Message from the President

Message from the President

First of all, I would like to state the profound sorrow we feel after the double earthquake disaster that occurred on 6 February 2023. The disaster had devastating effects in 11 provinces; leaving thousands of people dead. May God have mercy on their souls. I extend my condolences and prayers to their relatives...

Valued Partners,

The Covid-19 epidemic was relatively under control by the beginning of 2022 and restrictions were relaxed. On the other hand, inflation gradually increased in the revitalized global economic conditions. Government subsidies, loose monetary policies, increased liquidity and supply problems during the pandemic caused an increase in overall prices at a global level. The war between Russia and Ukraine which started in early 2022 has emerged as a serious threat to the recovering global economy. The war has escalated problems in supply chains and historical peaks have occurred especially in global food and energy prices. Record-breaking energy prices caused by the war left all countries with energy deficits, especially in Europe, which have led to high inflation and energy restrictions. In the meanwhile, it seems likely that China’s position as a global production hub will weaken due to trade tensions experienced during this period. In the face of increasing inflationary developments, we see that developed countries, especially the USA, Canada, Britain, Australia and more recently the EU, have increased interest rates significantly. This trend increases the expectations of a global recession in the short term. After growing by 6% in 2021, the global economy slowed down in 2022 with a growth rate of 3.2% under the current outlook. Developed economies grew by 5.2% in 2021, but this figure is expected to fall to 2.4% in 2022 and to 1.1% in 2023 according to IMF forecasts that consider a decline in economic activity due to supply problems and energy limitations.

The shrink in global economic activity in 2022 also reduced the global trade volume. The trade volume is expected to grow by 4.3% in 2022 before slowing down in 2023 to a rate of 2.5%. With these developments, the unemployment rate in developed economies, which was 4.8% in the preepidemic period, increased to 6.6% in 2020, and decreased to 5.6% in 2021, reflecting a limited global recovery. The forecast for unemployment in these countries is 4.5% for 2022, and it is predicted that a possible global recession will increase pressure on the global unemployment rate in 2023, increasing to 5.0%.

Commodity prices had declined sharply at the beginning of the pandemic but they reached historical highs with economic recovery in 2021. However, expectations of a global recession slowed down this increase in all commodities except fuel. As a matter of fact, while the prices of the said commodity group recorded an average increase of 26.3% in 2021, the increase is expected to stand at 7.3% in 2022. The Russia-Ukraine conflict continues to keep food and energy prices at high levels. Consequently, oil prices are expected to increase by 41.4% annually in 2022, even if the increase rate slows down. In an environment of tighter financial conditions, the Russia-Ukraine war and other geopolitical tensions, the uncertainties are expected to pose certain risks. Tighter monetary policies at a global scale limit global growth by reducing aggregate demand. In addition, supply problems mainly due to the Russian-Ukrainian war cause inflationary pressures. It is hard to foresee if there will be a hard recession or soft landing for the global economy. US-China trade tensions and other geopolitical conflicts are added risks besides the existing ones of another possible pandemic and climate change.

In terms of the energy sector;

At the end of 2022, Turkey’s installed capacity reached 103,809 MW. This power was produced by Independent Production Companies (68.19%), public sector (EUAS and affiliated) (20.22%), Custom Model Production Companies (BO, BOT, Operation License Transfer) (3.27%) and unlicensed production (8.32%). The distribution of installed capacity according to the resource was 46% fossil fuel (Fuel-Oil, Naphtha, Diesel, Coal and NG) and 54% renewable (Biomass, Geothermal, Hydraulic, Wind, Solar). Total supply stood at 324.301 GWh of which 58% was from fossil fuels and 42% was from renewable sources.

There were some important developments related to the energy sector. It can be said that oil, gas and imported coal price hikes in 2022 left their mark on the year and continue to do so. Increasing the Market Swap Price (MSP), which is the reference price in the electricity sector, briefly reached record levels of 18-21 $cent/ kWh and the annual average stood at 15 $cent/kWh after a long time, partly with the contribution of increased production at power plants working on NG and imported coal. This figure was 7-8 $cents/kWh in the same period last year.

These increases have had a significant positive impact on the revenues of our facilities such as Akçay, Su and Tuzla, whose 10-year incentive period has expired and which sells electricity to the system via MSP. However, at this point, prices were readjusted immediately and a Price Ceiling Practice (PCP) was introduced for the sales made to the system by such facilities at the end of March. Thus, although the MSP reached 18-21 cents/kWh, the sales revenues for these facilities never exceeded 7.5-8.5 cents/kWh on average.

The difference was transferred to a fund dedicated to keeping high-cost NG and imported coal power plants operational (supply security). Plans are to prolong this practice with 6 -month extensions so long as prices continue to rise. Please note that the amount transferred to this fund is at the level of 4.5-5 Billion $ per year. Of course, such interventions to the socalled Independent Electricity Market were not received well by investors. Since the beginning of the year, the capacity increase in Turkey stood at 3.99% whereas electricity consumption demand decreased by 2.2%. In order to avoid supply shortages in the medium term, there is a need to increase installed capacity by roughly 3,000-3,500 MW per year to the installed capacity of Turkey which now exceeds 100,000 MW. It is unlikely that the Electricity Sector will overcome Fossil Fuel (Gas, coal, etc.) dependency and thus a period of high prices. It is a fact that new measures and regulations are urgently needed to revive investments in power plants using renewable resources that have stalled recently. Some measures could include allowing limited capacity increases, issuing hybrid facility installation permits and collecting permit requests for renewable power plants with power banks (mostly WPPSPP) license models.

EMRA’s “Regulation on Amending the Regulation on Power Bank Activities” came into force in November 2022. Accepting license applications for power banks, which are standalone or combined with renewable energy generation, and investors showing an interest with an application capacity close to 200,000 Mwe is an important development. It is reported that the first phase capacity will be in the region of 27-28,000 MWe from among the initial applications. However, the process faces risks of delays and cancellations. In summary, I would like to state that these market developments have had an impact on our companies that produce electricity from renewable sources by increasing their value in current and future projections and creating new opportunities.

Valued Partners,

Through affiliates and subsidiaries and with a total of 10 facilities, including 4 HPP, 1 GPP, 5 WPP that have an installed power of 180.1 MWe; Enda Holding produced a total of 502.67 GWh in 2022 of which 221.40 million kWh (44.05%) was from hydroelectric, 41.97 million kWh (8.35%) was from geothermal, and 239.27 million kWh (47.60%) was from wind. That accounts for a 25,67% increase compared to 2021, which was a dry year

Our Tuzla, Akçay and Çaygören (Su Enerji) facilities, which do not benefit from YEKDEM (renewable energy support mechanism), increased their revenues significantly, especially in Tuzla GPP in the second half of the year by selling electricity at the market price. In addition, the price increases in the carbon market during last year have also supported us by compensating for some of the revenue losses due to decreased production. In conclusion; at the end of 2022, we have reached an operational profitability (EBITDA) value of 30.5 million USD on a group basis in return for 502,672 MWh of production.

The sale of the 20,593 m2 facility land belonging to Tirenda in the Antalya Organized Industrial Zone was concluded. In addition, our 41.770 m2 land in the Tire Organized Industrial Zone is still on the market and is overseen by an internationally qualified, corporate real estate company. We purchased a 634-decare plot of land in Kula, Manisa to establish a licensed solar power plant (GES). We have applied to the Electricity Market Regulatory Authority for a preliminary license for a 37.12 MWe/41.656 MWp SPP and 37.12 MWe/44.544 MWh Lithium - Ion battery power bank facility at Kula within the scope of the power bank combined renewable license applications mentioned above.

Within the scope of the same power bank combined licenses, applications were made for an additional 29.4 MW (7 x WPP turbines) and a 29.4 MWe/35.28 MWh power/capacity lithium-ion battery power bank facility in Urla. On the other hand, we continue to work on capacity increases for our wind power plants.

Based on regional capacity increase announcements; license amendments for 2 additional turbines (total 8.4 MW) for Urla RES and 2 additional turbines (total 8.4 MW) for Mordoğan WPP have been approved by EMRA. The zoning plan and forest permit processes are ongoing. The review of the Technical Interaction Analysis (TIA) for 2 turbine applications (total 8.4 MW) for Alaçatı WPP has not been concluded.

We have acquired the right to apply for one additional turbine for our Yaylaköy WPP and the permit processes are still ongoing. Our total wind power will reach 102.4 MWm with the addition of 29.4 MW to the existing installed capacity. This excludes power bank combined license applications. If our power bank combined WPP facility at Urla is approved, the total wind power will reach 131.8 MWm.

In addition, within the scope of our Hybrid Solar (SPP) facility projects aimed at increasing the efficiency of existing facilities; applications have been made for a total of 10.7 MWp/9.0 MWe (6.5 MWp/5.5 MWe for Yaylaköy WPP and 4.2 MWp/3.5 MWe for Alaçatı WPP). The permit and evaluation processes are ongoing.

To summarize, assuming that there are no unforeseeable setbacks, the completion of the mentioned projects in the next 2-3 years will increase our current installed capacity of 180.1 Mwe to 209.5 Mwe (16% growth) with the cumulative WPP increases of 29.4 Mwe. If our power bank combined applications are accepted, the total installed capacity will reach 276.02 MWe with an additional 66.52 MWe (32% growth). In terms of energy production, the current annual average of 500 GWh/ Year will rise to 780 GWh/Year meaning a 56% growth thanks to the planned hybrid plants. I would like to emphasize once again the significance of all these developments for our company.

Finally, regarding the public offering, an application was made to the CMB after our shareholders exceeded 500 in 2021. CMB’s letter dated 11.03.2022 approved our company as a “publicly held partnership whose shares are not traded on the stock exchange”. The public offering procedure will be complete after receiving CMB approval regarding the amendments to the articles of association.

In 2023, I wish to grow our company and achieve our goals with successful operations together with our esteemed partners and employees. I would like to express my thanks on behalf of the management and wish health, peace and success for you, your family and loved ones.

Cem Bakioğlu