June 1, 2009

Turkey Opens Electricity Markets as Demand Grows

James McKeigue, Agostina Da Cunha, and Daniela Severino

Dash for Gas

Today, gas-fired plants (Figure 3) account for almost 50% of Turkey’s electricity generation, while hard coal and lignite fuel 21% of power production, according to MENR estimates.

3. Gas fuels half. Natural gas fuels nearly half of the power generated in Turkey. The Adana Combined Cycle plant uses a General Electric Frame 6 gas turbine. Courtesy: Enerjisa

On a macro-economic level this increasing dependence on natural gas to produce electricity increases Turkey’s exposure to volatile gas prices and supply disruptions. The rapid rise in gas prices in the first half of 2008, for example, caused Turkey’s budget deficit to significantly increase, according to Oxford Business Group. Such increases had even worse effects before the creation of the balancing and settlement mechanism; in June 2006 Ak Enerji had to close two gas-fired plants because of high natural gas costs. "One successful aspect of the balancing and settlement mechanism has been that it has allowed generators to pass on fuel costs more effectively to the market," said Ahmet Danisman, CEO of Ak Enerji.

The Politics of Fuel Supplies

On a geopolitical level, Turkey’s dependence on natural gas gives its two major suppliers, Russia and Iran, political leverage over Turkey. Indeed, the success of a Russian company in the recent tender for building and operating Turkey’s first nuclear plant was attacked by the local press for placing even more energy security under Russian control.

Furthermore, both Russia and Iran have unreliable track records as suppliers. Russia supplies 67% of Turkey’s imported gas through the Blue Stream pipeline, which runs under the Black Sea, and the Trans-Balkan pipeline, according to the U.S. Energy Information Administration (EIA). Russia’s almost yearly disputes with Ukraine have had a ripple effect on the Trans-Balkan region and reduced Turkish supplies in the region around the capital, Ankara.

Meanwhile, Turkey’s second-most-important supplier, Iran, regularly cites inclement weather as a reason to cut gas exports to Turkey, the most recent instance being in 2008. Work on the Iran-Turkey pipeline was also stopped due to attacks from the Kurdish separatist movement, the PKK.

Diversifying Gas Supplies

The government is looking to resolve these supply issues by investing heavily in infrastructure for transporting and storing gas. One project currently being constructed with World Bank support is a massive storage facility beneath a large salt lake that lies south of Ankara (Figure 4).

4. Conduit country. Turkey’s location makes it a natural conduit between the gas-rich countries of the East and high-demand markets of the West. Planned infrastructure projects will increase the security and availability of gas for Turkish power plants. Source: EIA

Another is Nabucco, a €7.2 billion, 2,000-mile pipeline project that plans to offer Europe an alternative to Russian energy by providing gas from Azerbaijan and Turkmenistan. This complex project is currently bogged down in a quagmire of regulations and political intrigue, but the Turks have already made it clear that if they are to be part of this or any similar pipeline, they will not only participate as a transit country but will also take their share of the resources.

Much of the demand for improved gas infrastructure is linked to gas’s rising popularity as a direct fuel for cars, cooking, and heating in Turkey. But gas-fired electricity generation will also benefit from these developments, as they will create a more secure supply of gas.

With a stable fuel supply, gas-fired power plants have many advantages that mean that they are likely to remain the most common form of power generation in Turkey for some time. Gas-fired plants have lower capital costs than nuclear or large hydro projects, a quality that is especially important in the current credit climate. Another benefit is that gas-fired plants take less time to build than hydro or nuclear plants. They can also be built close to the load, unlike nuclear or hydro, and their modular functionality allows them to operate efficiently at different power outputs.

These benefits are helping gas-plant investors to secure financing even in these troubled times. Ece Ertac, the managing director of Sinerji, a financial consultancy that focuses on power projects, explained: "We recently arranged the finance for a gas-fired plant. It is more difficult at the moment because banks are not willing to give long-term loans so investors need to inject more equity — but it is possible."

Carbon-Limited Options

Bearing in mind these advantages, perhaps the most serious objection to using more gas for electricity generation is environmental. Although gas-fired plants are a lot cleaner than their coal counterparts, and developments in combined-cycle technologies have improved their efficiencies, there is still the problem of CO₂ emissions. Turkey’s EU membership ambitions and recent signing of the Kyoto Protocol have put it under increased pressure to reduce its greenhouse gas (GHG) emissions (see sidebar).

Rich in Coal

Turkey’s other thermal option, coal, has even worse environmental consequences. In addition to CO₂, coal-fired plants create fly ash, nitrogen oxide, and sulfur dioxide. Turkey has two types of coal that can be sourced locally: brown coal, or lignite, and anthracite, a hard coal. Turkey is rich in lignite, with 10.3 billion tonnes of proven reserves, but it has a limited supply of approximately 1.3 billion tonnes of anthracite, according to MENR.

Lignite is a low-grade coal with high amounts of carbon (25% to 35%), ash (6% to 19%), and moisture (reaching 66%). These qualities can make controlling the emissions of lignite-fired plants particularly challenging (Figure 5). If Turkey wishes to exploit its vast reserves of lignite without damaging its environmental and international agreements, it will have to employ modern coal-firing technology with extensive emissions control systems.

5. Fueled by Turkish lignite. The lignite-fired Cayirhan Power Plant, located in Ankara, has four units, 2 x 150 MW and 2 x 160 MW. Courtesy: Türkiye Müteahhitler Birligi

Unfortunately, Turkey does not have a good record when it comes to lignite-fired generation. The country’s biggest plant is the pulverized coal – firing 2,800-MW Afsin Elbistan plant in southeast Turkey (Figure 6). Unit A began operating in 1983 and Unit B in 2006. Unit A has attracted criticism as none of its flue stacks has a desulphurization unit, while its electrostatic precipitator system cannot handle the amounts of coal required when the plant is firing at full capacity. Furthermore, there is no fly ash dam facility at the plant, and the ash is stacked in an open dump, where it can be blown into surrounding areas by strong winds.

6. Controversial coal plant. The Afsin Elbistan-B Power Plant is a 4 x 360-MW lignite-fired plant located in Kahramanmaras. The plant entered service in 2006. Courtesy: Skoda Export

MENR has offered tenders for the rehabilitation of Unit A and for the additional construction of two more units, but it eventually cancelled the tenders, citing a combination of technical and economic reasons. The Afsin Elbistan case has frustrated proponents of coal-fired generation in Turkey because it has tarnished the industry’s image. "I oversaw the construction and operation of Afsin Elbistan unit A and the problems it now has stem from a lack of investment in operation and maintenance and rehabilitation in recent years," said Hema Enerji project coordinator Emin Kirecci.

Kirecci is currently overseeing the construction of a 1,100-MW coal-fired plant in Amasra, west Turkey, that will use hard coal. This plant is using supercritical technology to increase its efficiency and lower CO₂ emissions, while de-NO_x units will dramatically cut the amount of nitrogen oxide that escapes into the environment. Desulfurization units are also being employed to remove sulfur dioxide. The 135-MW Hema Plant is using fluidized bed technology to reduce NO_x and SO_x.

"Turkey has to utilize its coal resources, therefore it is down to private sector companies to build modern, efficient and environmentally friendly plants to provide cheap, clean, and domestically produced energy," added Kirecci.