Energy sector development in Turkey
Turkey is a fast-growing economy with rapidly increasing energy demand. However, by implementing a variety of interlinked measures, the country’s energy reforms have provided the needed energy security. Among others, these measures include the development of legislation regarding electricity, gas, renewable energy, and energy efficiency; the establishment of an energy sector regulatory authority; energy price reform; the creation of a functional electricity market and large-scale introduction of natural gas; the restructuring of state-owned energy enterprises; and large-scale private sector participation through privatization and new investment.
This resulted in the development of an electricity market with more than 800 and the commissioning of 31 000 MW of market-based, private-sector power generation capacity between 2001 and 2014. Additionally, between 2008 and 2013, investors took over the entire power distribution system. Another important achievement was the installation of 16 000 MW renewable generation capacity over the 2001-2014 period, which was facilitated by an adequate regulatory framework.
According to a report by the Investment Office of the Presidency of the Republic of Turkey, within the last 17 years the country’s primary energy supply has increased two-fold – from 78,4 Mtoe to 155 Mtoe. Turkey’s growing economic performance has also influenced the country’s electricity generation infrastructure – the total installed capacity rose from 31,8 GW to 88,5 GW, and the electricity consumption – from 132,6 TWh to 305,5 TWh as of the end of 2018. In order to satisfy the increasing demand in the country, the current capacity is expected to reach 110 GW by 2023 through further investments to be commissioned by the private sector as underlined in the 11th Development Plan for 2019-2023.
The successful privatization and liberalization program, which started in 2002, has given all of the power distribution assets and 78% of the power generation assets to the private sector, thus creating revenues of USD 23 billion for the Treasury. Over the same period, about USD 100 billion worth of new public and private investments were completed in the form of power generation, transmission, and distribution assets. Due to the privatization of electricity generation assets and the strategy to clear the way for more private investments, the share of private entities in electricity generation increased from 40% in 2002 to 85% in 2018. The Energy Exchange Istanbul (EXIST), which manages and operates energy markets, including power and gas commodities, was established in 2013 under the strategy to increase liberalization and competition in the market.
Thanks to Turkey’s prominent economic performance, combined with the liberalization efforts, the country also attracted around USD 209 billion of foreign direct investments (FDI) between 2002 and 2018, of which about USD 18 billion flowed into the energy sector. In 2018, investors carried out merger and acquisition (M&A) activities across various sectors with a total deal volume of about USD 12 billion through 256 deals, with the energy industry standing among the leading sectors in terms of M&A transaction volume with USD 400 million.
Turkey is a net energy importer country, with imports satisfying 73% of the country’s energy demand. In 2018, the energy import bill amounted to USD 42,99 billion, rising by nearly 15,6% compared to 2017. However, over the years, the bills depict a significant downward trend given the considerable decline from USD 60,1 billion in 2012 to USD 37,2 billion in 2017. The formulation and implementation of new policies and investment models to commission local and renewable energy resources are mainly propelled by Turkey’s import dependence.
Another priority in the field is the utilization of local coal reserves in line with the environmental standards for electricity generation as an instrument to increase localization. This will be achieved thanks to a new tender mechanism based on transfer of coal reserves to the private sector with the obligation of building and operating coal-fired power plants in the vicinity. Turkey’s significant coal reserves total 17,3 billion tonnes and are composed of mostly lignite, with the main coal reserves located in Kangal, Orhaneli, Tufanbeyli, Soma, Tuncbilek, Seyitomer, Can, Mugla, Cayirhan, Afsin-Elbistan, Karapinar, Tekirdag, Alpu, and Afyonkarahisar. The Afsin-Elbistan field alone has 4,8 billion tonnes of lignite resources, which accounts for a 28% share of Turkey’s total lignite reserves. The Investment Office of the Presidency of the Republic of Turkey informs that the fields to be tendered in reverse-auctions bear 6,4 GW of installed generation capacity potential.
Turkey has a significant potential for renewable energy generation, and utilization of this potential has been on the rise over the last decade. According to the Investment Office of the Presidency of the Republic of Turkey’s report, as of the end 2018, hydro, wind, and solar resources constituted the vast majority of the country’s renewable energy resources, accounting respectively for 28,29 GW, 7,01 GW, and 5,07 GW of the total installed capacity. In the effort to promote localization, the Turkish government has prioritised the increase of the renewables share to 30%, with geothermal installed capacity to be 3 GW by 2023, as well as to have 16 GW of installed capacity in solar and wind each by 2027. The government has also designed various investment models such as unlicensed (small-scale), licensed (medium-scale), and YEKA (large-scale) models, which address different types of investors and are encouraged by lucrative incentive instruments. The main objective of these models is to create a favourable investment environment to strengthen renewables’ position in the market beyond the 2020s.
A record high electricity generation from renewables was registered in 2019. According to data from Turkey’s Electricity Transmission Corporation (TEIAS) last year also saw a daily record in wind electricity generation (19% of total power on September 15). During the first 10 months of 2019 Turkey produced 46% of its electricity from renewable resources, which represented a steady monthly increase. Local and renewable energy resources combined reached a total share of 64% in electricity production in the January-October period of 2019, marking a record high level, data published by Turkey’s Ministry of Energy and Natural Resources shows. These figures ensured that the country achieved its goal of producing two-thirds of its electricity in the short-term from local and renewable resources.
Experts from SHURA Energy Transition Center believe that a primary concern in the renewable sector now is the impact of the COVID-19 crisis. For example, the energy sector awaits two auctions that were initially expected to take place in 2020, which could be postponed to 2021. The first is the mini renewable energy resource zone (YEKA) auctions for solar photovoltaic systems. The second is the pre-license auctions for wind power in October. In order to provide a market signal to investors, it will be of key importance for these two auctions to go ahead as planned. The future of YEKAs that are planned to be based on Turkish lira and the new renewable energy support mechanism (YEKDEM) is still uncertain.
In 2019 Turkey has taken vital steps to realize the country’s first nuclear power plant (NPP) project, Akkuyu, which has an operational date for the first reactor set for 2023. A cooperation agreement, which aimed to ensure competent safety standards are implemented during the plant’s development was, signed by the project company of Akkuyu Nuclear and French engineering group Assystem. March 2019 saw the completion of the laying of the foundation for the first reactor of the nuclear power plant. In August 2019 Russia’s state-owned banking and financial services company Sberbank said it would provide a USD 400 million loan for the construction of Akkuyu nuclear power station.
In July 2020 Akkuyu Nuclear announced that the installation of the second tier of the reactor building’s internal containment has been completed at the Power Unit 1 of the plant. Internal containment is one of the critical components of the power unit’s safety systems, which prevent release of radioactive materials to the environment. The Russian-designed power units are being constructed not only in Turkey, but also in other countries including Belarus, China, Egypt, etc. The project, located on the southern coast of Turkey in Mersin province, is expected to be up and running at full capacity by 2025. It will consist of four VVER-1200 power units with a total installed capacity of 4800 MW.
Turkey’s natural gas sector has also been steadily improving. In order to increase security of supply and seasonal gas send-out capacity, in 2018 the country commissioned two Floating Storage Regasification Unit (FSRU) terminals and started up the first phase of the Tuz Golu (Salt Lake) Natural Gas Storage Facility. Another goal of these investments is to expand Turkey’s gas storage capacity to 11 bcm by 2023, up from its current capacity of 4 bcm.
As a crossroads between major energy consumers and suppliers, Turkey occupies a strategic location that serves as a regional energy hub. The existing and planned oil/gas pipelines, the critical Turkish straits, and promising finds of hydrocarbon reserves around Turkey allow for increased leverage over regional projects and reinforce the country’s gateway status.
Some of the biggest energy projects in the region saw their realization in 2019. At the end of the year the Turkish and Azeri presidents inaugurated the Trans Anatolian Natural Gas Pipeline Project (TANAP) European link. The USD 7 billion TANAP project, stretching from the Turkish-Georgian border to the Turkish-Greek border, was officially launched in June 2018. It is expected to annually deliver 6 bcm of Azeri gas to Turkey and 10 bcm to Europe per year. The pipeline passes through 20 provinces and 67 districts of Turkey.
In January 2020 a grand opening ceremony for the TurkStream gas pipeline took place. The project, which is laid in the Black Sea, is a link between the gas transmission systems of Russia and Turkey. The gas pipeline has two strings with a combined throughput capacity of 31,5 bcm. The first string will deliver gas to Turkey, while the second string is intended for gas transit to southern and south-eastern Europe through Turkish territory. The pipelaying took 15 months and was completed ahead of schedule in November 2018. The construction of the receiving terminal near the Kiyikoy settlement in Turkey was finished in 2019. The starting point for feeding gas into TurkStream is the Russkaya compressor station (CS), which forms part of Russia’s Unified Gas Supply System and is located near Anapa. With a capacity of 224 MW, the CS maintains the pressure required for transmitting gas along the pipeline’s two strings through more than 930 km up to the Turkish coast where gas enters the receiving terminal.
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