LONDON — With its dependence on imported fuels and electricity demand growth topping 7 percent per year, Turkey is increasingly turning to development of its domestic resources to meet demand. Coupled with its favorable geography, these factors have seen a swathe of hydropower development.
Indeed, benefitting from its mountainous landscape and position between three seas, Turkey has a significant hydropower capacity, estimated at some 433 TWh a year in total, of which some 140 TWh a year is thought economically viable. To put this in context, according to Turkish Electricity Transmission Corporation figures electricity demand is expected to reach around 420 TWh annually by 2020.
At an average elevation of 1,100 meters above sea level, with the Euphrates and Tigris River basins sitting at around 1,300 meters, there is ample head available for development in a number of regions, including the area around the Black Sea, the Mediterranean, and Eastern Anatolia.
Given that the geography provides considerable opportunity for hydropower development, it was only following measures to privatize the national electricity system, which began in 2003, that the exploitation of this huge resource began to accelerate. Today, though some 60 percent of the country’s hydropower potential remains undeveloped, Turkey has more than 500 hydropower plants operating with a combined capacity of more than 15 GW. Further the country has more than 15 GW of hydropower capacity currently under construction.
Turkish Energy Policy Landscape
Despite the considerable development of Turkey’s abundant hydropower and other renewable resources, the country’s energy mix is still dominated by fossil fuels. Currently, gas supplies around a third of the country’s total primary energy demand, while coal and oil products provide 27 percent and 29 percent, respectively. Much of the country’s oil and gas comes by way of imports from Iran and Russia. Hydropower, wind, and other renewables produce around 17 percent of Turkey’s electricity supply.
However, in a bid to bring down the share of natural gas to less than 30 percent of total energy supply, the government has introduced policies aimed at diversifying the energy supply by supporting domestic sources in particular. As part of this policy, renewables, including hydropower, have been the beneficiaries of feed-in tariffs to encourage their development. In the case of hydropower projects beginning operations before the end of 2015, the feed-in tariff is US $0.073/kWh (€0.056/kWh) with an additional “local-content” bonus of US $0.01-0.023/kWh (€0.007-0.018/kWh) which is payable for 10 years. The local content bonus is available for five years.
Other reforms centered on the liberalized electricity market, accelerated private investment in Turkey’s energy sector and by 2012, independent power producers were supplying some 26 TWh of energy annually. In addition, the government established a target to deliver 30 percent of its primary energy demand from renewables by 2023.
In other examples of supportive policy measures, the Energy Market Regulatory Agency (EMRA) has instituted a license fee exemption for renewable energy investors and the Turkish Electricity Trading Company, TETAS, can provide buying guarantees to renewable energy, further supporting inward investment.
Didier Mallieu, Vice President of Hydropower and Renewable Energy at engineering consultancy firm Poyry, explained that Turkish companies spearheaded the post-liberalization development drive. He said that there is significant engineering capability in Turkey and that those engineering firms teamed up with mainly Western European companies to jointly develop and finance hydropower projects. “Many players in the European market, many European utilities, were interested in acquiring projects or assets in Turkey two, three, four years ago,” he said.
However, he added that given the scale of this development — he estimated that around 70 GW of new power generating capacity was under construction in Turkey — “we see a little bit of slowdown for the moment in new projects and some are being put on hold.”
This is partly a result of a more challenging finance market, he explained, adding that the classic buyers or developers of those assets, the European utilities, are experiencing difficulties themselves. Mallieu also noted that the easiest projects have been developed already. “What remains is a bit more difficult to develop and probably requires a higher market price to be economical, this could be why we see a slowdown of the Turkish market for new hydropower plant.”
Mallieu said that the slowdown is “typical of the transition to deregulated electricity market, where investors’ most important risk is the building of overcapacity. Therefore, investors might have the tendency to postpone investments until they are certain that the capacity additions are in line with demand growth.”
Further, he said that, “such a phenomenon is partly mitigated in Turkey by the cancellation of power plant licenses which are now not going forward. The high volatility between various electricity generation scenarios might represent risks, but for sure also potential opportunities, maybe huge opportunities.”
Mallieu highlighted other factors that are influencing new Turkish hydropower development. For example, along with setting ambitious renewable energy targets the government is also looking to develop other low-carbon resources, such as nuclear, with plans for nuclear power to supply some 5 percent of the country’s electricity supply, some 5 GW.
Within the renewables sector, hydropower is also competing for investment with technologies such as wind and solar, which inevitably require far less up-front capital investment and typically have a far shorter development and ROI period too.
Said Mallieu: “There is a trend of the Turkish government to go towards new or other sources of energy, like wind or PV, which could be funded by Feed-in Tariffs, they’re still low, but also the costs of developing projects in Turkey are low because of the good contractors. It’s cheap to develop a project compared to Western Europe, so it’s [a choice] between those nice projects with secured income from Feed-in Tariffs and those more demanding [hydropower] projects.”
Nonetheless, Mallieu stressed that the slowdown is not a reflection of market fundamentals: “The basics of the country are good. A deficit in energy and a high growth, well balanced between domestic and industrial demand, [it’s] very well positioned [with] many neighbors that also need electricity. Recent interconnection with the European grid, which is under fast progress and almost fully achieved, is also a strong asset for Turkey.”
An Attractive Country for Development of Hydro
Hydroelectric power facilities were first developed in the region in 1935, and their development increased steadily until 1974, when the rapid growth in natural gas generation shifted the focus away from hydroelectric power development. Currently, 22.8 percent of all electricity generated in the country comes from hydropower, according to data from the International Energy Agency.
Turkey has 478 installed hydropower plants located in 69 provinces throughout the country, with a total installed capacity of 15.1 GW. Of these, 12.6 GW of capacity come from hydro plants and dams that impound reservoirs, and 2.5 GW are from run-of-river projects, according to the IEA. There are 534 plants currently being planned, with 160 of those under construction at around 15 GW of capacity.
A primary draw for investors interested in developing Turkish hydro is the high energy cost in the country. The consumer price of electricity in domestic markets alternates between US $0.16 and 0.17/kWh (varies based on time of day), which reduces the repayment period on the investment. The regional advantages, supportive political environment, and opportunities for exporting energy are all positives.
Beyond the high power prices the region offers experienced and reputable engineering and consulting companies, with the capacity to investigate potential sites, perform feasibility studies, design infrastructure tailored to the area, prepare bidding documents and offer site supervision services. The low-cost labor force and large portfolio of civil and mechanical engineers working in the field of hydropower in Turkey have been attractive to investors and developers alike, as have the ease of communication, money transfers, and international banking systems. All the civil works construction materials and goods can be provided from within the province where the project is being developed or from nearby provinces, thus decreasing shipping costs during construction.
Hydropower Development Activity Continues to Flourish
Norwegian utility Statkraft is due to complete construction on the 102-MW Kargi hydropower plant in Corum province in northern Turkey in early 2015. With an estimated annual average production of 467 GWh, the power plant will utilize a 75-meter elevation difference in Turkey’s longest river, the Kizilirmak and will feature a 13-meter-high earth dam. Statkraft has also started the construction of its third and largest hydropower plant in Turkey. With a total installed capacity of 517 MW, Cetin will deliver some 1.4 TWh annually. It is the largest of three projects purchased by Statkraft in 2009. Statkraft’s first power plant in Turkey, the 20-MW Çakit began commercial operations in June 2010. When Çetin is completed, Statkraft will have a total installed capacity of about 640 MW.
Meanwhile on the equipment side, Alstom has 2 GW of projects under execution, having provided key components for more than 9.5 GW of Turkey’s installed hydro capacity, among them Turkey’s largest hydropower plant, the 2,400-MW Ataturk plant in Sanliurfa, southeastern Turkey, which was commissioned in 1992.
The largest hydropower project currently underway in Turkey is the 1200-MW Ilisu Dam, part of the Southeastern Anatolian Project (GAP) on the Tigris. It will create a reservoir with a volume of 10.4 m³ and a surface area of 313 km² and is expected to produce 3,800 GWh a year.
Similarly, the 540-MW Yusufeli Dam will be built on the Chorakhi (Çoruh) River located in the eastern Black Sea region. It is expected to produce 1,705 GWh a year.
And in January 2014 Russian hydro turbine manufacturer Power Machines OJSC signed a contract with Turkish company DSI to provide equipment for the 140-MW Kigi project. Commissioning of the plant, located in Turkey’s Elazig province, is expected in 2016.
Around a year ago Andritz Hydro won a contract to supply, install and commission three generators for the 636 MW Upper Kelekoy hydropower project in a deal worth about US$40.5 million.
Being developed by the Kalehan Enerji consortium on Turkey’s Murat River, Voith Hydro is to supply three 202-MW Francis turbines for the project.
Poyry’s Mallieu concluded: “So far the hydropower market has been growing fast and is open to international investors with Turkish partners. In terms of opening the electricity market in Turkey, it was probably a front-runner because of this and that was supported by an excellent domestic industry allowing for quick and cheap development of hydropower schemes on their huge resources.”
Mallieu said that he thinks the Turkish hydro market will see some changes in the coming years. “The economic situation of usual investors and the change in the balance in electricity mix will probably produce a slow-down in the market for new projects for the next few years,” he said. “The liberalization and acquisition of some state-owned projects by private investors or the change in hands of some projects will lead to a market for rehabilitation and repowering and upgrading of existing schemes. We expect the pumping storage market to possibly develop in the country too.”
This article was originally published in the September/October issue of HRW – Hydro Review Worldwide and was reprinted with permission.
The Keban Dam by Heinz it up 57 at en.wikipedia