BMI View: We continue to expect Turkey's position in the region as a key power market to become increasingly more important over the coming decade, accounting for nearly one-fifth of the CEE's total capacity by 2024 . We foresee P ower demand in Turkey to be robust over the coming decade, given the high levels of investment being channelled into its power sector, the country's capacity expansion plans and its improving economic outlook . T here is also considerable political backing for power sector expansion as the government continues to strive for greater energy security and to lessen its reliance on its import-heavy thermal electricity generation mix, which has already played a fundamental role in deepening Turkey's current account deficit.
Yet, while the outlook is bright, the development of Turkey's power sector is complicated by the county's precarious economic and political position. The need to reduce its reliance on foreign capital, narrow external deficits and rebalance away from private consumption towards more domestic saving and investment will necessitate a period of slower trend growth. Although the government and central bank have clearly demonstrated an aversion to allowing rebalancing to play out through lower GDP growth rates in the medium term, we believe this is simply delaying the inevitable. Risks of a more pronounced and rapid fall in headline growth remain high in light of the deterioration in the global macroeconomic outlook for emerging markets that has seen investor confidence suffer and capital inflows dry up. As it stands, our country risk team forecast real GDP growth to be significantly slower over the next few years than the 9.0% average reading recorded in 2010-2011.
That said, 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 industry 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 5.36% year-on-year (y-o-y) between 2015 and 2024, substantial investment in new generating capacity will be necessary, suggesting rewards on offer in the Turkish market will outweigh the risks.
Key Trends And Developments
We expect thermal generation to dominate the electricity generation mix to the end of our forecast period. While 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 2024 we expect gas to account for 41.2% of total electricity generation (as opposed to 42.8% in 2014), coal to account for 24.6%, hydropower to account for 22.2% and non-hydro renewables to generate 11.3% of all electricity.
Although lower global energy commodity prices will provide some solace to Turkey's faltering economy (with lower oil prices set to help stifle inflation and narrow the country's sizeable current account deficit), Turkey's reliance on gas imports (from Russia and Iran - contracts are typically dollar denominated) for the power sector is growing increasingly unsustainable - given the rising demand and depreciation of the lira. As such, reducing hydrocarbon imports is crucial and we expect the Turkish government to remain committed to its target of generating at least 30% of its electricity from renewable sources by 2023. Wind will drive the renewables expansion, but we highlight the upsides are mounting for growth in solar capacity.
Turkey's Ministry of Development has released a detailed programme on the country's energy goals for 2015. According to the plan, electricity use is expected to increase by 4.3% and reach 268bn kW/h in 2015, while electricity generation is estimated to rise by 6.5% in 2015 to reach a capacity of 74GW. In order to meet the country's energy target, the plan recommends a number of measures including: supporting geothermal projects; increasing the natural gas storage facility capacities from 1.6bcm to 4.3bcm; expanding the share of renewable energy and implementing of incentives for their enhanced use; creating an independent regulatory and inspection body to monitor nuclear activities; and drafting a law to regulate the responsibilities and power of the Turkish Atomic Energy Authority.