TURKISH POWER SYSTEM, RESTRUCTURING and INTERCONNECTIONS Turkish Electricity Transmission Co.

Turkish Power System

Generation & Demand (End-2005) Installed Capacity 38,820 MW Hydro+Renewable 12.941 MW (33.3 %) Thermal 25.879 MW (66.7 %) Total Generation 162.0 TWh Hydro+Renewable 39.8 TWh (24.6 %) Thermal 122.2 TWh (75.4 %) Import – Export 0.6 TWh – 1.8 TWh Annual Consumption 160.8 TWh 7.2 % increase Peak Demand 25,174 MW

Growth in Energy Consumption Years 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Demand (Twh) 85.6 94.8 105.5 114.0 118.5 128.3 126.9 132.6 141.2 150.0 160.8 Increase (%) 10.0 10.8 11.3 8.1 3.9 8.3 -1.1 4.5 6.5 6.3 7.2 Very rapid growth 1995 to 2005: 88 % increase

Growth in Installed Capacity Years 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Thermal (MW) 11074 11297 11772 13021 15556 16052 16623 19568 22974 24145 25879 Hydro+Ren. (MW) 9880 9952 10120 10333 10563 11212 11709 12278 12494 12679 12941 Total (MW) 20954 21249 21892 23354 26119 27264 28332 31846 35587 36824 38820 Increase (%) 0.5 1.4 3.0 6.7 11.8 4.4 3.9 12.4 11.7 3.5 5.4 Rapid growth parallel to the growth of demand From 1995 to 2005 Hydro + 31 % Thermal + 133 % TOTAL + 85.3 %

Breakdown of Capacity (End-2005) LEGEND BO Build Operate BOT Build Operate&Transfer IPP Independent Power Producer Otop. Autoproducer TOOR Transfer of Operational Rights STATE State owned Power Plants (EÜAŞ)

Load Forecast (2005-2010) YEAR PEAK LOAD DEMAND MW GWh 2005 25.000 159.650 2006 28.270 176.400 2007 30.560 190.700 2008 33.075 206.400 2009 35.815 223.500 2010 38.785 242.020

Supply-Demand Projection According to Study Results: “After 2008-2010, there is need for additional 6000-9000 MW, 35-45 TWh”

Transmission System (10.2005) Transmission Voltages 400, 154 & 66 kV Transmission Lines 45.810,3 km. 400 kV 13.976,9 km. 220 kV 84,6 km. 154 kV 31.030,0 km. 66 kV 718,9 km. Substations 511 substations 400 kV 50 154 kV 445 66 kV 16 Total transformer capacity 71.185 MVA

400 kV Network BLACK SEA MEDITERRENEAN BULGARIA GEORGIA GREECE ARMEIA DIMODICHEV BABAESKİ HABİPLER BATUM GEORGIA HAMİTABAT ALİBEYKÖY GREECE İKİTELLİ A.ALANI BOYABAT ALTINKAYA KAPTAN D.PAŞA Y.TEPE HOPA BEYKOZ PAŞAKÖY FILIPPI BORÇKA Z.KÖY EREĞLİ UNIMAR AMBARLI OSMANCA ÇANKIRI ÇARŞAMBA GUMRI ÜMRANİYE DERİNER TEPEÖREN ADA-GEBZE ADAPAZARI KALKANDERE YUSUFELİ KARS ARMEIA KARABİGA ÇAYIRHAN TİREBOLU GÖKÇEKAYA SİNCAN HİSAR KAYABAŞI H.UĞURLU BURSA IĞDIR BALIKESİR KARGI TEMELLİ GÖLBAŞI SİVAS DEÇEKO AĞRI BABEK TUNÇBİLEK KANGAL ÖZLÜCE HORASAN SOMA SEYİTÖMER GÜRSÖĞÜT KAYSERİ ERZURUM D.BEYAZIT KEBAN VAN BAZARGAN ALİAĞA MANİSA KOCATEPE ELBİSTAN KARAKAYA IRAN IŞIKLAR KHOY UZUNDERE YEŞİLHİSAR DENİZLİ KONYA HİLVAN DİYARBAKIR BATMAN AYDIN ANDIRIN ATATÜRK ILISU DOĞANLI HAKKARİ YENİKÖY SEYDİŞEHİR KAVŞAK ÇUKURCA YATAĞAN PS3 KEMERKÖY VARSAK ADANA G.ANTEP Ş.URFA KIZILTEPE CİZRE ERZİN BİRECİK ZAKHO OYMAPINAR IRAQ ERMENEK İSKENDERUN KESEK MERSİN İSDEMİR TEİAŞ-APK 2005 HATAY TPP (PLANNED) HALEP TPP (EXISTING) HPP (PLANNED) MEDITERRENEAN SYRIA HES (MEVCUT) TL (EXISTING) TL (PLANNED) 220 kV TL 154 kV TL

Electricity Sector Reform and Restructuring

Electricity Sector Reform In compliance with the EU’s “Electricity Directive” (EC 96/92) Amendment of the Electricity Market Law: compliance with the directive 2003/54/EC To align the industry with the principles applicable to the EU member states and Internal Market for Electricity within EU To establish a favourable environment for private investments

Legal Framework The arbitration issue solved through the amendments to the constitution under the Law No:4446 of August 1999. By this law, local and international arbitration became applicable to the private power investment contracts. Electricity Market Law (3 March 2001)

Key Elements-1 An autonomous Energy Market Regulatory Authority governed by the Board Licensing framework for market participants An energy market based on; Bilateral contracts between market participants Balancing market Balancing and Settlement mechanism is under trial operation Real Balancing and Settlement mechanism is going to be started its operation in 2006 Eligible consumer concept to ensure freedom for eligible consumers to choose their suppliers Regulated Third Party Access

Key Elements-2 Turkish Electricity Transmission Co. Transmission system owner & operator (TSO) Market Operator Import & Export by Turkish Electricity Trading & Contracting Co. Private wholesale companies Retailers (Also Dist. Co.s with retailer license) EÜAŞ (only Export)

Key Elements-2 Market Opening For eligibility the consumption has to be; 03/03/2003 9 million kWh/year 27/01/2005 7.7 million kWh/year Distribution Co.s eligible

Unbundling TEDAŞ TEDAŞ TEK TEİAŞ TEAŞ TETAŞ EÜAŞ 1970 1994 2001 Distribution Distribution TEK TEİAŞ Vertically Integrated Transmission TEAŞ TETAŞ Generation, Transmission & Trade Trade EÜAŞ 1970 1994 2001 Generation

Structure of the Electricity Market DISTRIBUTION W/S DIS. Co TETAŞ EÜAŞ IPPs WHOLESALE Co. RETAILERS ELIGIBLE CONS. CAPTIVE CONS. TRANSMISSION GENERATION TEDAŞ TEİAŞ TRANSMISSION SYSTEM OPERATOR BALANCING MARKET OPERATOR EMRA Physical flow of electricity. ANCILLARY SERVICES WHELLING SERVICES BALANCING & SETTLEMENT COMMERCIAL RELATIONSHIPS

Turkish Electricity Transmission Co. (TEİAŞ)

Main Functions Transmission system owner and operator (TSO) Market Operator Provision of connection to and use of transmission system services to all users without discrimination “Connection and Use of System Agreements” Monitoring real-time system reliability, purchase and provide ancillary services “Ancillary Service Agreements” International interconnection activities Development of infrastructure

Revenue No involvement in the trade of electricity By Law and transmission license Revenue from charges for provision of transmission services Use of system Connection System Operation Revenue regulation by EMRA Revenue cap – the annual revenue cannot exceed the limit set by EMRA

Transmission Charges Connection Charges System Operation Tariff Related to the costs of the assets for the connection of the user to the network. Paid by new users at once System Operation Tariff Related to the costs of real time generation-demand balancing service and ancillary services Paid by all users based on their capacity 50 % of revenue from Generation 50 % of revenue from Demand Revenue regulated by EMRA (revenue cap)

Transmission Charges-2 Transmission Use of System (TUoS) Tariff Related to the cost of installing, operating and maintaining transmission system for the bulk transfer of electricity and system security and quality of supply Paid by all users based on their capacity 50 % of revenue from Generation 50 % of revenue from Demand Revenue regulated by EMRA (revenue cap)

TUoS Tariff Based on the Long Run Marginal Costs Zonal Investment Cost Related Pricing (ICRP) methodology Zonal 23 G & D zones For G : ~0 – 14 $ / kW-year