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How to Penetrate the Turkish Energy Market?

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Energy market is one of the most preferred markets by investors. Especially within the opening of the energy market to competition to a large extent and the support of energy investments through financial incentives, Turkish energy market attract investors' attention in recent years. Since Turkey's energy demand and as a conclusion of this, the energy import volume grow rapidly, investments in energy production and energy trade have gained importance.

Conditions for company establishment

An investor may invest by establishing a company, or through merger or acquisition of an energy company in Turkey. Pursuant to the statistics, the M&A transactions in electricity manufacturing, transmission and distribution activities have taken the first place regarding the transactions' number and value. The Electricity Market Law and Natural Gas Market Law set forth different terms and conditions for both investment types. Accordingly, an investor shall consider these terms before taking his/her investment decisions. Important is, that the company's type, capital and license for its market activity shall be in accordance with the related legislation. In this regard, the conditions in Commercial Code and related energy market law may have differences, for instance the minimum capital requirement of a joint stock company operating in natural gas import shall amount to TL 4.000.000,- whereas the minimum capital of a joint stock company is generally TL 50.000,-.

Company establishment and license obtaining is not required for electricity manufacturing from renewable resources such as solar, wind, biomass and geothermal energy under certain conditions. Moreover, the investors may benefit from diverse opportunities such as feed-in tariffs and local equipment support. In Turkey, the number of such investments has increased rapidly since last years. For example, the first unlicensed solar power plant has been established in 2013 and as of 2014, the number of applications for unlicensed electricity manufacturing has become more than 2000. Unlicensed electricity manufacturing is advantageous especially for household and factories to produce their own electrical energy.

Alternatives for energy market activities

Investors which intend to operate in energy market have numerous investment alternatives. Since especially the electricity market has been opened to private sector companies to a large extent, an investor may operate in nearly all market activities under the condition that he/she obtains a corresponding license. Currently, electricity and natural gas distribution are operated by private sector companies to a large extent whereas transmission is still under states monopoly. Within the decrease and the removal of eligible customer's limit which is intended to be realized in electricity market and natural gas market in the near future, it is expected that the volume of energy trade will increase accordingly.

Opportunities from which investors may benefit

As mentioned above, investors may benefit from incentives such as feed-in tariffs in renewable energy manufacturing. In addition to this, there are diverse international energy projects in natural gas and nuclear energy sectors. TANAP, one of the biggest natural gas pipeline investments in Turkey attracts attention of domestic and foreign investors from its beginning. Currently, the transmission of natural gas from İsrael to Turkey is topical and the possibility exists that this natural gas pipeline may be connected to TANAP pipeline. Foreign and domestic firms may benefit from the opportunity to participate in tender processes of such projects for different purposes such as to take part in procurement for pipeline construction.

Financing alternatives

Financing of a project is another question of investors which come to the fore frequently. Since energy investments, especially in renewable energy plants with new technology may cause high costs. In this regard, banks, other finance institutions provide different type of credits to energy projects especially in renewable energy in Turkey depending on the type, subject and value of the project. Since the electricity manufacturing from renewable energy projects has not reached the energy manufacturing target of 30 % yet, the financing of renewable energy projects plays an essential role for support of new renewable energy technologies and to increase the share of renewable energy resources in the electrical energy production.

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