Seminario Ambiente Energia Intervento Bulak

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GENERAL OVERVIEW OF THE ENERGY SECTOR IN TURKEY TURKISH-ITALIAN ECONOMY CONGRESS The Meeting on Energy and Environment June 07-09, 2006 - Italy Süleyman BULAK Vice Chairman of Turkish Cogeneration Association


1. INTRODUCTION Located in southeast Europe and southwest Asia, Turkey has a population of about 70 million and has a surface area of 779,500 km2. Agriculture represents 12% of GDP (Gross Domestic Product), with 40% of the population working in this sector; industry represents 30% of GDP and services 58%. The Turkish economy has experienced an average annual growth of 5% for the past 20 years, although in 2000 and 2001 the country suffered a severe financial crisis. The State, which traditionally played a major role in the economy, is gradually implementing reforms aimed at decreasing its role in the country’s economics. During the last financial crises in 2000 and 2001, the Government has restructured The Turkish Economy, signed a stand by agreement with International Monetary Funds (IMF) and reorganised privatization process. Thanks to these radical measures, Turkey’s growth in economy reached 6.5% in 2003 and 9.9% in 2004(world record for 2004). Energy demand has grown constantly since 1973. Energy intensity has remained constant, which is unusual in OECD countries, where there has been a considerable decline in energy intensity from the 1970s to the 1990s. Energy intensity is higher than the OECD average for GDP measured at market prices, but similar if purchasing power parity is taken into account.


The only indigenous energy resources available in significant quantity in Turkey are hydro and lignite. The Country is very dependent on foreign energy imports. In 2002 the degree of dependence was 65%, in 2004 this dependency has risen up to 72%. According to projections from the Ministry of Energy and Natural Resources (MENR) this figure is expected to increase to 80% by 2020. Electricity demand is also expected to experience considerable growth, from 133 TWh in 2002 to 150 TWh in 2004 and to 566 TWh in 2020 (according to MENR), the increase being covered mainly by natural gas-fired generation. Country’s electricity production was 149 TWh in 2004. The expected growth in demand requires massive investment. In the electricity sector alone estimated investments are 3 to 4 billion USD (excluding transmission and distribution) per year. The Turkish government is not in a position to finance the required investments through public funds and encouraging private investment. If such finance source is provided by private sector, approximately 6.0% average growth in demand can be met in next 15 years. Turkey's strategic location makes it a natural “Energy Bridge" between major oil producing areas in the Middle East and Caspian Sea regions on one hand, and consumer markets in Europe on the other. Turkey's port of Ceyhan is an important outlet both for current Iraqi oil exports as well as for potential future Caspian oil exports. Turkey's Bosporus Straits are a major shipping "choke point" between the Black and Mediterranean Seas.


Turkey’s geographical situation is also supporting the security of the natural gas supply to the Country and export to the neighbours. Transbalkan Pipeline (14.0 bcm), Blue-Stream Pipelines (16.0 bcm), Iran-Turkey Pipeline (10.0 bcm) and LNG Terminal in Eregli (5.0 bcm) provide the security of natural gas sources. In 2001, the Turkish Parliament passed the electricity liberalization law and natural gas market law aimed at ending the Public Monopoly in the energy sector, and also geared towards attracting foreign energy investments. Since 2003, Liberal Electricity Market is in operation and controlled by Electricity Market Regulatory Authority (EMRA). Cogeneration in Turkey has been developing steadily and accounts for 17.6% of the Country’s electricity production, a share that is set to increase, as more industrial companies become autoproducers.




BALANCE OF POWER GENERATION / DEMAND (YEAR 2005 ) Total Installed Capacity MW 37.000 · Thermal MW 24.000 (% 65) · Hydraulic MW 13.000 (% 35) Power Production GWh 151.000 · Thermal GWh 105.000 (%69,5) · Hydraulic GWh 46.000 (%30,5 ) · Wind GWh 55 Exported Electricty GWh 1000 Total Electricity Comsumption in Turkey GWh 150.000 2. STATISTICS


2. STATISTICS In 2004, installed generation capacity was 37.2 GWe in Turkey. This capacity is corresponding to 192.000 GWh reliable electricity generation, while the total electricity demand in 2004 was 149.000 GWh. If 10% of this capacity is assumed to be spinning reserve of the system, remaining 15% of the surplus capacity in the electricity production can be considered a cold stand by capacity to meet the growing demand of the next 2 years. In 2004, 40% the electricity production is generated by gas fired plants (combined cycle and cogeneration), 30% hydropower plants, 23% by coal + lignite power plants, remaining 7% by oil + LPG fired plants. If the same production is divided upon the power producing entities: EUAS (Public Utility Comp.) : 45.36% Autoproducers + IPP : 17.58% Other Private BOT and BOO Operators : 34.43% Transfer of Operation Rights (TOOR) : 2.63% In the same year, electricity export was 1106 GWh while import was 463 GWh.




(Table -1) is pointing out the following facts : ·The power investments which are under processing (planned, approved , in the construction , in the commissioning) are sufficient only in meeting power demand up to year 2009. After 2009, Turkey will have to import the electricity again, if the necessary IPP investment are not kicked off at latest up to year 2006. Because the finance arrangement + engineering + construction of a medium size power plant takes at least 3 years. ·After year 2009 , at least 4000 Mw per year new power capacity will have to be added to the National Grid. The small scale cogeneration plants can not meet such big demand.


Character of Turkish National Grid Geographic factors and split of energy sources are important considerations in context of distrubuting the power generating capacity in Turkey. At present , most generating capacities (both lignite and hydro plants) are situated in the east of Turkey, whereas the major consuming centers are in the west. As a result , Turkey has transmitted surplus generation from the East to the West. 70 of the total power generation is being consumed in developed regions in the west ( Istanbul, Izmit, Bursa, Izmir). The greatest part of this power is transmitted from eastern part of Turkey, by 380 kV power transmission lines. All other cities are getting power from 154 kV transmission lines which were constructed many years ago. Furthermore, to exploit fully indigenous hydro and lignite resources in the East, additional high voltage transmission lignes would also be required to transport electricity to the centres of demand, adding a further cost burden to TEIAS ( Turkish Electricity Transmission CO.).


3. LEGAL FRAMEWORK of TURKISH ENERGY SECTOR The regulatory framework for and the structure of the electricity sector are in the process of significant change, aimed at liberalisation and progressive withdrawal of the state from potentially competitive segments, specifically generation and distribution/retail. This vision is broadly in line with EU policies and is intended to harmonise the Turkish framework with the EU Electricity Directives. 3.1 Turkish Energy Policy The most important target for the Turkish government is to meet energy demand in a secure, timely, economic and environmentally manner. The main instruments to achieve this are: Upgrading energy supply security; Diversifying energy sources; Optimising assessment and use in priority the indigenous energy sources; Promoting energy efficiency; Decreasing energy intensity; Harmonise with the EU acquis; Apply the preventive principle in environmental policy.


3.2. Electricity Market Law The Electricity Market Law (No. 4628) was enacted in March 2001. It was based on the EU Electricity Directive dated 1996, with the negligible deviations. The purpose of this Law is to ensure the development of a financially sound and transparent electricity market operating in a competitive environment under provisions of civil law and the delivery of sufficient, good quality, low cost and environment-friendly electricity to consumers and to ensure the autonomous regulation and supervision of this market. The scope of this law covers generation, transmission, distribution, wholesale, retailing and retailing services, import, export of electricity; rights and obligations of all real persons and legal entities directly involved in these activities; establishment of Energy Market Regulatory Authority and determination of operating principles of this authority; and the methods to be employed for privatization of electricity generation and distribution assets.


Roles of the State-owned Companies The shift to a liberalised market will obviously have consequences for the State-owned companies which currently dominate the energy sector. In the electricity sector, TEAS has been unbundled into 3 separate companies: ·The Electricity Generation Company (EUAS) – EUAS is to take over TEAS’s generation facilities and be responsible for developing new public generation facilities, although the ultimate objective is the privatisaiton of EUAS’s facilities. EUAS will continue to sell the electricity it generates to TETAS, the State wholesale company, for a period to be decided by the Board of not more than 5 years; ·The Turkish Electricity Transmission Company ( TEIAS) – TEIAS will have a monopoly for all transmission activity, will provide transmission and connection services on a non discriminatory basis and have key role in market planning; and ·The Turkish Electricity Trading and Contracting Company ( TETAS )— As mentioned , the State wholesale company which will take on TEAS and TEDAS’s existing sale and purchase agreements, primarily purchasing electricity from EUAS.


According to the new tendency of decentralization,the electricity must be generated at the locations which are closer to the consumption centres. That’s why the Autoproduction facilities implemented by factory owners are developing very fast. As of today ,almost 45% of the electricity is being generated by EÜAS ( Turkish National utility CO. ). The remaining 55% by private power companies. As far as distribution system is concerned, this system is constructed and being operated by TEDAS ( Turkish Electricity Distribution Company ). TEDAS, as a State Own Enterprise, has subdivided the Turkey’s distribution network into 13 regional ( district ) grid and started to transfer , the opearational rights of these distribution systems to local private companies. Privatization of these regional distribution companies are under processing now.


3.3 An Autoproducer and Autoproducer Group An Autoproducer and Autoproducer Group shall be entitled to sell a certain percentage (not exceeding twenty percent in any case) to be determined by the Board of the electricity it has generated in a calendar year within a competitive environment. The Board, under extraordinary circumstances, can increase this percentage by half of the original ratio. In case the amount of the electricity sold in a calendar year exceeds the percentage set by the Board, the autoproducer or autoproducer group shall be obligated to obtain a generation license. The procedures and principles regarding the activities of autoproducers and autoproducer groups, the nature of their sales to their affiliates and sales of the electricity generation surpluses shall be governed by the regulations to be issued.


3.4 Legal entities to be engaged in Transmission Activities The Turkish Electricity Transmission Co. Inc shall conduct the electricity transmission activities. Turkish Electricity Transmission Co. Inc. shall be responsible for taking over all transmission facilities owned by the public, developing transmission investment plans for the proposed new transmission facilities and building and operating new transmission facilities. Turkish Electricity Transmission Co. Inc. shall also prepare, revise and inspect the transmission, connection and use of system tariffs that are subject to the Board approval and shall perform load dispatch and frequency control, carry out substitution and capacity expansion activities in the transmission system, monitor real-time system reliability, purchase and provide ancillary services under the provisions of ancillary services agreements. 3.5 Legal entities to be engaged in distribution activities The electricity distribution activities shall be performed by distribution companies in areas indicated in their respective licenses. Distribution companies owning and/or operating distribution facilities in the areas specified in their licenses shall carry out renewal, replacement and capacity expansion investments for these facilities and provide non-discriminatory electricity distribution and connection services to all system users including eligible consumers connected and/or to be connected to the distribution system within a period of time to be specified by regulations in accordance with the terms and provisions of their distribution licenses and the distribution code.


3.6. Generation License: Generation license shall mean the license to be obtained from the Authority by generation companies for existing or future generation facilities, in order to be engaged in generation of electricity and sale of electricity generated. The procedures and principles on obtaining a generation license is shall be specified in regulations to be issued. Excluding the autoproducers and autoproducer groups, real persons or legal entities, those generate electricity only to meet their own requirements in accordance with the regulations to be issued and do not operate in parallel to the transmission and distribution systems, shall not be subject to licensing. 3.7 Distribution License The distribution license shall mean the license to be obtained from the Authority by all legal entities in order to engage in distribution activities in a specified region. In addition to distribution and retail sale activities, private sector distribution companies shall be entitled to construct generation facilities in the region specified in their licenses provided that they obtain a generation license and that the amount of the annual electricity generated by them do not exceed 20 percent of the total amount of electricity offered for consumption in the relevant region within the previous year.


3.8 Energy Market Regulatory Authority An independent, administratively and financially autonomous public institution, namely the Energy Market Regulatory Authority, is hereby established to perform the duties assigned to it by this law. The Authority shall be responsible for issuing Board-approved licenses that set forth the activities to which the legal entities shall be entitled and the rights and obligations arising from such activities; regulation of existing contracts within the scope of transfer of operating rights as per the provisions of this Law; monitoring market performance; drafting, amending, enforcing and auditing the performance standards and distribution and customer services codes; setting out the pricing principles indicated in this Law; setting out the pricing principles to be employed for electricity sale to non-eligible consumers with regard to the market conditions; enforcing and auditing the formulae regarding the modification of such prices due to inflation; and ensuring the conformity of the market behaviour with the provisions of this Law.


3.9 Natural Gas Market Law The Natural Gas Market Law (No. 4646) was enacted in April 2001. In Turkey the Authority of the engineering, construction and operations of oil and natural gas network was given to BOTAS by the law. BOTAS is a state owned corporation. All gas purchasing contracts with suppliers (Russia, Algeria, Iran, Azerbaijan) have been signed, by BOTAS. These are the contracts with “take or pay” obligation. BOTAS has almost completed the Country’s gas transmission network. At 2001, Free Gas Market Law No: 4646 is enacted by Turkish Parliament. According to subject law; BOTAS has to hand over the gas purchasing contracts to private gas importers until year 2009. Thus, the market share of BOTAS will be reduced down to 20%. Nowadays, international tender is announced by BOTAS to hand over 80% of existing contracts.


4. ENERGY MARKETS In accordance with the Strategy document, privatisation in the energy sector will be started with the distribution sector. As for privatisation in the generation sector, the privatisation process is due to start in July 2006, by which time, all hydropower stations will have come under the ownership of state-owned EUAS while “portfolio production companies” will be created by September 2005, in preparation of privatisation. 4.1 Electricity Market The electricity sector in Turkey was dominated by two state-owned companies – the Turkish Electricity Generation and Transmission Company (TEAS) and the Turkish Electricity Distribution Company (TEDAS). Further structural separation of TEAS into three separate companies covering generation, trading and transmission activities was implemented on October 1, 2001 by a Decree, one of the early steps in the present liberalisation plan. The companies are: TEIAS for transmission, EUAS for generation and TETAS for trading. Private participation in the sector has been relatively limited. Private generators, which either own a plant or have operation rights of a plant owned by EUAS, account for 7% of capacity and autoproducers (typically cogenerators) account for around 12% of capacity. “Electrification” of Turkey is now effectively complete with 99.9% of the population with access to the distribution grid in 2000.


4.2 Market Opening 15% of the market is open. 65 private and 122 public generation (already in operation); 1 public transmission; 8 public distribution; 6 private and 1 public wholesale companies; 247 private autoproducers are licensed. Another 290 new applications are under review at the end of 2004. It is decided that, 21 distribution regions will be formed according to the recent electricity sector strategy paper. All HV Transmission Lines remains in the possession of TEIAS. Regulated tariffs in the electricity market are the Transmission tariff, Distribution tariff, Retail tariff and Wholesale tariff of Turkish Electricity and Contracting Company. Regulated third party access: bilateral contracts between electricity suppliers and eligible consumers. Eligibility threshold is set by the Energy Market Regulatory Board. (7.8 million kWh) Generation plants can only be privately owned since 1984 (Law No. 3096). Nevertheless the first autoproducer started operating in 1992 only. Since that date, the share of electricity generated by autoproducers has risen sharply. As of end of 2004, the share of state utility company (EUAS) was 45.36% the rest of (54.64%) belongs to private Producers (Autoproducers + IPP 17.58%; BOT and BOO Operators 34.43%; TOOR 2.63%)


4.3 Import / Export of Electricity Up to 2001, Turkey was not self sufficient in meeting its electricity demand with its domestic production. Shortage was met by imported electricity (form Bulgaria and Russia). In year 2001 Free Electricity Market Law was enacted. In year 2002 and 2003 giant BOO plants were put in operation one by one (total capacity of 6.000 MW). Consequently, electricity importing Turkey, became an electricity exporting country to its neighbour countries. At the end of 2004, Turkey had 6.000 MW stand by capacity which is corresponding to 42.600GWh. This surplus electricity the wholesale operates to export electricity with the competitive prices. Now Turkey started to export electricity to Iraq and Azerbaijan. The capacity of interconnecting transmission lines between Iraq, Turkey and Greece will be extended in 2005. After transmission capacity increase, energy interchange between Turkey and our neighbours is expected to reach to 10.000 GWh in 2006 and 20.000 GWh in 2007.


5. GAS MARKET According to the OECD, the framework established by the new Gas Market Law No 4646, particularly the requirement of divesture of gas by BOTAS, has a strong chance of fostering a competitive gas market in Turkey within a reasonable number of years. 5.1 Natural Gas Demand Turkey consumed 22.0 Bcm of natural gas (nearly all imported) in 2004, up from 4.3 Bcm consumed in 1991. In 2003, the Turkish power sector accounted for about 65% of total Turkish gas demand, with the industrial and residential sectors accounting for 19% and 14%, respectively (fertilizer production took the remaining 2%). Prior to Turkey's severe economic problems (plus price deregulation moves) in 2001, Turkish natural gas demand had been projected to increase very rapidly in coming years, with the prime consumers expected to be natural-gas-fired electric power plants and industrial users. Now, however, state natural gas and pipeline company BOTAS has revised its natural gas demand growth projections down sharply based on Turkey's economic problems, from about 45.0 Bcm) in 2005 to under 25.0 Bcm in that year, a 45% downward revision.


5.2 Natural Gas Imports The 0.6 Bcm of natural gas that was produced in Turkey in 2004 could meet only 3.8% of domestic consumption. The rest was imported either by pipelines or as liquefied natural gas (LNG). Turkey's natural gas consumption is expected to grow rapidly, quadrupling within the next 20 years, with 55.0 Bcm gas consumption projected for the year 2020. Getting this capacity by domestic production would require USD 4.5 billion in foreign investment over about the next 20 years. Presently, the largest share of Turkey's imported natural gas comes from Russia (30 Bcm contract ceiling), much of it via the newly-completed Blue Stream Pipeline, which will provide Turkey with 16.0 Bcm of gas over the life of a 25-year agreement that began in 2002. However, Turkey is trying to diversify its sources, and is considering Turkmenistan, Uzbekistan, Egypt, Nigeria, Iraq, and Iran as possible sources. Under a 25-year deal signed in 1996, Turkey plans to buy up to 10 Bcm of natural gas per year from Iran through 2007. In December 2001, gas deliveries from Iran finally began, after repeated delays. Blue Stream has been made by Italian ENI - Gas Prom Joint Venture. Tending Price is 3.5 billion US$.


5.3 BOTAS Privatisation In 2001, the Turkish parliament passed the gas law (n°4646) which will eventually lead to the privatisation of most of BOTAS, the state-owned natural gas company. By 2009, the law would split BOTAS into separate units for gas importation, transport, storage, and distribution. Eventually, all the units except transport would be privatized. The plan is to sell off 10% of the BOTAS market share each year, leaving only 20% at the end. 5.4 Choice of Supplier – Eligibility Consumers with an annual consumption of more than 1 million cubic meters, gas-fired electricity generators and cogenerators (eligible consumers) have been free to choose their Gas Supplier since May 2002. The EMRA has the power to broaden the class of eligible consumers over time. Sales by importers or wholesalers to free customers or to distribution companies are at negotiated prices. However, as of early 2005, electricity market price waas appr. lower than TEDAS selling price to industrial consumers (approximately 9.0 UScent/kWh).


5.5 Natural Gas Export Up to 1995, natural gas supply could not meet the growing demand of the Market. To secure long-term gas supply to industrial consumers, BOTAS signed many gas purchasing contracts, so much that their annual capacities reached up to 67.8 BCM/year. This capacity can meet, acoording to long term forecast, Country’s gas requirement even for 2020. Therefore, nowadays, a considerable surplus appeared in gas supply. Now, BOTAS is searching the options to export the surplus gas to south-eastern Europe. For this purpose, an interconnecting gas pipeline from Turkey to Greece is agreed to be constructed. The subject pipeline is under construction now. The below map (Figure 7.) shows planned gas routes to Balkan and Middle European Countries.


6. COGENERATION SECTOR TODAY Today we see that the 6700MW Cogeneration Plant of the Independent Electricity Generators has been established. 1000MW of this is a simple cycle 5700MW cogeneration. After the commissioning of the first private cogeneration plant, that is 4MW for Yalova Elyaf in 1992, the total capacity evolution of the cogeneration plants was as follows.


Graphic 1. Total Capacity Development of the Cogeneration Facilities in Turkey


Autoproductor or Groups Being Operated in Turkey: 178 Total Capacity: 3500MW Electricity Generation Companies Operated: 56 Total Established Power of Electricity Generation Companies : 3200MW Total Established Power of Independent Electricy Producers : 6700MW (exluding hydro-power and wind) The Amount of Electricity Generated by these facilities in 2005: 28.000GWh Electricity that can be generated with 8000 hours of operation per year : 53.600GWh Capacity usage in 2005: 52% Availability rate in 2005 for these facilities : 9% RESULT ALTHOUGH THE COGENERATION FACILITIES WERE 95% AVAILABLE THROUGHOUT THE YEAR, THEY HAVE BEEN ABLE TO USE ONLY 52% OF THEIR CAPACITIES.




PREFERRED TYPE OF COMBUSTION TURBINES IN THE COGENERATION AND COMBINED CYCLE PLANTS The biggest CT supplier in Turkey is General Electric (GE). GE supplied 34 heavy duty, 33 Aero derivative combustion turbines, 26 Jenbacher type engine and 11 steam turbines. Their total capacity is reaching 6160 MW. (Appr. % 20 of the total installed capacity in TURKEY). Total 3625 MW capacity was sold to Independent Power Producers, 2336 MW capacity to Autoproducers, 200 MW to EUAS (State owned power generating company). Besides, in the power generation market, 82 units of Turbomach, 24 units of Alstom-Siemens, 2 units of Dale, 2 units of Turbo meca and 3 units of Kawasaki were sold. Appr. 10 % of the CT’s market belongs to the other suppliers. PREFERRED TYPE OF GAS ENGINES IN THE COGENERATION PLANTS The biggest Gas Engine supplier in Turkey is Wartsila. Wartsila has reached 1000MW cogeneration plant capacity in various sectors. The market share of Wartsila is 50%. The other suppliers are Caterpillar (25%), GE Jenbacher (%20). Appr. 5 % of the Gas engine’s market belongs to the other suppliers.


6.2 ENVIRONMENTAL ISSUES   Cogeneration technology reduces CO2 emission. Therefore, a 50 MW cogeneration plant (appr. With 60 % of cycle efficiency) can generate only 225 gr/CO2 per kwh. This figure is respectively low, compared to lignite fired plant (600-800 gr/kwh), oil fired plant (500-600 gr/kWh), combined cycle plant (350-400gr/kwh). TURKEY’s carbon emissions have risen in line with country’s energy consumption. Since 1980, TURKEY’s energy related carbon emissions have jumped from 18 million metric tons annually to 55 million metric tons in 2000. However, this figure is law in absolute terms compared to other European countries. But the fact is that the rate of increase is rapid. In 2000, the energy sector was responsible for 34% of total domestic CO2 emissions, compared to 32 % coming from industry and 17% from the transportation sector.


Agriculture and housing sector accounting for most of the remaining 16 % share. Projections to 2020 indicate that the relative shares of each sector will remain rather stable, although energy sector CO2 emissions are expected to surge to 41% of total CO2 emissions in Turkey. A 2004 study carried out by Turkish Cogeneration Association showed that, further CO2 emission reductions of up to 9.5 million tonnes a year are possible through investments in new high efficiency cogeneration systems. Per capita CO2 emissions in TURKEY is 2,6 metric tons, whilest it is 20,2 metric tons in U.S. (10 times higher). We understend why U.S. does not sign the KYOTO protocol. But we can not understand why TUKEY is hesitating to sign KYOTO committments. However Turkey ratified the United Nations Framework Convention on Climate Change (UNFCCC) on 24th May . The Promotion of the Cogeneration systems are providing a very strong support in fulfilling to meet at least EU standards.


As the Turkish Cogeneration Association, we have issued a “Draft Law” similar to the High Efficiency Cogeneration Directives implemented in the EU for 2 years, and submitted for approval to the Ministry of Energy and Natural Resources. With the efforts from the Ministry of Energy and Natural Resources, we will both revive the High Efficiency Cogeneation Investments and we will have complied with the implementation of the Cogenertion Directive that the European Union will be asking from us anyway.

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