REPORT: TURKISH POWER MARKET: A crossroad of power

Situated at the junction of the Middle East, central Asia and Europe and close to the oil reserves of the Caspian Basin, it is not difficult to see the strategic importance of Turkey. With a rapidly growing economy and rising energy demand to match, the country is getting serious about exploiting its envious position as an ‘energy bridge’.

While actively seeking to become a major pipeline route, Turkey has made increasing its installed electricity generating capacity a top priority in order to fuel its economy. The government has, however, recognised the need to achieve these objectives sustainably.

Turkey’s electricity sector has reached a crucial stage of development; it has cleared up some serious legal issues surrounding the development of private power projects and must move forward to continue attracting investment. It has therefore implemented economic and structural reform policies that will make the electricity sector more transparent and help attract private investment.

Aside from supporting its economy, a key driver for these policies is the prospect of accession to the European Union. Turkey was accepted as a candidate for membership in December 1999, and must now prove to Europe that its economy and legal framework are up to scratch.

A state-dominated sector

The majority of electricity production, transmission and distribution in Turkey is undertaken by two state-owned electric companies: the Turkish Electricity Generation and Transmission Corporation (TEAS) and the Turkish Electric Distribution Company (Tedas), both of which report to the Ministry of Energy and Natural Resources (MENR). TEAS owns and operates 15 thermal and 30 hydroelectric power plants representing approximately 74 per cent of the country’s electric generating capacity and around 91 per cent of generation. It also owns all of the 380 kV lines and 92 per cent of the 154 kV lines.

Tedas owns and operates the distribution lines to residential and industrial end-users. The operating rights of both TEAS and Tedas are in the process of being transferred to the private sector as the law does not currently permit the outright sale of these assets.

Besides TEAS and Tedas, there are some small power companies which are authorized to generate, transport, distribute and trade electricity.

Turkey also has a considerable amount of autoproductionà‚–industrial facilities that generate power for their own use. Autoproducers are free to negotiate with TEAS to sell excess power to the grid. They can also transfer their excess power to their manufacturing plants in other regions. As of the end of December 1999, the installed capacity of autoproduction plants was 1911 MWe, with an annual energy production of 12 845 GWh.

At the end of 1999, Turkey had an installed capacity base of 26 226 MWe, with a roughly equal split between conventional thermal and hydroelectric sources. In 1998, hydropower plants accounted for 44 per cent of capacity, coal and lignite for 18 per cent, natural gas 18 per cent, and fuel oil for eight per cent. Total electricity generation in 1998 was 106.7 TWh.

In 1999, Turkey had 108 hydroelectric power plants in operation, with a combined capacity of 10 503 MW and generating 38 016 GWh of power. Most hydro plants in Turkey are owned and operated by the Turkish State Hydraulic Worksà‚–Devlet Su Isleri (DSI), while Elektrik Isleri Etut Idaresi (EIE), a government agency, is responsible for planning hydropower projects. Ultimately, the construction of around 340 more hydro plants at a cost of over $30 billion is envisioned in order to make use of the country’s hydropower potentialà‚–estimated to be 69 051 GWh per year.

Fuelling the economy

With a growing population, low per capita electricity consumption and strong economic growth, Turkey has become one of the fastest growing power markets in the world. Projections by TEAS indicate that over the next 15 years, electricity demand growth could reach ten per cent per year. Analysts believe this projection to be too high, with eight or nine per cent a more realistic figure.

Nevertheless, with electricity shortages already a problem, the Turkish government has made increasing the country’s generating capacity a priority, and the installed base could triple by 2010 to as much as 65 GW. MENR believes that this requires an investment of at least $3-5 billion per year. Much of this investment must come from the private sector.

To attract private capital to the electricity industry and other sectors of the economy, Turkey introduced the ‘Build-Own-Transfer’ (BOT) model in 1984 under then-prime minister Turgat Ozal. Under the BOT scheme, private investors build and operate electricity generation facilities for a set number of years, after which they transfer ownership of the facility to the state. The electricity generated is sold to TEAS or a private end-user.

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However, the BOT concept met with legal problems, in particular surrounding a ruling in Turkish courts that BOT projects are ‘public concessions’ and so subject to judicial review. This slowed the implementation of many BOT projects, but a recent change in Turkish law, approved in January 2000, means that power projects are now classified as ‘commercial agreements’, helping to pave the way for multi-million dollar investments in the country.

At the end of 1999, 14 power plants with a total capacity of 1600 MWe had been completed under the BOT scheme, and another nine with a total capacity of 990 MWe were under construction.

Economic reform

Significantly, the new government installed following national elections in April 1999 has launched an ambitious economic and structural reform programme geared to help the country develop its infrastructure and prepare itself for entry to the European Union. In December 1999, the government, led by prime minister Bulent Ecevit, signed an agreement with the International Monetary Fund (IMF), under which Turkey is to receive $3.9 billion in funds in return for undertaking strict economic reforms for the next three years.

Turkey’s major goals under this programme are:

  • To raise gross national product (GNP) growth rate to 5.8 per cent by 2002, up from a 6.4 per cent decline in 1999
  • To reduce inflation to five per cent by the end of 2002, down from 50 per cent in 2000
  • To achieve a fiscal surplus of 3.7 per cent of GNP
  • To lower interest rates through monetary and exchange rate policies
  • To carry out structural reforms aimed at strengthening public finances
  • To privatize key sectors, including both energy and telecommunications.

Figure 2. Energy crossroads: Turkey is well-positioned geographically to develop its energy sector
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According to the IMF, this programme has already led to a rapid deceleration of inflation and a resumption of economic growthà‚–inflation is now at its lowest since 1986. Crucially for potential investors, the IMF programme now means that the Turkish Treasury can no longer provide financial guarantees for large-scale infrastructure projects.

Also supporting the IMF package is a $759.6 million Economic Reform Loan (ERL) from the World Bank disbursed in May 2000. This is designed to support the disinflation programme, accelerate privatization and support the government’s reforms in various sectors of the economy.

Together, the IMF programme and the World Bank ERL will help Turkey to meet its growing energy demands in a sustainable manner. Key to the structural reforms are the introduction of competitive markets for electricity and gas, the removal of obstacles to private participation and investment, the creation of a transparent legal framework, and the acceleration of the energy privatization programme.

Turkey is currently working on a proposed electricity market bill that would restructure the electricity market, heighten transparency and promote competition. The bill would set up a new regulatory body to oversee the electricity sector, and unbundle generation, transmission and distribution. A National Transmission company would be established, and the unbundled units prepared for privatization.

Building capacity

Several large-scale fossil fuel power plants are under construction in Turkey under BOT contracts, in addition to a number of hydropower projects. German power company Steag announced in May 2000 that it is to develop the 1300 MW bituminous coal-fired Iskenderun power project (see PEi September 2000, page 49) near Adana. The plant will consume around 3.3 million t of high grade coal every year, and will sell electricity to TEAS under a 20-year PPA backed by a Turkish government guarantee. Power deliveries will start at the end of 2003.

Turkey will also see its natural gas consumption increase with the commissioning of three major combined cycle power projects: Izmir (1555 MW); Gebze (1555 MW); and Adapazari (780 MW). These plants are being developed by Shell-Bechtel joint venture InterGen, which was awarded the projects in October 1997 by the TEAS. The plants will be constructed under a build-own-operate (BOO) model, and are expected to enter commercial operation in 2002. GE Power Systems is supplying the turbine-generator units for these three plants, as well as equipment for the 206 MW gas fired Alapi BOT power plant, which is scheduled to enter service in 2002.

Recently completed combined cycle power plants include Marmara Ereglisi, one of the country’s first independent CCGT plants. The 478 MW plant began commercial operation in 1999, and comprises two 154 MW Siemens V94.5 gas turbines and a 178 MW steam turbine. Botas supplies natural gas to the plant, which was developed by Trakya Elektrik Uretim ve Ticaret ASà‚–a joint venture company owned by Enron, Midlands Electricity, Western Resources and Gama.

To support the new facilities, several natural gas pipeline projects are planned, as well as LNG terminals. Botas is also expanding its gas transmission network along the Black Sea and the Aegean.

Hydropower plants

The BOT model has also been applied to increasing Turkey’s already extensive hydropower capacity to around 35 GW by the year 2010. At present, some 38 hydroelectric plants with a combined capacity of 4931 MW are under construction, representing

15 973 GWh of annual energy generation. These include the 672 MW Birecik plant on the Euphrates River, but by far the largest and most significant hydropower project under development is the $32 billion Southeast Anatolia GAP hydropower and irrigation project. When completed, GAP will comprise 21 dams, 19 hydropower plants with around 7.5 GW of power generating capacity, and a network of tunnels and irrigation canals.

Power plants under construction as part of GAP include Ataturk (2400 MW), Karakaya (1800 MW), Ilisu (1200 MW), Cizre (240 MW), Silvan/Kayser (240 MW), Batman (198 MW) and Karkamis (180 MW).

In early 1998, the USA and Turkey signed a joint statement on hydropower projects, listing nine projects that would be negotiated with US-led consortia. The nine projects are now in various stages of negotiation. US companies involved in the negotiations include Washington Group, Harza, Stone & Webster, Parsons and Black & Veatch.

In addition to increasing domestic generating capacity through the BOT programme, Turkey is also looking outside its borders to meet its rapidly growing electricity demand. It imports power from Georgia, Iran and Bulgaria, and in May 1999 signed an agreement with Turkmenistan for power supplies. The country has also signed a memorandum with other members of the Black Sea Economic Cooperation (BSEC) to examine the possibility of creating a regional power grid.

Nuclear policy

Turkey had also been looking at developing nuclear power plants to increase generating capacity, but in July 2000 finally abandoned these much-debated and oft-delayed plans. Three international consortiaà‚–AECL of Canada, Westinghouse/

Mitsubishi of the USA and Japan, and French-German joint venture NPIà‚–had submitted bids to build what would have been Turkey’s first nuclear plant on a turnkey basis at Akkuyu on the southern Mediterranean coast.

The plans for the nuclear plant, which had been under planning for almost three decades, had suffered several setbacks in recent years relating mainly to financing difficulties and environmental concerns.

Greece was opposed to the plant due to the high risk of earthquakes in the region, and in April 2000 the Turkish Treasury said that it would be unable to provide the necessary financial guarantees for the project due to the anti-inflation deal with the IMF. After announcing that the project would be cancelled, Prime Minister Bulent Ecevit said that Turkey would reconsider building the plant in 10-20 years’ time.

Turkey: an energy summary

Turkey has limited energy resources and is heavily dependent on imported oil and natural gas to meet its needs. As the country’s economy has expanded, the demand for these fuels has also increased, although the share of oil in the energy mix is declining due to higher demand for natural gas.

Around 90 per cent of Turkey’s oil supplies are imported, mainly from the Middle East and Russia. Oil

consumption growth is expected to increase at a rate of around 2-3 per cent per annum, and the country expects that much of this will come from central Asian countries.

Domestic natural gas production in Turkey meets less than three per cent of consumption, with the balance made up for by pipeline and LNG imports. Natural gas demand is expected to quadruple within the next 20 years to 39.6 bn m3 by 2020. The majority of this increase will come from power plants and industrial users.

Turkey’s strategic geographic location means that the development of pipelines to bring Caspian oil and gas to international markets is of crucial importance. Turkey and the USA have been pushing for the development of an ‘Eurasian Corridor’, which would bypass Russia and Iran, while Russia is promoting a ‘Northern Route’.

  • Proven oil reserves: 299 mbbl
  • Estimated recoverable coal: 8.2 billion short t
  • Oil production: 69 000 bbl/d
  • Coal production: 67.5 million short t
  • Net oil imports: 555 000 bbl/d
  • Net coal imports: 10.9 million short t/annum
  • Natural gas reserves: 8.9 bn m3 bcf
  • Electricity generating capacity: 26 GW
  • Natural gas production: 566 m m3/annum
  • Electricity generation: 106.7 TWh
  • Net natural gas imports: 350 9.9 bn m3/annum
  • Electricity demand growth (estimate): 8-9%

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