|Instanbul’s Bosphorus Bridge Source: Kara Sabahat|
Turkey is a democratic, secular state with a youthful population of 73 million. Its influence and aspirations lie both to the east and the west. Cultural affinity with neighbours Iran, Iraq and Syria, and the Turkic states of Azerbaijan, Kazakhstan, Kyrgyzstan and Turkmenistan on the one hand sit alongside membership of NATO and a desire to join the European Union (EU) on the other hand.
Placed by geopolitics at the hub of routes importing energy from former Soviet states, the Middle East and North Africa to Europe, the Republic of Turkey is poised to reap economic and financial benefits from energy.
Soaring demand for electricity
Turkey’s generation capacity has risen four-fold over the last 25 years to about
43 GW. Per capita electricity consumption is still below 3000 kWh, much less than in Western Europe, but consumption is expected to grow as the Turkish economy expands. Rapid industrial development and an increasing population have led the Ministry of Energy and Natural Resources (MENR) to predict that gross electricity demand will rise from 242 TWh in 2010 to 499 TWh by 2020. MENR is planning to double installed capacity to 96 000 MW by 2020.
Turkey is poorly endowed with fossil fuel resources but rich in renewable resources including geothermal, solar, hydro and wind. Electricity generation is largely powered by natural gas (48.7 per cent), coal (28.3 per cent) and hydroelectric (18.5 per cent).
Turkey has a large indigenous coal mining industry that mainly produces lignite and sub-bituminous coal, although the country relies on imports for higher grade coal for thermal power plants. Turkey imports 65 per cent of its natural gas and 25 per cent of its oil from Russia, as well as coal. But regular disputes over natural gas piped from Russia have made the government keen to achieve a greater level of energy independence and decrease reliance of Russian imports. Turkey aspires to meet its key energy goals of security, diversity, affordability and lower carbon by using a mix of renewables, nuclear, and efficient thermal power.
Turkey’s electricity industry was formerly a state owned monopoly but it is being re-structured, unbundled and privatized in order to bring investment and increase efficiency. It must also align with the principles of the EU, which has specified 32 hurdles (‘chapters’) Turkey that must clear in order to be granted accession to the organization. As well as having liberalized energy markets, candidate states are required to help increase the proportion of low-carbon generating capacity in the EU.
The government started the privatization of Turkey’s power infrastructure in the 1980s with the aim of reducing the country’s debt and increasing its competitiveness. Traditionally, the state has strictly controlled the economy, but it is slowly loosening its grip in order to attract greater investment.
The Turkish parliament passed the Energy Privatization Law 3096 in 1984 allowing private sector construction and operation of electricity generation, transmission and distribution assets. Turkey’s initial build-operate-transfer (BOT) model proved unpopular as it required investors to return assets to the state at the end of the contract term. The model was eventually changed to guarantee 100 per cent of the investment rather than reducing the guarantees over the contract term. This led to construction of 1389 MW of gas fired plants and 803 MW of hydroelectric plants.
However, in 2001 Turkey was hit by a severe financial crisis, and the International Monetary Fund (IMF) rescue package obliged the country to scrap its sovereign guarantees for generation investments. The axed projects included a 390 MW wind power tender at an advanced stage.
In 1993, the dominant state-owned Turkish Electricity Authority was split into two companies. TEAS was given responsibility for generation, transmission and wholesale electricity supply, while TEDAS managed distribution. In 2001, government introduced the Electricity Market Law (EML), creating an autonomous regulatory body, the Energy Market Regulatory Agency (EMRA). As a prelude to privatization, TEAS was unbundled into three companies: the Turkish Electricity Transmission Company (TEIAS), the Electricity Generation Company (EUAS), and the Turkish Electricity Trading and Contracting Company (TETAS).
EUAS plans to keep 7000 MW of generating capacity while privatizing 45 power plants in batches that will each total between 2000 and 3000 MW in installed capacity. However, the timetable for this project has been delayed by the global financial downturn, which has affected the appetite for investment as well as the availability of capital.
In July 2006, two independent power producers withdrew their generation from the Turkish grid in protest at the tariff they were receiving, which triggered a six-hour blackout that affected 13 cities in western Turkey. A month later the government launched the “balancing and settlement” (DUY) system, a clearinghouse system designed to simulate open market conditions. Electricity can now be sold and purchased through a day-ahead balancing market.
The distribution network has been split into 21 distribution regions, each with its own distribution company. Twenty companies, representing 98 per cent of Turkey’s electricity distribution, were made from holdings of the national distribution company TEDAS. These were sold in 2010, raising $13 billion.
TEDAS granted the distribution companies the right to operate the distribution assets and a distribution licence. The companies have inherited energy sales agreements with EUAS that will remain in place for a fixed period of time, after which the distribution companies will contract for electricity on a bilateral basis or on the spot market.
Turkey is currently privatizing 16 000 MW of generating capacity but the process has been slowed by delays and bureaucracy. Portfolios, each including assets with a range of operational costs and fuels, are lined up for sale. Four gas fired power plants, the Hamitabat, Soma A-B, Can and Seyitomer power plants, with a combined capacity of 3 GW are also being privatized.
Developing new power stations
New privately owned power stations are being developed to meet rising demand. The Boyabat dam is one of 24 plants and storage facilities that are planned for the Kizil river in Sinop, northern Turkey. The 513 MW Boyabat hydropower scheme is Turkey’s largest private hydro deal to date. In 2007, the project was awarded a licence to operate on a merchant basis for 49 years, as the authorities ditched the unpopular build-operate-transfer model. Turkish companies Dogan, Dogus and Unit raised $750 million from local Turkish banks to finance the project and construction of the 195-metre-high dam is currently under way.
European utilities are collaborating with local companies. A joint venture consisting of German utility RWE (70 per cent) with Turkish energy company Turcas (30 per cent) is developing a 775 MW gas fired power station in Denizli. Construction got under way in May 2010 and is due to be completed by the end of 2012. RWE is also a member of the consortium that is developing the Nabucco gas pipeline, which will bring Caspian gas through Turkey and into Europe.
The role of auto-producers
Most of the Turkish private sector investment in the power sector has come from ‘auto-producers’. These are large conglomerates that initially produced electricity and heat primarily for their own industrial use – Enerjisa, Akenerji and Ayen Enerji are notable examples.
|Breakdown of generation by source, 2009 (TWh) Source: Ministry of Energy and Natural Resources|
Akenerji, for instance, started as an auto-producer in the electricity sector 1989 as one of the first private sector enterprises to generate electricity. Akenerji created a consortium with CEZ, a major energy player in Central and Eastern Europe. In 2008, the AkCez consortium was awarded the tender held by the Privatization Administration to privatize Sakarya Elektrik Dagitim AS (SEDAS). The contract was valued at $600 million and the acquisition of SEDAS strengthened Akenerji’s position as an integrated energy player. The AkCez partnership is now developing a 900 MW gas fired power station in Hatay.
Currently generating electricity mainly from natural gas, Akenerji is now expanding into renewable energy. In 2009, Akenerji set up the 15 MW Ayyildiz wind power facility in Bandirma, Balikesir. The company has made applications for two wind farms with a total capacity of 170 MW in Çanakkale and has exploration licences for six geothermal resource areas. The company aims to have installed capacity of 3000 MW by 2014.
Turkey has been flirting with developing nuclear power since the 1960s and currently wants to generate up to 20 per cent of its energy from nuclear power by 2030 – an ambitious target for a country with no nuclear capability and a 40-year stop-start track record in the field.
|A map of Turkey’s solar irradiance developed by the European Solar Test Installation (ESTI) Source: ESTI|
Rapid industrial growth and a wish to its break reliance on oil and gas imports are driving nuclear policy. Turkey’s first nuclear feasibility studies started in 1970. In 1976, the Akkuyu site on the Mediterranean coast of southern Turkey was licensed for a nuclear plant. A Canadian consortium led by AECL entered into discussions with the Turkish government. But the scheme came to nothing, due to a combination of financial reasons and the 1986 Chernobyl disaster.
A second round of bidding for Akkuyu – intended to produce 3000 MW and to come onstream in 2006 and December 2007 – started on December 1996. Once bidding was underway, the contract deadline was extended by two months from October to December 1999. But by July 2000 the project had been cancelled.
At the end of 2009 the Turkish government also abandoned a more recent tender process, in which a consortium made up of Russia’s AtomStroyExport and Inter Rao UES, and Turkey’s Park Teknik was the sole bidder. The specification required the developer to take back the spent reactor fuel for disposal. Other international bidders declined to bid, saying that Ankara’s terms were not commercially viable.
But nuclear power is back in the frame and a contract was signed in May 2010 for four Russian 1200 MWe VVER units at the Akkuyu site. Russia’s state nuclear company Rosatom will create a subsidiary to build, operate and finance the $20 billion project.
|Turkey’s energy mix in megawatts Source: TEIAS|
Rosatom will retain a 51 per cent majority share but may sell remaining shares. According to the contract, Turkey will start receiving 20 per cent of the company’s net profit 15 years after each unit begins operating. TETAS will sign an agreement giving a guarantee of purchasing the electricity it produced at 12.35 US cents/kWh.
Turkey has switched from issuing tenders for nuclear power to talking directly to potential developers. Late in 2010, eight months of bilateral talks with South Korean nuclear generator Kepco failed to reach agreement over building a 5 GW nuclear power plant in the Black Sea province of Sinop – reportedly due to Ankara’s refusal to provide the sovereign purchase guarantees that Kepco sought.
Turkey then entered exclusive negotiations with a Japanese consortium of utility Tepco with reactor vendor Toshiba. The March 2011 earthquake and tsunami that destroyed Tepco’s Fukushima Daiichi reactors halted the discussions, although they may now resume following Prime Minister Recep Erdogan’s recent re-election on 12 June.
But earthquakes pose a threat to Turkey’s nuclear ambitions. The Turkish landmass is on the Anatolian plate, which is squeezed in between the Eurasian tectonic plate and the Arabian plate, making the country prone to powerful earthquakes.
In 1999, more than 20 000 people were killed when a 7.4 magnitude earthquake hit northwest Turkey, destroying many buildings. Rosatom says the proposed Akkuyu plant, which would be 25 km from an active fault line, is designed to withstand earthquakes of magnitude 8. Environmental studies are due to be completed by 2012. But the planning and consenting process lie ahead and events in Fukushima have strengthened opposition to nuclear.
Interconnecting national grids
Opening new routes for electricity exchange across the Mediterranean is a key to energy security in the region. Mediterranean countries are working towards establishing a Mediterranean Electricity Ring (MedRing) energy corridor linking power grids from Spain to Morocco through North Africa and Arabia to Turkey. From Turkey, the ring will then link back into the European grid via Greece or Bulgaria.
Turkey is keen to integrate its grid with the EU network to get the benefit of synchronous parallel operation. The Turkish power system could be connected with the Union for the Coordination of Transmission of Electricity (UCTE) system through Bulgaria and Greece. Turkey already has two 400 kV interconnections with Bulgaria and a 400 kV link with Greece is under construction.
Wind and solar incentives
Turkey passed its Renewable Energy Law in 2005. Amendments will include feed-in tariffs for solar and biomass generation. Incentives to promote development of renewable energy (RE) include: preferential land purchase and usage rights for RE developers; discounts on generation licence fees; grid connection priority and requirement for retail licence holders to purchase a proportion of RE.
Wind, geothermal, landfill gas, and solar power contribute only 1 per cent of Turkey’s installed capacity. The government has identified several renewable resources as key targets for investment. Hydro and small-scale geothermal power generation are well-established and continue to attract investment, while the forthcoming feed-in tariffs seem certain to boost solar PV generation.
Turkey has an average 2640 hours of sunshine per year and the average solar flux exceeds 5.8 GJ/m2 annually, so the potential is excellent. Applications for wind farm licences soared in 2009 and 2010. Turkey has plenty of coastline and its combined offshore and onshore wind potential is estimated at 88 000 MW, although delivering this power would require transmission grid upgrades.
Hydro and geothermal potential
Turkey is a rectangular plateau with sea on three sides, making it well suited to hydroelectric power generation. It is served by five separate watersheds – the Persian Gulf, the Caspian Sea, the Black Sea, the Mediterranean, and the Marmara Sea – giving Turkey about 1 per cent of the total’s world hydroelectric potential. Turkey’s potential hydo capacity is estimated at around 128 TWh with
46 TWh currently developed and another 11 TWh under construction.
Turkey’s location on the Mediterranean volcanic belt also gives it access to a promising geothermal field – although much of the energy has an enthalpy (thermo-dynamic potential) too low for electricity generation, while suitable for heating. Turkey’s current geothermal capacity is around 4000 MW, but the country plans to develop this with an estimated annual generation potential of about 30 000 MWh.
Interesting times lie ahead for the Turkish electricity system. Investment is required to enable the country to develop its own energy resources, and government may have to do more to encourage foreign investors to also play their part.