In the coming days, we will be seeing new developments in Turkey’s energy markets and should therefore make upfront predictions to develop appropriate strategies. We have very serious problems in our natural gas supply. Even if we do not have any political friction with Ukraine or Russia, in the days when temperatures drop below -5 °C our natural gas demand will not be met. There are optimistic expectations that this shortage may be made up by gas being supplied from Azerbaijan’s Shah Deniz-2, Israeli offshore fields, or Northern Iraq, however these prospects have not yet been secured with contracts. In these difficult times, in an overly complicated geography, these optimistic expectations represent nothing more than “wishful thinking”, as we cannot plan for the future based on such loose conditions.
Our installed electricity generation capacity has reached 68,000 MWe, but the peak (maximum) output does not exceed 40,000 MWe. While we have had a limited number of new thermal power plant ventures in recent years, more will be needed to fulfill our rising energy demand and this will take some time.
Currently, we have a host of power plant ventures which initiated their investments in the year 2007 or earlier. While opportune investments in wind and geothermal power plants have increased, recently, no new ventures to construct thermal power plants have been seen. The most recent thermal power plant projects, under construction in Tufanbeyli, Göynük, Adularia, and Iskenderun, are expected to be commissioned in 2015 at the latest. Besides these, there are no other new thermal power plant projects in the works.
Our hydro-electric power plants have all but stopped operating. In general, most dam reservoirs are only half-full because of the lack of rainfall that we have received in recent years. During and after the winter season, we may see an increase in precipitation that could replenish the reservoirs of our hydro-electric dams, but it is unsure if these accumulations will be enough to produce substantial amounts of electricity.
There are new natural gas-firing combined cycle thermal power plant ventures, but there is not enough natural gas to fuel them nor any contracts that ensure the inflow of gas. Moreover, we do not yet have the free market conditions or the legal assurances that could safeguard the system.
One can enact as many rules and regulations as they like, but in the long term this will not secure a necessary supply of gas. Gas prices should not be subsidized by public funds. The cost of natural gas increased between 2005 and 2007, whereas electricity prices stayed constant between 2002 and 2007 by way of subsidization. This has posed difficulty for private players in the energy market.
Shell Corporation has initiated 2 separate drillings in our country to explore for shale-gas, at a cost of 40 million US dollars each. The third well is awaiting the approval to commence drilling. Optimistic estimates predict that there are about 1.8 trillion cubic meters worth of shale gas reserves in South East Anatolia, so, considering that our current annual gas demand is around 45 billion cubic meters, such a discovery would meet our needs for at least the next 40 years. However, for this to become a reality we would need to make substantial investments in drilling. This brings up the question of who would pay for such an expenditure.
Over the last 10 years, public companies were unable to make any investments in the energy sector. Public institutions have promoted and encouraged only local and foreign investors to fund projects. Public institutions have tried to avoid any legal responsibility, and have not agreed to guarantee any purchases when it comes to energy sales. They have opted to avoid the assumption of any legal, contractual, and financial responsibility. While it is necessary for the country to invest more in energy generation, there is simply no easy money to do so. In this case, both local and foreign investors have serious concerns as to the reliability of the investment environment.
Old local coal-fired thermal power plants were sold due to privatization, however, their availabilities are low, they are operationally inefficient, and they possess equipment that is not conducive to environmental protection including low quality electrostatic precipitators. Furthermore, most of them have no flue gas desulphurization units. Such plants require costly rehabilitation, or even complete replacement. Yet, they are legally exempt from rehabilitation and can continue operating until 2018 without any upgrades. Here, while this exemption was actually overturned by judicial decree, the new ruling is not enforced. This has led to a situation in which the plants will continue to operate as they have before until a new legal measure is implemented. In this way, the old, existing coal-fired thermal power plants continue to pollute the environment without the use of newer, better, and bigger environmental equipment. To top it off, there is also the possibility that this exemption status could be extended for an additional 3 year years.
The construction of new thermal power plants continues, namely, the Diler 600-1200 MW, Cen-AL 1200 MW, Biga 1200 MW, Şırnak 405 MW, Soma 450 MW, Kırıkkale 800 MW, Bandırma 920 MW and some other small 400 MW plants.
Most hydroelectric power plants, such as the controversial Ilisu 1,200 MW Dam and the Kalehan 300 MW Dam, plus some other 3-5 GW projects, should come on line within the next few years. New ventures in wind energy that will produce a total of 500 MW per year for the next 4 years may also begin operations soon.
Most of these new power plant ventures were actually initiated long ago and they are just now beginning to come closer to commencing operations. Now, the construction and equipment procurement of these projects are in their advanced stages within the financial markets, despite the setbacks which may have been experienced.
Within the next 4 to 5 years, new solar plants with capacities of 1-3 GW can also begin to contribute to meeting the predicted peak electricity demands during the summer months.
With a combined average capacity of 10-13 GW, new solar power plants may be introduced within the next 3 to 4 years. After this we should also consider nuclear power plants. Investment financing in this sector is dependent on the social and political climate. According to the newly released “Medium Term Economic Program”, Turkey’s growth rate is expected to fall to 4.5% per year, and an annual increase in energy demand will be readjusted accordingly.
When it comes to the natural gas supply, if we have no failings in domestic transmission, if the Ukraine-Russia crisis does not escalate, and if there are no technical capacity issues at the Russian points of entry, then we may consider new contracts to purchase extra gas from Russia. European gas consumption is predicted to decline by at least 10%, and as a result, natural gas prices will inevitably decline to levels that are most likely less than 240 US dollars per thousand cubic meters, whereas the current price is hovering around 400 US dollars per thousand cubic meters. This situation means that for Russia any additional gas sale in the future will be a very valuable gain.
In the Elbistan coal fields, each plant has four units that are capable of producing 350 MWe each. The Afşin-A plant is running only one unit at a 240 MWe capacity. Afşin-B plant has only two units running at full capacity. Here, the other units are down. They need rehabilitation, maintenance, or even complete replacement. For the rehabilitation of these units, a new tender for engineering consultation has been released which will take some time to complete. The Çöllolar coal field is closed due to a past land slide which occurred in the mine. The Hurman Creek, which passes through coal field, will be equipped with a new artificial river bed. Operations to dewater the coal field are currently underway.
New ventures that seek to exploit the Elbistan C-D-E coal fields are underway. Site visits, feasibility studies, and the drawing up of preliminary contracts have been carried out by Chinese, South Korean, Japanese, and Qatari investment groups. An investment budget of around 12 billion US dollars is being discussed. The public side should also participate in these stages of the project to help shoulder the risks to these groups’ investments.
The new Afşin power plants in the Elbistan coal fields will face 4 major risks that the public sector should take major initiative to address. These are: the artificialization of the river bed, replacement and removal of existing power lines away from the coal field, land expropriation and resettlement of the local population, and construction of new dams to meet the plants’ water needs. These efforts are to be within the scope of public enterprises as private entities are incapable of addressing issues of this scale.
Alternately, the price of imported coal on the international market has dropped to FOB 60-70 US dollars per metric ton, which corresponds to approximately 2.40-2.50 US dollars per MMBTU. In the past, this price hovered in the range of 80-90 US dollars per metric ton, and even climbed to 160 US dollars at one point. This development shows that investment in the sector comes with its own inherent risks.
Nonetheless, the local price of coal is stable in the long run, at around 2.00-2.50 US dollars per metric ton at mine mouth delivery. The fluctuations in these prices are limited at best.
We may also want to consider the production of synthetic gas from low quality underground coal mines. While its calorific value is 1/4 or 1/5 that of natural gas, at around 1500-2500 kcal HHV per thousand cubic meter, syn gas is more environmentally friendly compared to coal. In this regard, a couple of pilot field test plants are being constructed at Soma-A and Tuncbilek.
All in all, with these developments in mind, we have serious problems facing our local energy markets as it is proving more and more difficult to meet the ever-increasing energy demand that is so vital for our economic and social development.
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