we transform
energy into
the future.

Investments

In 2021, we turned a new page for investments in renewables. At the beginning of the year, we commissioned hybrid solar projects. We started the construction of the 65 MW Erciyes Wind Energy Project in Kayseri. We obtained the pre-license for 500 MW mega YEKA Wind Power Plants, which will be located in Çanakkale and Aydın, for which we acquired the connection rights in 2019. We have taken firm steps towards a sustainable future with these renewables investments, which are in line with our growth strategies. Enerjisa Üretim, has shared the value it created in 2020 with its investors for the first time, and will also distribute dividends from the value it generated in 2021. We aim to make this flow sustainable in the coming years. In our medium-term plans, we aim to grow in renewable energy with the accurate capital and cash management strategies by commercially maximizing the value created by the current 3,607 MW generation portfolio.

Turkey Electricity Generation Industry

2021 has been a year of huge fluctuations in macroeconomic terms. Turkey’s electricity demand, which has declined due to the effects of the pandemic, has started to recover. Postponed maintenance was carried out. Major unplanned situations occurred as a result of the delays in maintenance process. There were energy crises on a global scale, and commodity prices increased. Due to the drought, generation at hydroelectric power plants remained below normal.

The electricity installed capacity of our country increased by 4% compared to 2020 and reached 99.4 GW. In 2021, with the increase in the capacity of wind and solar power plants, the share of renewable resources in the total electricity installed capacity increased up to 52%.

Turkey’s electricity demand, which decreased due to the epidemic in the previous year, grew by 8.2% per year and amounted to 327 TWh, despite the Pandemic restrictions applied in the first 6 months of the year. Vaccination, gradual normalization and industrial growth had impacts on this development. Due to below-normal precipitation, low snow potential and low soil moisture, less streamflow reached the power plants throughout the year. Capacity utilization rates of hydroelectric power plants remained low throughout the year. In order to compensate for this deficiency on the supply side due to the drought and to meet the high electricity demand in Turkey, a record amount of generation was made at natural gas power plants.

Commodity prices, which fell in 2020 with the effect of the pandemic, reached historical peaks as of the second half of 2021, with the recovery in global demand. Due to the rise in commodities and supply problems, there were energy crises on a global scale. Coal prices increased. From time to time, the TURKEY ELECTRICITY GENERATION INDUSTRY generation costs of imported coal-based power plants exceeded the generation costs of natural gas power plants. It caused two types of technology to swap places in the supply curve that formed the price in the Day-Ahead Market.

The drought experienced in 2021 negatively affected our hydroelectric power plant portfolio as it it did with entire hydroelectric power plants across the country. We have successfully managed this adverse condition with effective reservoir usage, accurate maintenance planning and record level of availability. By means of our diversified portfolio, we made up for this negative impact with the strength of our competencies in other technologies. Thus, in 2021, we gained a revenue higher than we had planned.

2021 was also an outstanding year for our wind and solar power plants. We have minimized the potential revenue loss by scheduling the maintenance plans at the wind farms at the periods when the wind intensity was low.

Our Bandırma I and Bandırma II natural gas combined cycle power plants made a great contribution to Turkey’s supply security, as in previous years. Tufanbeyli Lignite Power Plant is capable of generating electricity at low cost by the virtue of its high efficiency and advanced technology. We sold most of the electricity generated by the power plant in 2021 through bilateral agreements and EÜAŞ (Elektrik Üretim A.Ş.) purchase agreement. We have ensured that availability, which is the most critical issue for Tufanbeyli Power Plant, has achieved a value above the previous years. Moreover, non-asset-based energy and gas trading operations, energy supply solutions for sophisticated customers, and structured commercial product operations also highly contributed to our profitability throughout the year.

Third Party Trading Asset Operations

In 2021, we enhanced our leading position in the industry by undertaking all commercial operations of power plants of other companies, with the strength we derive from the knowledge, experience and operational competencies we have accumulated over the years.

With the first step taken in this area, which is one of our growth targets, we undertook all commercial operations of Akocak and Çanakcı hydroelectric power plants with a total installed capacity of 92MW. In this context, we have successfully completed all the operations of our new stakeholder in the following processes, which we also carry out for our own power plants:

• Power Plant Optimization - Reservoir Management/ Operation
• Meteorological and Hydrological Forecasts
• Day-ahead and Intraday Market Transactions
• Management of Imbalances
• Risk management
• Maintenance Planning

Tufanbeyli Power Plant

In 2021, we started to reap the harvest of investments and improvements made after the challenges experienced in previous years, both in mining and power plant operations. As a result of the investments and improvements on operational activities, we achieved a high availability rate and broke the generation record. We supported our successful performance in 2021 in terms of availability with forward-term electricity sales strategies, particularly sales made to Elektrik Üretim Anonim Şirketi (EÜAŞ), hedge operations, and efficient fuel supply strategies.

Measurement, Assessment and Risk Reduction

With our risk management perspective, we aim to identify all risks and opportunities that may affect our operational, strategic and financial plans, to measure and assess them utilizing various methodologies, and to reduce risks.

Two departments in charge of risk management carry out risk management activities in their respective fields. The Technical Risk Management department focuses on managing technical risks. We changed the title of the Corporate Risk Management department, which focuses on the management of commercial and financial risks, as Risk Culture in line with our strategic goals. We restructured the organization of the department in order to implement risk management practices in all decision processes and to widespread the risk management approach throughout the organization.

Overall Risk Assessment for 2021

The high volatility in exchange rates in 2021, particularly in the last quarter of the year, has become one of the most critical risks to be managed for all energy market players, which are highly indexed to foreign currency in terms of costs, income and financing. The USD rate, which started the year with 7.42 TL according to the CBRT USD Buying day closing data, made the lowest day close of the year with 6.92 TL on February 17, 2021, and the highest day closing with 17.47 TL on December 21, 2021, and closed 2021 with a value of 12.98 TL. The 2.5-fold difference between the lowest and highest values during the year, reveals the fact that currency risks should be closely monitored.

2021 was a year of high volatility and record prices in terms of global energy markets as well. Price records were broken in the European natural gas and electricity markets. In the Dutch TTF market, which is one of the most important liquid natural gas trading centers in the world, the natural gas spot price, which fell to the level of 3.9 EUR/MWh in 2020, increased to a record 137 EUR/MWh in 2021 and closed the year with 70 EUR/MWh. Whereas the electricity price in the German day-ahead market was 53 EUR/MWh on average in January, it increased to an average of 223 EUR/MWh in December. Although not as dramatic as European markets, increasing coal and natural gas costs in Turkey’s energy markets were reflected in electricity prices. The electricity market clearing price (MCP), which was an average of 298 TL/MWh in January 2021, became 1009 TL/MWh in December 2021 with increasing natural gas, coal prices and exchange rates. This unprecedented increase in the markets showed that commercial and generation operations can suffer seriously if the appropriate risk management is not ensured. As Enerjisa Üretim, we closely monitor all market risks using both asset optimization and advanced risk management tools and techniques that we have developed and used for many years in our commercial operations. We continue our commercial operations with clear risk capital and risk limit structures. We use advanced risk management tools and techniques in order not to be negatively affected by currency fluctuations.

Management of Trading and Optimization Risks

Trading and optimization risks include the changes in the prices and additional costs of the electrical energy we generate or trade and the commodities such as natural gas, petroleum products, lignite that we will consume or trade, in free and regulated markets, and the effects of this situation on profitability. We have designed a trading and optimization risk policy to manage risks. We carry out our trading and optimization risk management operations in cooperation with the Trading Risk Management team under the Risk Culture department and the teams that carry out all commercial and optimization activities. We periodically report the profitability and risks of each trading and optimization operation. We monitor and report most of the risks on daily basis. We maintain a risk capital allocated for trading operations. We set the trade limits in line with this risk capital and current risk appetite, and monitor them on daily basis. We use advanced Value at Risk (VaR) models to measure business risks.

We established the Trading and Optimization Risk Management Committee to direct and supervise risk management activities. Committee members consist of the CFO, the Assistant General Manager of Portfolio Management, and the Energy Markets Director. This committee meets at regular intervals and determines the risk appetite, the level of authorization, limits and trading principles in line with our current risk-bearing capacity. It questions the adequacy of existing systems and decides on areas to be developed. It identifies risky situations at the trading operations level and decides on action plans to eliminate the risk.

Management of Financial Risks

Our receivables and debts in different currencies, and currency risks arising from purchase guarantees constitute a significant part of our financial risks. In addition, interest risks and tax risks arising from deposits, credits and/or future liabalities and receivables are also included in the scope of financial risks. We assigned the Financial Risk Management Department under the Risk Culture Department in order to manage these risks more effectively. The basic principles, authorization and limits of financial operations, approval procedures, monitored metrics and risk management practices are determined by the Financial Risk Management Policy.

We established the Asset/Liability Committee with the participation of senior management to assess financial risks and plan actions. This committee meets on regular basis to assess our current and prospective deposit and loan positions, our income and expenses in different currencies, and our currency and interest risks. It determines the positions to be taken and risk management actions. The committee also provides input for the Financial Risk Management Policy.

Corporate Risk and Management Reporting

It includes the consolidation of risks in different departments and units, the creation of business continuity documents and the reporting of risks. It is of strategic importance that risk management provides input to decision mechanisms. Therefore, in the budget, annual and interim plans, risks are defined, calculated, consolidated and presented in a way that is consistent with the main assumptions before the decision stage. Annual plans, targets and strategies are prepared by considering this risk and opportunity universe.

Audit Activities, Consulting Services and Ethical Review

The Audit Committee’s role is primarily to assist the Board of Directors by providing advices and recommendations on the accuracy and integrity of the financial statements and internal control system, the effectiveness of the company internal audit processes and function, the independence, qualifications and performance of external auditors, compliance with applicable laws and regulations, and potential for improvement in business processes.

Activities for the efficiency and competence of the internal control system at Enerjisa Üretim and all of our subsidiaries are carried out by the Internal Audit Department. The Internal Audit Department reports directly to the Audit Committee, which consists of two independent members of the Board of Directors.

The Internal Audit team fulfills three main tasks: conducting audit activities, consultancy services and ethical review studies within our company.

Conducting Audit Activities

With the internal audit activities carried out, the Board of Directors is provided reasonable assurance regarding the effectiveness and competence of internal controls in internal processes through the Audit Committee.

Auditable processes are identified by the audit universe created by the department. Risk assessment studies regarding processes are carried out on a regular basis every year. The annual internal audit plan prepared is approved by the Audit Committee and the Board of Directors. In the audits carried out within the framework of this plan, it is aimed to contribute to the realization of the following objectives:

• Complying with legal regulations, contracts, authorization plan, policy and internal procedures,
• Preventing mistakes and misconducts,
• Establishing an effective internal control system for ERP systems, other databases and business practices,
• Protection of assets,
• Ensuring the effectiveness and efficiency of operations, the accuracy and integrity of financial and operational information,

• Compliance with corporate governance principles,
• Compliance with ethical values,
• Ensuring effectiveness in performance and risk management,
• Identifying improvement opportunities and mainstreaming good practices.

Detections and recommendations regarding the audits carried out are discussed with the audited function managers, and action plans are drawn up. The auditor’s opinion on the effectiveness of the internal control system is presented in the audit report, and the results are reported to the Audit Committee. Follow-up studies regarding the implementation of action plans are also carried out by the Internal Audit Team. The Audit Committee is informed about the developments.

Performance Review and Continous Development

The Internal Audit Department carries out its activities in compliance with International Internal Audit Standards and Code of Conduct. This compliance is certified and approved by an independent Quality Assurance Review (QAR) carried out every 5 years as per the standards, which was last performed in 2018. The team members within the department are members of the Internal Audit Institute of Turkey in order to improve and share their professional knowledge and experience.

Consultancy Services

Internal Audit Department also provides consultancy service regarding business processes within the scope of specific requests from the Board of Directors, Audit Committee or senior management.

Ethical Review Practices

Company employees or all stakeholders can report any potential ethical, legal or company policy violations by calling the Ethics Line at ‘0216 512 4242’ or by contacting the Internal Audit Department via the e-mail address of “enetik_uretim@enerjisauretim. com”. Internal Audit Department is the sole authority to access these notifications and investigate violations. The results of the investigations and recommendations are discussed and resolved by the Workplace Behavior Assessment Board. In addition, in case of any noncompliance notification to the Compliance Board on ethical issues, the relevant issue is conveyed to the Internal Audit Director by the General Counsel. If the Internal Audit Director deems it necessary, he/she starts an investigation about the subject report and implements the pertinent policies and procedures.