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Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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Turkey’s Big Electricity Plans

Turkey’s booming economy is the envy of its Middle Eastern and European neighbors. No less an authority than the World Bank noted, “Turkey is one of the largest middle-income partners of the World Bank Group (WBG).  With a Gross Domestic Product (GDP) of $735 billion, Turkey is the 18th largest economy in the world. In less than a decade, per capita income in the country has nearly tripled and now exceeds $10,000. Although economic growth was slowed by the onset of the global economic crisis in 2008, it has nonetheless remained resilient - making Turkey an example from which other countries in the region can learn.”

Key to maintaining that growth is energy, specifically the country’s electrical sector, where the government is making a determined push to increase the country’s electricity production. On 5 September Turkish Energy Minister Taner Y?ld?z announced that the country had brought 131 new power plants online since the beginning of 2013, which added 4,100 megawatts to the national grid.

The cost of this accomplishment?

$6 billion.

In a written statement Y?ld?z noted, “Turkey’s installed power capacity reached 61,151 megawatts in August 2013, a 10.4 percent increase compared to the same period of the previous year… This is good, but what is better is that there was a six-fold increase in the share of the installed power from local and renewable sources in one year.”

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Key to these accomplishments were the economic reforms of the country’s electrical sector, begun more than a decade ago.

In March 2001 the Turkish government enacted an Electricity Market Law, providing for the liberalization of power generation and distribution activities by reforming the state-owned Turkish Electricity Generation and Transmission Corp. TEAS was split into separate generation, transmission, distribution, and trade companies, with the ultimate goal being privatization of the country’s electrical generation and trading companies. Subsidies were removed to allow retail tariffs to incorporate the actual costs of electrical generation, transmission, and distribution. The law also established the Energy Markets Regulatory Authority to regulate the electricity market by issuing licenses for all fiscal activities related to the electricity market, setting and approving regulated tariffs and participating in drafting legislation affecting electricity sales.

Accordingly, the state portion of the country’s electrical market continues to shrink. The state-owned Electricity Generation Company (EUAS) still controls about half of all electrical generation in Turkey, but now the private sector controls the remainder. The Turkish Electricity Transmission Company (TEIAS) is the publicly owned enterprise that owns and operates the country’s transmission system.

Y?ld?z was explicit in his remarks that the government would continue to seek private investment into the country’s booming electrical sector, commenting, “While the share of the private sector in power generation was just 34 percent 10 years ago, its share rose to 62 percent this year.”

But not everything is going swimmingly in Turkey’s power generation sector. Last month Abu Dhabi National Energy Co. (TAQA), 75 percent owned by the government of Abu Dhabi, announced that it may shelve a $12 billion power project in Turkey amid a deteriorating economic outlook and increasingly difficult financing conditions. In January TAQA announced an agreement with EUAS to construct several electrical power plants using lignite coal reserves in Turkey’s Afsin-Elbistan region, but the low quality of the lignite raised concerns.

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The project was further battered by a recession market sell-off that plummeted Turkey’s currency to record lows, lowering Turkey’s growth outlook and raising TAQA concerns about the possibility of further capital outflows. A Turkey power source analyst, speaking on condition of anonymity said, “What we have been picking up from them recently is that they are looking at an eventual pullout. This was such a large-scale project, whose future was very much dependent on market conditions.” Another source added, “It was never realistic to see this project as something that one company alone could carry out ... Now with the changing climate toward emerging markets and Turkey, investors question the return.” Putting a positive spin on events, TAQA said it had decided to defer the investment decision in Afsin-Elbistan until 2014, citing “other spending priorities.”

Developing the country’s indigenous energy sources is a high priority for Ankara, and the Afsin-Elbistan region holds about 4.4 billion tons of lignite, around 40 percent of Turkey’s total reserves, and could provide up to 8,000 megawatts of power production capacity in southeast Turkey, if the coal’s potential was fully exploited, according to the Turkish energy ministry.
Construction of the TAQA project was originally scheduled to start in mid-2013 and was intended produce a combined power generation capacity of up to 7,000 megawatts.

Looks like Afsin-Elbistan’s development is going to have to wait a little longer.

By. John C.K Daly of Oilprice.com

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