By Öztürk SelvitopA
Head of Department,
Ministry of Energy and Natural Resources, Turkey
Turkey opened its energy industry to the private sector as part of an overall shift toward a market economy in 2001, and, in that context, liberalization and restructuring studies in the energy sector were initiated. Prior to 2001, several models including BOT (Build-Operate-Transfer), BOO (Build-Own-Operate) and TOOR (Transfer of Operating Rights) were implemented to increase private-sector participation in the power sector. Since 2001 under the Electricity Market Law state-owned companies are allowed to finish ongoing construction of power plants and can continue to intervene and build additional new power generation plants if there is a threat to security of supply. As a result of the new law, the private sector has commissioned significant new generation capacity. In particular, new renewables-based generation has been built with support provided by the Renewables Law enacted in 2005. Figure 1 shows the different new generation capacity built since 2002.
As shown in Figure 1, during 2002–2015, 41.3 GW of new capacity were commissioned, mostly built by the private sector. Turkey has become increasingly reliant on private-sector power generation investments. In 2002, electricity generation by the private sector made up 40% of Turkey’s total, compared to 79% by the end of 2015.
The compound annual growth rate (CAGR) of installed capacity during the same period was 6.6%, and was 5.5% for electricity demand. Due to this difference, low wholesale prices, and increased renewable energy capacity in recent years, some domestic coal-fired and natural gas-fired power plants are unable to sell their electricity into the market.
During the 2002–2015 period, 8.6 GW of coal-fired power plants were commissioned with nearly 6 GW of that using imported coal. Coal’s share in the generation mix increased from 24.8% to 29.1%, whereas the share of domestic coal dramatically decreased from 23.7% to 13.8% in the same period (see Figure 2).1 To improve energy supply security, the Ministry of Energy and Natural Resources (MENR) has set a goal to increase the utilization of domestic coal in the energy sector.
In 2014 Turkey’s net energy imports were approximately 75% of total primary energy needs. Primary energy production in 2014 was 31 million tonnes of oil equivalent (Mtoe), compared to 24 Mtoe in 2002. Since 2002, there has been a 28% increase with the share of domestic primary energy production decreasing from 31.6% to 25.1%. In contrast, over the same period the share of domestic coal (lignite, domestic hard coal, and asphaltite) in primary energy production increased from 46.9% to 52.7%.2
Figure 3 depicts the increase in lignite production since 1973; however, it is still low compared to the level of reserves in Turkey (see Table 1). Due to the development and utilization of natural gas in the late 1990s, lignite production decreased until 2004; since then private-sector involvement has resulted in an increase.
Since 1973 hard coal production in Turkey has been decreasing (see Figure 4). In 2004, after the allowance of the private sector in hard coal fields by the TTK, hard coal production trended upward, but subsequently began decreasing again and was only 1.4 million tonnes in 2015.2 Hard coal imports, however, have been increasing steadily since 1980 and exceeded 33 million tonnes in 2015, with an increasing number of coal-fired power plants relying on imported coal. Figure 5 indicates the breakdown of hard coal imports by country.3
With regard to the electricity sector, as of June 2016 the total capacity of coal-fired power plants in operation is 16.6 GW, 9.8 GW of which is domestic coal-fired (see Table 2).3
According to the January 2016 “Progress Report” of the Energy Market Regulatory Authority (EMRA),4 13 coal-fired power plants are under construction with a total capacity of 8.2 GW, of which 2.1 GW will be domestic coal-fired.
Coal, especially domestic coal, has a great importance for MENR and the Turkish government. Although Turkey is not rich in oil and natural gas reserves, MENR believes that import dependency can be decreased by increasing the share of domestic coal and renewables. In several official documents, the government has set targets for increasing the utilization of coal.
For example, Turkey’s High Planning Council (headed by the Prime Minister) endorsed the “Electricity Market and Security of Supply Strategy Paper” in May 2009.5 Electricity generation and capacity targets were set, by sources, to 2023. Regarding coal and hydro, the document calls for all known lignite, hard coal, and hydro resources to be utilized for electricity generation by 2023. For wind and geothermal capacity, the targets were set as 20 GW and 0.6 GW, respectively. Additionally, the document sets target shares of 30% for renewables and for gas and at least 5% for nuclear in electricity generation.
The government’s Tenth Development Plan6 (2014–2018) sets a target of 60 billion kWh of electricity generation from domestic coal by 2018, compared to the 39 billion kWh generated in 2012. Moreover, the plan has 25 Priority Transformation Programs targeting several sectors. One is the Domestic Resource Based Energy Production Program (1.13), which includes the following elements:
- Developing and implementing a special financing method to utilize coal reserves in large coal basins, such as Afşin-Elbistan and Konya-Karapinar
- Transferring the major fields to private sector
- Identifying new coal reserves by accelerating exploration activities
- Focusing on R&D activities that increase the quality of domestic coals or increase their calorific values
- Monitoring and, if needed, updating incentive programs regarding investments in domestic coal-fired power plants
- Rehabilitating lignite-fired thermal power plants owned by the state
MENR’s Strategic Plan (2015–2019) sets similar targets for the utilization of domestic coal.7
INVESTMENT INCENTIVE PROGRAM
Since 2012, the Investment Incentive Program has been active in Turkey. Designed to achieve Turkey’s 2023 vision as well as to advance the production and export-oriented growth strategy, the program supports investments through four different incentive schemes: general, regional, large-scale, and strategic.
Coal exploration, coal production, and domestic coal-fired power plant investments are eligible to apply in the general and regional investment incentive schemes, and are recognized as priority investments. Regardless of the province of the investment, such investments are supported with the 5th Region incentives, under the regional investment incentive scheme.
INCENTIVES UNDER THE RECENTLY PASSED LEGISLATION
The Turkish government introduced a new law in June 2016 to encourage the utilization of domestic coal. A new financial model aims to decrease the bureaucratic processes and speed up investments in the energy sector.
The first step in the new model is to establish related companies for each large-scale coal area belonging to EUAS or TKI. The first company established was Çayirhan Energy and Mining Corporation (ÇEMPAS Co.), which is part of EUAS. The Çayirhan region has ~250 million tonnes of lignite reserves suitable for a ~800-MW capacity power plant.
All the necessary expropriation, Environmental Impact Assessment, zoning approval, and other required procedures will be undertaken by ÇEMPAS Co. A power purchase agreement (PPA) has been signed between ÇEMPAS Co. and EUAS for 15 years. ÇEMPAS Co. will then be privatized by a tender by the end of 2016. The bidding will start from US$72/MWh, the bidder with the lowest price in US$/MWh will win the tender. The tender is expected to identify a suitable bidder that will develop the mine, build the coal-fired power station, and operate it.
The new legislation also aims to further incentivize use of domestic coal. Turkish Electricity Wholesale and Contracting Co. (TETAS), a state-owned enterprise, has long-term PPA contracts with BOT, BOO, and TOOR types of power plants. Moreover, TETAS purchases all the electricity produced by EUAS and sells it to distribution companies, which in turn sell it to end users. If TETAS needs additional electricity to meet its obligations, it can purchase electricity from domestic coal-fired power plants by tender. The Council of Ministers (CoM) decided that TETAS may purchase up to 6 billion kWh of electricity by tender in 2016 and 18 billion kWh of electricity in 2017 with the price of 185 TL/MWh (~US$60/MWh). Under this decision, TETAS announced a tender in August, and has started purchasing electricity from domestic coal-fired power plants.
The share of coal-fired power plants using imported coal has been increasing steadily compared to those using domestic coal. This can be attributed to several reasons, such as lower cost and higher calorific value. In August 2016 the CoM decided to slow down imported coal-fired power plant investments by setting a purchase limit of US$70 per ton of imported coal used for power generation. If an investor purchases imported coal less than a price of US$70/ton, they must l pay the difference to the Ministry of Economy as a tax. However, if they purchase the coal for over US$70/ton then no tax is applicable.
CHALLENGES TO INVESTMENTS
The Turkish government aims to increase the share of domestic coal in the electricity mix. According to MENR’s unofficial target, the envisaged electricity generation mix will be 30% renewables, 30% coal (half will be domestic coal), 30% natural gas, and 10% nuclear. Although the government has taken several significant steps, it will not be easy to achieve its targets, especially for coal, due to both national and international developments.
For example, the State Council requested an overall Environmental Impact Assessment for imported coal-fired power plants located in the eastern Mediterranean region of Turkey. The rationale was that these plants are located in close proximity and the government wanted to better understand the possible environmental effects and impacts of the power plants to the region.
In addition, after COP21 and the resulting Paris Agreement, business as usual for fossil fuel-based power plants, including those in Turkey, is unlikely. Turkey signed the Paris Agreement in April 2016. According to its Intended Nationally Determined Contribution (INDC),8 70.2% of the total emissions expressed in CO2 equivalent (CO2e) are generated by the energy sector. The INDC is aiming for a 21% reduction in greenhouse gas (GHG) emissions from a business-as-usual scenario by 2030 (from 1.175 million tonnes to 929 million tonnes of CO2e). Achieving that target will require 10 GW solar and 16 GW wind capacity, utilizing all hydro potential (around 36 GW), and commissioning a nuclear power plant (4.8 GW) by 2030. The separate goal of increasing the share of domestic coal will make the INDC target even more difficult to achieve and will require renewable investments to be implemented without delay.
Since 2013 the OECD export credit committees have been reviewing export credit rules for coal-fired power plants. As a result, a program was introduced in November 2015 with new rules for official support of coal-fired power plants, including restrictions on official export credits for the least efficient coal-fired power plants.9
There are many challenges to coal-fired power plant investment in Turkey. The government’s current policy seeks to provide a stable investment environment to increase domestic coal production and utilization, thus securing the country’s supply of energy. In the medium term, the share of coal is expected to reach 30%, which is currently around 20% in terms of installed capacity. In this way, the system will be reinforced and baseload needs will be fulfilled, providing the delivery of both sufficient and good-quality electricity to consumers.
- A. All the comments and the opinions in this article are the author’s and do not reflect the official opinion of the Republic of Turkey Ministry of Energy and Natural Resources.
- Turkish Electricity Transmission Corporation (TEIAS). (2015). Electricity generation & transmission statistics of Turkey, www.teias.gov.tr/T%C3%BCrkiyeElektrik%C4%B0statistikleri/istatistik2014/istatistik2014.htm
- Ministry of Energy and Natural Resources, Directorate General for Energy Affairs, Republic of Turkey. (2015). Energy balance sheets, www.eigm.gov.tr/en-US/Balance-Sheets
- Turkish Coal Enterprise (TKI). (2015). Coal (lignite) sector report [in Turkish], p. 33.
- Energy Market Regulatory Authority (EMRA). (2016). Progress report of licensed electricity generation projects [in Turkish], www.epdk.org.tr/TR/Dokumanlar/Elektrik/Lisanslar
- High Planning Council Decision. (2009). Electricity market and security of supply strategy paper, www.eigm.gov.tr/File/?path=ROOT%2f4%2fDocuments%2fEnerji%20Politikası%2fElectricity%20Market%20and%20Security%20of%20Supply%20Strategy%20Paper.pdf
- Ministry of Development, Republic of Turkey. (2014). The Tenth Development Plan 2014–2018, www.mod.gov.tr/Lists/RecentPublications/Attachments/75/The%20Tenth%20Development%20Plan%20(2014-2018).pdf
- Ministry of Energy and Natural Resources, Republic of Turkey. (2015, 17 February). Strategic plan 2015–2019, www.enerji.gov.tr/en-US/Strategic-Plan
- UN Framework Convention on Climate Change. (2016). Republic of Turkey Intended Nationally Determined Contribution, www4.unfccc.int/submissions/INDC/Published%20Documents/Turkey/1/The_INDC_of_TURKEY_v.15.19.30.pdf
- Organisation for Economic Co-operation and Development (OECD). (2015, 18 November). Statement from participants to the Arrangement on Officially Supported Export Credits, www.oecd.org/newsroom/statement-from-participants-to-the-arrangement-on-officially-supported-export-credits.htm
The author can be reached at firstname.lastname@example.org.
The content in Cornerstone does not necessarily reflect the views of the World Coal Association or its members.
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