2013-12-13 12:19:17 - Fast Market Research recommends "Turkey Power Report Q1 2014" from Business Monitor International, now available
Despite sizeable economic headwinds that have the potential to sap some of Turkey's impressive economic momentum, the power sector continues to attract interest from a host of international companies, as the country moves to position itself as an energy hub in the south-east Mediterranean region. There is also considerable political backing behind the expansion of the power sector, as the government continues to strive for greater energy security and lessens its reliance on its import-heavy thermal electricity generation mix, which has already played a fundamental role in deepening Turkey's current account deficit. As such, with the vast majority of Europe's power markets registering tepid growth, we expect Turkey to emerge as a key regional player in the power sector.
the outlook is bright, the development of Turkey's power sector is complicated by the county's precarious economic position. We have made significant revisions to our electricity consumption and generation forecasts, based on a deterioration of the country's economy. Underpinning our macroeconomic projections, we note that a large and widening current account deficit (in part due to the import of fuel for power generation), high inflation and elevated political risk have taken a toll on investor confidence and encouraged caution towards holding lira-denominated debt at a time when demand for emerging market assets is waning, as yields in developed states look set to improve.
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While this has prompted Turkey's central bank to tighten monetary policy so as to reverse capital outflows and ease depreciatory pressures, we believe rates will have to rise further to avert a crisis of investor confidence and attract enough capital to finance external deficits. This will curb fixed investment, credit growth and private consumption, which are the main drivers of economic growth in Turkey. In turn, any subsequent fall in demand will have a deleterious impact on electricity consumption and generation -underscoring our conservative power sector forecasts for generation growth of 5.6% in 2014 (matched by consumption) - considerably lower than in the preceding years.
We are retaining a cautious but positive long-term view on the sector, based on the fact that finding a solution to existing energy-related imbalances is central to the performance of the country's wider economy, making reform and new investment in the power sector a top priority. Furthermore, relative to other power markets in Central and Eastern Europe (CEE), Turkey emerges as the clear outperformer based on longer-term macroeconomic and demographic fundamentals that continue to support our forecasts for electricity generation, and thus consumption. With our forecasts indicating that power consumption will grow at an annual average of 5.8% year-on-year (y-o-y) between 2013 and 2022, substantial investment in new generating capacity will be necessary, suggesting that rewards on offer in the Turkish market will outweigh the risks.
Key forecasts and developments in the sector:
* We expect thermal generation to dominate the electricity generation mix to the end of our forecast period. While both coal- and gas-fired will grow in absolute terms, we expect both to lose their share of generation to hydropower and non-renewables (and potentially nuclear). By 2022, we expect gas to account for 39.5% of total electricity generation (as opposed to 42.4% in 2013), coal to account for 24.5%, hydropower to account for 22.5% and non-hydro renewables to generate 12.7% of all electricity.
* The privatisation and liberalisation of the power sector is progressing. In early October 2013, it was announced that Turkey had completed the divestment of all 18 of its state-owned power distribution utilities - reaping US$12.7bn in proceeds from combined sales.
* Turkey's coal sector suffered a huge blow in August 2013, after Abu Dhabi National Energy Company (TAQA) announced it might shelve a US$12bn power project. In January 2013, TAQA signed an agreement with EUAS to develop coal fields and construct coal-fired power plants with a combined power capacity of 7,000MW in the Afsin-Elbistan region - the biggest power project in Turkey's history. TAQA has since delayed an investment decision until 2014 because of Turkey's deteriorating economic outlook and increasingly difficult financing conditions, although various reports suggest that the project may be shelved completely.
* In June 2013, Hurriyet Daily News reported that Turkey is planning to attract US$5bn of investment to construct 3,500MW of coal-fired capacity in the province of Afyon. Similarly, in May 2013, Turkey's Hattat Holding and China's Harbin Electric International agreed to build a 2,640MW coal-fired power plant in the Black Sea city of Amasra.
* Reports of delays to Turkey's first 4,800MW nuclear power plant underscore our cautious approach to new nuclear capacity. The plant is to be built by Russia's Rosatom at Akkuyu Bay near the township of Buyukeceli and was initially due to come online by 2019. However, reports in October 2013 indicate that further delays are likely after an environmental report submitted by Rosatom, which requires approval from the Turkish authorities, had to be resubmitted to the Environment Ministry in September.
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