A Financial Analysis of

Publicly Traded
Electricity Generation
Companies in Turkey

Assoc. Prof. Fatih Macit

www.hazar.org

C A S P I AN S T R AT E G Y I N S T I T U T E
A Financial Analysis of Publicly Traded Electricity
( HASEN)
Generation Companies in Turkey
www.hazar.or g

Turkisheconomyhasexperiencedaremarkableeconomicgrowthoverthelastdecade.Despitethesharp
slowdownin2009duetotheglobalfinancialcrisis,theannualaverageeconomicgrowthhasbeen4.8%during
theperiodbetween2002and2014.Theincreaseineconomicactivityhasledtoasteadyincreaseinenergy
demand.DuringthisperiodthetotalnaturalgasconsumptionofTurkeyhasalmosttripledandhasreachedto
48bcmbytheendof2014.Fortheperiodbetween2002and2014,thetotalelectricityconsumptionhas
doubledandtheannualaveragegrowthingrosselectricitydemandhasbeen5.6%whichishigherthanthe
averageeconomicgrowthratethathasbeenrealizedinthisperiod.

C A S P I AN S T R AT E G Y I N S T I T U T E
A Financial Analysis of Publicly Traded Electricity
( HASEN)
Generation Companies in Turkey
www.hazar.or g

C A S P I AN S T R AT E G Y I N S T I T U T E
A Financial Analysis of Publicly Traded Electricity
( HASEN)
Generation Companies in Turkey
www.hazar.or g

TheaimofthisarticleistomakeafinancialanalysisofpubliclytradedelectricitygenerationcompaniesinTurkey.This
analysisisimportantintermsofprovidingguidancefortheinvestmentsthatareneededinTurkishelectricitymarketover
thenextdecade.Inlinewiththerapidlyrisingdemand,Turkeyhasmadealargeamountofinvestmentinhisinstalled
capacity.Duringtheperiodbetween2002and2014,theinstalledcapacityinTurkeyhasincreasedby41187MWandthe
annualgrowthininstalledcapacityhasbeenrealizedas7.1%.Withcurrentprices,theinvestmentthatisrequiredforone
MWadditionalcapacityisaround1.2milliondollars.Thismeansthatthetotalinvestmentthathasbeenmadetothe
installedcapacityinTurkeyfortheperiodbetween2002and2014hasreachedto49.4billiondollars.Mostofthis
investmenthasbeenmadebytheprivatesectorastheshareofthepublicsectorintotalinstalledcapacityhasdeclined
from56.5%to30.1%duringthisperiod.
ThepolicymakersexpectthattheannualaveragegrowthintotalelectricitydemandofTurkeywillbe5.4%forthenext
decade.ThismeansthattherewillbeanadditionalinvestmentdemandintheinstalledcapacityofTurkey.Therearetwo
importantquestionsthatneedtobeansweredforthisadditionalinvestmentdemand.Firstofall,oneneedstoanswerthe
questionthatwhowillmakethisinvestmentandhowitisgoingtobefinanced.Secondly,whichprimaryenergysourcesare
goingtobepreferredintermsofincreasingtheinstalledcapacity?Inordertogiveanideaabouttheanswersofthese
questionsafinancialanalysisofpubliclytradedelectricitygenerationcompanieswillbeuseful.
CurrentlytherearesixpubliclytradedelectricitygenerationcompaniesinBorsaIstanbul.Thetotalsalesofthesesix
companiesaremorethan2billiondollarsandtheirtotalmarketvalueaddsupto1.6billiondollars.Intermsofevaluating
theprofitabilityofthesecompanieswecomparetheirEBITDA(EarningsBeforeInterest,Taxes,andDepreciation)margins.

C A S P I AN S T R AT E G Y I N S T I T U T E
A Financial Analysis of Publicly Traded Electricity
( HASEN)
Generation Companies in Turkey
www.hazar.or g

C A S P I AN S T R AT E G Y I N S T I T U T E
A Financial Analysis of Publicly Traded Electricity
( HASEN)
Generation Companies in Turkey
www.hazar.or g

Itisseenthatthereisasignificantamountofvariationintheprofitabilityoftheelectricitygenerationcompanies.Thereare
companieswhokeepmorethan30%oftheirtotalsalesasearningsbeforeinterest,taxes,anddepreciation,butatthe
sametherearecompanieswhoseEBITDAmarginsareaslowas10%.Whenonelooksattheprimaryenergysourcesthat
areusedbytheseelectricitycompanies,itisobservedthatthereisastrongrelationshipbetweenprofitabilityandthe
primaryenergysourcethatisused.Companiesthatoperatehydroplantsoruserenewablesourceslikewindandsolar
havebetterprofitabilityindicatorsthanothers.Thisrevealsthatthefutureinvestmentsininstalledcapacitywillprobably
focusonhydroplantsandwindandsolarpower.ThisissupposedtobegoodnewsforTurkeyintermsofreducingthe
importedenergybillofthecountry,asimportednaturalgasislargelyusedinelectricitygeneration.
Next,weanalyzethecapitalstructureofthesecompanies.Forthispurpose,wecalculatetheratioofequitytototalassets
andseewhatpartofthetotalassetsisfinancedbyequity.

C A S P I AN S T R AT E G Y I N S T I T U T E
A Financial Analysis of Publicly Traded Electricity
( HASEN)
Generation Companies in Turkey
www.hazar.or g

C A S P I AN S T R AT E G Y I N S T I T U T E
A Financial Analysis of Publicly Traded Electricity
( HASEN)
Generation Companies in Turkey
www.hazar.or g

Thefigurerevealsthatelectricitygenerationcompaniesaremainlyfinancingtheirassetsbydebt.Infact,thereare
companieswhoseequitytototalassetsratioislessthan10%.Ifthiscapitalstructureispreservedinfutureinvestments,
thisshowsthattherewillbeahugeamountofborrowingtofinancetheincreaseininstalledcapacity.However,thereisan
importantissuethatneedstobeaddressedintermsoffinancingthisborrowing.Thereturnstoenergyinvestmentsare
generallyrealizedoverseveralyearsandthereforecompaniesshouldlookforlong-termborrowingopportunitiesinorderto
financetheseinvestments.However,takingintoaccountthegeneralcharacteristicsofTurkisheconomyandbanking
sector,itissometimesdifficultfortheenergycompaniestoborrowlong-termindomesticcurrency.Therefore,inorderto
financetheirinvestmentscompaniesrelyonloansthataredenominatedinforeigncurrency.However,asthepriceoftheir
outputisnotindexedtoexchangerates,thiscreatesanimportantamountofforeignexchangeriskforthesecompanies.

C A S P I AN S T R AT E G Y I N S T I T U T E
A Financial Analysis of Publicly Traded Electricity
( HASEN)
Generation Companies in Turkey
www.hazar.or g

C A S P I AN S T R AT E G Y I N S T I T U T E
A Financial Analysis of Publicly Traded Electricity
( HASEN)
Generation Companies in Turkey
www.hazar.or g

Ascanbeseeninthefigure,thenetforeignexchangepositionoftheelectricitygenerationcompaniesislargelynegative
andthiscreatesanimportantdeclineintheequityofthesecompaniesincaseofalargedepreciationindomesticcurrency.
Besidesthat,thisforeignexchangerisksignificantlyincreasestheuncertaintyaboutthefuturereturnsandtherefore
reducesthelevelofinvestments.
ThisbrieffinancialanalysisofpubliclytradedelectricitygenerationcompaniesinTurkeyhassomeimportantimplicationfor
futureinvestmentsinthesectorandtheirfinancing.Firstofall,forfutureinvestmentsthereshouldbesomeincentivesin
termsofchangingthecurrentcapitalstructureandincreasingtheshareofequityintotalinvestment.Secondly,incaseof
financingbydebt,thereshouldbelong-termfundingopportunitiesindomesticcurrency.Otherwise,companiesareforced
toborrowinforeigncurrencyandthisgeneratesasignificantamountofforeignexchangerisk.Thirdly,theestablishmentof
aliquid,transparent,andliberalelectricitymarketisveryimportantintermsofreducingtheuncertaintyaboutthepriceand
futurereturnstoinvestments.
Note: The views expressed in this analysis are the author's own and do not necessarily reflect the Institute's
editorial policy.