Africa, Hydroelectric, Middle East, Middle East & Africa

A country in Transition

Issue 9 and Volume 22.

State-owned utility TEIAS buys the power from
State-owned utility TEIAS buys the power from Wärtsilä’s gas-fired Aliaga power plant
Credit: Wärtsilä

 

Turkey’s energy market has changed and is still changing. Industry insider M Ufuk Berk provides an overview of 20 years working in the power sector

 

Over the past two decades, many things have changed in Turkey’s economy and energy market, and even the nation’s energy resources have changed.

Turkey boasts significant hydropower resources, with a capacity of approximately 35,000 MW. As of August this year, there are 16,455 MW in hydroelectric dams and 6618 MW in run-of-river turbine plants.

Of this figure, 12,377 MW in hydro plants belong to EÜAŞ, Turkey’s state-owned power generation company. However, these plants are in the process of being privatized. For the past five years almost all run-of-river turbines have been installed by private investors.

Figure 1: Turkey's installed power capacity
Figure 1: Turkey’s installed power capacity
Credit: Wärtsilä

Turkey is also developing many more hydro plants, especially as part of the Southeastern Anatolia Project (Güneydogu Anadolu Projesi or GAP) along the basin of the Tigris and Euphrates rivers. GAP is considered one of the most ambitous water development projects ever undertaken.

Figure 2: Expected growth in Turkey's power sector to 2023
Figure 2: Expected growth in Turkey’s power sector to 2023
Credit: Wärtsilä

In addition to the plants which have been constructed to date, Turkey will build 22 dams, 19 hydropower stations (with around 7500 MW of power generating capacity) and an extended network of tunnels and irrigation canals covering around 2 million ha of land.

The total cost of the GAP project is estimated at $32 billion. Only 50 per cent of the project is completed; the other half is waiting for the new private investors. Some 100,000 tonnes of cotton and 350,000 tonnes of tomatoes and other vegetables are produced annually with the construction of the GAP project. In addition to GAP, around 100 hydro plants on smaller rivers are under construction by private investors, with a total capacity of approximately 1000 MW.

Coal and lignite

Turkey has the seventh largest lignite resource in the world, with an estimated 8.5 bilion tonnes of reserves. Around 40 per cent of Turkey’s lignite is located in the Afşin/Elbistan region (the southeastern part of Anatolia). Turkey imports around 10 million tonnes of high-grade coal, mainly from South Africa, Russia and Ukraine. Hard coal is mostly located in the Zonguldak basin.

EÜAŞ owns 5047 MW of lignite-fired power plants. The largest are in Afşin/Elbistan and Soma (near Manisa). These are baseload plants and will undergo the privatization process. The Soma thermal plant is rated at 1200 MW and it is likely to be the first to be privatized.

Private investors also invested in coal-fired plants after the liberalization of the energy market. These plants are mostly built using fluidized bed technology. As of 1 August 2014, private investors’ generation capacity has reached 3519 MW based on local lignite and 4263 MW based on imported coal. Almost all of the thermal power plants utilizing imported coal have been constructed at different costs. The biggest ones, such as SuGözü, are near the Ceyhan Terminal.

Natural gas and its future

BOTAŞ, the state-owned petroleum pipeline corporation, dominates the natural gas sector although the market is open to competition. There were 12.215 km of gas pipelines completed between 1989 and 2011.

In 2012, 48 billion cubic metres (bcm) of natural gas imports have materialized, with 58 per cent from Russia’s Gazprom, 19 per cent from Iran and 9 per cent from Azerbaijan. This corresponds to approximately 42 bcm. The remaining 6 bcm has been imported mostly from Algeria, with some from Nigeria. Power production accounts for 57 per cent of gas consumption, with 20 per cent used by industry and 23 per cent for residential heating and other purposes.

In September 2012, the Ministry of Energy and Natural Resources (MENR) proposed a new gas sector liberalization bill. The new version of the bill calls for BOTAŞ to be unbundled into three distinct entities: a LNG trading group, a gas transmission system operator and a storage facility operator. Gas import and export rights would be transferred to private companies under the new bill. As a result, the Natural Gas Importers and Exporters Association (DIVID) has been established.

Today there are five companies within DIVID, importing 17.5 per cent per year of Turkey’s total gas imports. The target is to reduce BOTAŞ’s share to 25 per cent and private shares to 75 per cent.

The new bill will also allow private entrepreneurs to import natural gas or LNG from BOTAŞ’s previous suppliers. BOTAŞ requires most customers to undertake an agreement with DIVID.

BOTAŞ also requires year-ahead planning from its customers. If the customer cannot comply, ‘take or pay’ penalties apply. That is why power producers have to reluctantly operate for more hours than they would like. The penalties for unconsumed gas can create greater loss than the sale of electricity with negative margins.

MENR wants to discourage further investment in gas-fired power plants, which is why it has removed incentives. License applications for about 25 GW of gas plants are being terminated and the Energy Ministry is returning the guarantee letters for those license applications which applicants wish to pull back.

Until the Trans-Anatolian Pipeline (TANAP) is operational there will be no additional gas available. Under the new law, cogeneration projects will be protected and autoproducer terminology abandoned. This is basically the market for smaller-sized units. Large gas-fired power plants might have a chance with about 60 per cent electrical efficiency.

Today, electrcity generated from natural gas represents 31.5 per cent of Turkey’s total generated capacity. The nation’s installed capacity at the end of 2013 was 20,255 MW and has reached 20,871 MW with the power plants commissioned in 2014. Most CCGTs in the 50 MW-250 MW range are closing down or being sold as second-hand plant. Only CHP plants with reciprocating engines and power plants running as ancillary services with gas-fired reciprocating engines are surviving.

Renewables

Turkey has possibilities for wind, solar, bio-oil and geothermal power plants. Government incentives are provided for renewables, and additional incentives are offered if the local content of the investment exceeds 50 per cent. The liberal electricty system welcomes a fixed tariff for solar, geothermal and biomass power plants.

The installed capacity of wind power plants reached 3075 MW as of August 2014. There are still wind plants under construction.

Solar plants are not well recognized yet. Two solar panel construction factories have been built, one in Istanbul and the other in Manisa Industrial Park. The idea is to increase local content in order to enjoy a profitable fixed sales tariff.

Nuclear

There are no nuclear power plants in Turkey yet. The first plant will be constructed by Russia’s Rosatom in the Mediterranean region of Akkuyu. The Environmental Impact Assesment report for this project is under preparation,. and some site work has begun. Rosatom has signed a power purchase agreement with the Turkish Electricity Trading and Contracting Company (TETAS). The plant will have a total capacity of 5000 MW and will be completed in three phases.

A second nuclear power plant will be constructed in Sinop on Turkey’s Black Sea coast. Studies are continuing for the tender process for this project.

The 775 MW combined-cycle gas-fired power plant in Kaklik, Denizli
The 775 MW combined-cycle gas-fired power plant in Kaklik, Denizli
Credit: METKA

Turkey’s energy market

The source of fuel for Turkey’s 16 plants and 101 water dams is as follows: heavy oil, 681 MW; local coal and lignite, 5047 MW; natural gas, 2963 MW and hydro, 12,377MW.

Until 1984, all of Turkey’s electricity systems were built and operated by TEK (the Turkish Electricity Authority). Law 3096, enacted in that year, opened the door fully to independent power producers (IPPs). TEK was broken down into four public companies: EUAŞ (Turkey’s Electricity Production Inc); TEIAS (Turkey’s Electricity Transmission Inc); TETAS (Turkey’s Electricity Trading and Contracting Inc); and TEDAS (Turkey’s Electricity Distribution Inc).

EÜAŞ is the state-owned electricity production company and the leading electricity producer in Turkey, dominating the market.

With a total of 21,068 MW installed capacity, EÜAŞ represents 31.9 per cent of Turkey’s total generation capacity.

A breakdown of Turkey’s installed power capacity (66 GW) is shown on page 17. The red dotted circle shows EÜAŞ’s share and the green dotted line shows generation capacity from natural gas and LNG. Wärtsilä Generator’s share is within this category, mostly in IPPs and autoproducers.

Electricity transmission

According to Electricity Directive 4628, TEIAS is authorized to, and is responsible for, building and operating the high voltage transmission line. This means the state remains as the sole controller of power transmission.

Distribution was the first segment separated from TEK. In 2001, Electricity Directive 4628 was enacted, opening the sector to privatization. Turkey’s total territory was divided into 21 regional distribution systems. The basic idea was to privatize these regional systems one by one, with an international tendering procedure.The main reason for privatization was to reduce the amount of loss and theft.

As of today, regional distribution systems have been handed over to the tender winners and all regions have been privatized. Most distribution lines are 34.5 kV systems.

Electricity market

Until 1984, TEK was the sole owner of the electricity market as the public company. During this period TEK dictated electricity prices to industrial and residential consumers.

The first private autoproducer (Yalova Elyaf) built its cogeneration plant in 1993. From this date to now, approximately 400 autoproducers have built cogeneration plants, and IPPs came into the picture. Total capacity has reached around 12,000 MW (18 per cent of Turkey’s total).

From 1993 to 2001, autoproducers were generating heat for their process requirements (textile, home & steel, papers, ceramics, paint, cement etc) and electricity needs. The surplus electricity could be sold to the grid (TEDAS).

In 2001, Electricity Market Law 4628 was enacted and the private electricity market was opened. This law also opened the way for bilateral agreements between autoproducers and eligible consumers.

In 2003, regulation of the bilateral agreements was completed and implementation of the new bilateral agreements began. In 2006, regulation of the free electricity market began.

As of today, autoproducers or IPPs can select eligible consumers or participate in the electricity market as market players.

In 2010 TEIAS dictated ancillary services to the power generators. Primary frequency control, secondary frequency control and reactive load control obligations were introduced for power plants of certain capacities.

This regulation started on 13 May 2010 with national gazette number 27580. This situation brought advantages to fast-ramping generation units. Grid stability was also of primary importance, and larger-sized natural gas reciprocating engines began to take advantage of their features which would comply exactly with the regulations.

Power investments

Turkey will need an investment of approximately $150-$180 billion for power generation and $6-$8 billion for distribution by 2030. The government expects 80 per cent of this investment to be fulfilled by the private sector.

Turkey has the third largest wind energy potential in Europe. In the next 10 years, at least 10,000 MW of wind plants with an estimated generation capacity of 400 GWh will be built, with three major players – GE, Vestas and Enercon – covering 90 per cent of the wind turbine market, while the government is trying to encourage locally manufactured parts.

The biggest investment opportunities in gas-fired combined-cycle plants are those which have 60 per cent total plant efficiency, but future energy investments in Turkey will be largely in the hydro segment as there is still great potential there, as well as nuclear plants.

According to consultancy McBDC, only about 5.5 GW of natural gas-fired capacity will be developed in the next decade, and gas’s share of electricity production will drop to 26 per cent. Coal-fired and hydro plants will dominate the market, while renewables will continue, with wind power continuing to increase.

In other scenarios, installed capacity is expected to be about 125 GW by the end of 2023 – but, in my opinion, this is too optimistic.

This year Turkey’s peak demand during a hot summer has been around 40 GW. But the available capacity has been around 45 GW due to a low level of water in the hydro dams and the shutdown of many single-cycle or combined-cycle power plants due to the very low electricity tariff.

My personal opinion is that, until EÜAŞ is fully privatized and the natural gas supply has been fully controlled by DIVID, we cannot talk about a 100 per cent liberal energy market. But the indications are in that direction, and there is heavy pressure for EÜAŞ-owned hydro and thermal power plants to be privatized.

Mehmet Ufuk Berk is Managing Director of Wärtsilä Turkey and a board member of the Turkish Clean Energy and Cogeneration Association.

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