The impact of COVID-19 on the power sector across the globe has been profound. The energy industry in Turkey is also feeling the pressure with more companies registering significant revenue losses. Would recession delay the roll-out of energy investments? What will happen with energy prices? What does Covid-19 mean for clean energy transitions in Turkey? EEL Events has asked 3 experts: What is ahead for Turkey Energy in 2020 and beyond.
Firstly, we spoke to Murat Lecompte, Chief Corporate Communications Officer, SOCAR Turkey.
What is your prediction for the energy market in Turkey in 2020/21?
The reduction in demand due to the novel coronavirus caused severe disruption in the global energy sector. Some are calling it the biggest drop since the Great Depression in 1929. In Turkey as well, the halt in the transport, trade and industry experienced in the first half of the year pulled the demand in the energy market down quickly. If a new wave of Covid-19 outbreak does not occur in the last quarter of the year, we expect the demand in refinery, petrochemicals and natural gas to hopefully reach pre-pandemic levels in 2021.
How will COVID-19 affect the energy industry in Turkey?
The first half of 2020 has been a period in which there was a serious demand contraction in energy as in many other industries due to Covid-19, which had a global impact. With the exception of residential subscribers, electricity and natural gas consumption rates have dropped by up to 15-20 percent. Sales of transport fuels have dropped significantly. On the petrochemicals production side, despite the reduction in demand, domestic producers like us were not particularly affected, but margins have fallen considerably. We hope to see a recovery starting in 2021.
EEL Events also spoke to Itır Çiftçi, Partner, CIFTCI Law Firm.
What is your prediction for the energy market in Turkey in 2020/21?
In 2020, setting aside the oil sector, which has been severely affected by the crisis, we have seen a global narrow down in the demand for energy as well as certain difficulties in the operations of energy companies due to Covid-19. We expect the recovery to take place in 2021. We also anticipate a pace in YEKA Tenders (regarding mid-scale projects, capacities of which range between 50 to 100 MW). That said, the level of investments in renewables will heavily depend on how the Feed-in Tariff (YEKDEM) or a similar incentive mechanism will develop after 2020 and how the tariffs will be determined and available financing options.
How will COVID-19 affect the energy industry in Turkey?
The major impacts of Covid-19 in the energy sector were mostly observed in the extension of deadlines in administrative processes and delays in the development of projects due to travel restrictions as well as suspension of work in the manufacturing plants (particularly the manufacturing plants in China and Europe). Accordingly, the energy sector will experience “delays” rather than a decrease in the demand for energy due to Covid-19. Particularly, delays in the development of renewable projects may lead to cancellation of licenses at the request of the developer, also taking into consideration the ability of the project to benefit from the Feed-in Tariff mechanism (YEKDEM).
Our next speaker was Mevlut Akbas, Corporate Finance, Partner, PWC.
What is your prediction for the energy market in Turkey in 2020/21?
Due to the Covid-19 pandemic, a slowdown in economic activity is expected to decrease by 2-3% in electricity consumption in 2020. How quickly industrial production will return to pre-pandemic levels for 2021 will be critical for electricity demand. If he continues at low levels of oil prices on the cost of natural gas to Turkey in 2021 it will be low and electricity prices as a result of it will remain at low levels compared to previous years. The average electricity price for the first 5 months of 2020 is around 40 USD / MWh. The rest of this year and prices in 2021 can be expected to be at these levels. Although it is expected that there will be a slowdown in electricity generation investments due to the shrinking demand, the investments of the power plants that want to benefit from YEKDEM legislation will continue. In the new YEKDEM legislation, which is expected to come into effect in 2021, it is known that the purchase guarantee will be determined in TL, but the details of the calculation method are not yet clear. As of 2019, approximately 7 billion USD restructuring process has been completed from the loans extended to the sector on the finance side. In the pre-pandemic situation, the sector needed restructuring of around 7 billion USD. After the pandemic, we anticipate that the need for structuring will increase and these processes will continue due to the increase in cash needs of companies depending on the falling electricity demand.
How will COVID-19 affect the energy industry in Turkey?
The pandemic is caused due to the slowdown in the global economy to decline in Turkey’s export volume. However, due to the health and safety of the importing country in the post-pandemic period and the quality of being able to choose to China will be an opportunity to increase exports to Turkey. In this case, it can be expected that the manufacturing industry will recover faster and the electricity demand will rise to pre-pandemic levels. Uncertainties regarding how long the pandemic will continue and when the global economy will regain momentum make it difficult for investors to make decision-making processes. However, we expect that renewable and sustainable resources will come to the fore and investments will accelerate in these areas after the pandemic. However, while the pandemic is especially the scarcity of delays in equipment supply due to the stoppage of investments in production equipment manufacturer in Europe of Turkey. This may cause delays in commissioning investments. We expect that domestic equipment production will come to the fore and investments in this area will increase in the upcoming period.