population Growth

31. Demand Forecast between 2006-2015 Peak Load Energy Demand

32. Breakdown of Total Installed Capacity by Primary Resources

40. HYDROELECTRIC POWER PLANTS ATATURK HYDROELECTRIC POWER PLANT

42. Kırklareli Sinop Kastamonu Bartın Artvin Ardahan Zonguldak Samsun Edirne Tekirdağ İstanbul Kocaeli Rize Karabük Trabzon Düzce Ordu Yalova Sakarya Çankırı Giresun Kars Bolu Amasya Tokat Gümüş hane Çorum Bayburt Iğdır Çanakkale Erzurum Bilecik Bursa Ağrı Balıkesir Erzincan Kırıkkale Eskişehir Ankara Yozgat Sivas Kütahya Kırşehir Tunceli Bingöl Muş Manisa Van Nevşehir Uşak Kayseri Malatya Elazığ Afyon Bitlis İzmir Aksaray Diyarbakır Siirt Batman Isparta Konya Aydın Niğde Adıyaman K.maraş Denizli Hakkari Şırnak Mardin Burdur Adana Muğla Şanlıurfa Karaman Osmaniye Antalya Gaziantep Kilis İçel Hatay POWER DISTRIBUTION COMPANIES 21 Power Distribution Companies

43. WIND POWER PLANTS

44. Türkiye’deki Rüzgar Santralları (23.10.2007) WIND POWER CAPACITY

45. WIND CAPACITY MAP

46. GEOTHERMAL ENERGY

47. GEOTHERMAL POWER PLANTS Dardanel A.Ş. Çanakkale–Ayvacık / 7,5 MW Gürmat A.Ş. Aydın-Germencik / 45 MW Menderes A.Ş. Aydın-Sultanhisar / 7,95 MW Elektrik Üretim A.Ş. Denizli-Sarayköy / 15 MW Bereket A.Ş. Denizli-Sarayköy / 6,85 MW Completed Plants In Construction Plants

48. SOLAR ENERGY

49. TOTAL SOLAR ENERGY POTENTIAL

50. NUCLEAR ENERGY IN TURKEY