Overview of the current energy mix, and the place in the market of different energy sources
The energy sector is one of the most promising and developing sectors in the Turkish economy. Turkey has become one of the fastest-growing energy markets in the world, in parallel with its economic growth recorded over the last 10 years. The Turkish energy market has become a competitive market structure by attracting private sector investments. The energy market is in a rapid growth and liberalisation process with privatisation, licensing deals and strategic alliances in the market. This privatisation programme has given the country's energy sector a highly competitive structure and new horizons for growth.
As per the Ministry of Energy and Natural Resources ("Ministry") data, according to energy sources, the number of existing plants in Turkey is as follows:
- 613 hydraulic;
- 40 coal;
- 186 wind;
- 33 geothermal;
- 288 natural gas;
- 1,773 solar; and
- 165 other power plants.
Electricity production in Turkey is realised with liquid fuels such as natural gas, hydroelectric, coal and lignite, imported coal, wind, motor and fuel oil, geothermal, biogas and solar energy according to the production share. Turkey produces its electricity mainly from thermal sources (coal, natural gas and other sources). One quarter of the generated electricity of Turkey comes from hydraulic sources and only 8% from renewable sources. According to government reports, electricity consumption is expected to rise by 5.5% to 357.4 TWh by the year 2023. By the end of July 2017, power plants representing a total of 2,049 MW additional capacity were added to the system, and as of the end of February 2018, capacity had risen to around 86,114.9 MW.
In July 2017, 34% of Turkish electricity production was obtained from natural gas; 31% from coal; 24% from hydropower; 6% from wind; 2% from geothermal; and 3% from other sources. In terms of ownership, as at the end of July 2017, EUAS (State Electricity Generating Company) had a share of 25.1% in installed capacity of Turkey; 61.5% was provided by the private sector; 7.6% was of a build-operate model; 1.7% of a build-operate-transfer model; and 2% of power plants were unlicensed.
By the end of July 2017, the distribution of installed power by resources was as follows: 33.6% hydraulic; 28.1% natural gas; 21.5% coal; 7.7% wind; 1.1% geothermal; and 7.4% other sources. According to data from the Turkish Electricity Transmission Corporation (TEİAŞ), as of the end of July 2017, the number of electricity energy production plants in Turkey was 3,098.
As of the end of 2017, figures for licensed and unlicensed installed power, peak demand, licensed and unlicensed electricity generation, consumption, import and export are shown below, together with the values of recent years.
Licensed and Unlicensed Installed Power, Peak Demand, Licensed and Unlicensed Electricity Generation, Consumption, Import and Export Data
|Unit||2014||2015||2016||Change (%)2015→2016||2017||Change (%)2016→2017|
|Licensed Installed Power||MW||69,520||73,146.90||77,563.44||6.04||81,563.32||5.16|
|Unlicensed Installed Power||MW||29.99||359.04||1,048.21||191.95||3,173.32||202.74|
As seen in the table, consumption and licensed production in 2017 increased by 5.24% and 7.34%, respectively compared to 2016, while peak demand and licensed capacity increased by 6.54% and 5.16%, respectively. Unlicensed installed power and production values increased by 202.74% and 166.42%, respectively.
The total established solar collector area within Turkey as of 2017 was calculated as being close to 20,000,000m2. As of the end of 2017, there were 3,616 solar power plants with a total installed capacity of 3,421 MW. This is the equivalent of 4% of total potential. In 2017, electricity production based on solar energy realised 2,684 GWh, and 0.91% of our electricity production was obtained from solar energy.
The land surface area of Turkey is nearly 800,000 km². There are many investments both in Turkey and the rest of the world, with increasing scales of wind energy, which is one of the most important renewable energy sources. The installed power of licensed wind power plants in Turkey was 6,353 MW by the end of October 2017. Turkey has 48,000 MW of wind energy potential and the total area corresponding to this potential is equivalent to 1.3% of Turkey's surface. These ratios represent a very advantageous geography for the efficient use of wind energy.
Turkey has approximately 1,000 geothermal springs that are located all over the country and have various temperatures. As of the end of 2017, there were 40 geothermal power plants with a total installed capacity of 1,064 MW. In 2017, electricity production based on geothermal energy realised 5,970 GWh and 2.02% of our electricity production was obtained from geothermal energy.
The import ratio of Turkey's natural gas, which is one of its most important sources of electricity production, is 99%. In natural gas, which seriously affects the dependency ratio of energy imports, 80 trillion cubic metres (43%) of total reserves are located in the Middle East; 54 trillion cubic metres (29%) of total reserves are located in the countries of Russia and the Commonwealth of Independent States; and 30 trillion cubic metres (16%) of total reserves are located in Africa/Asia-Pacific countries.
When we analyse the first nine months of 2017 in terms of imports, production, exports and consumption figures, it can be seen that the import ratio has increased by 20.33%. Consumption values increased by 17.67%, while the production rate decreased to 3.8% and export rate to 9.6%.
As per the data of the end of October 2017, installed electricity power provided by natural gas was 23,259 MW and 28.3%. In this context, installed power for electricity generation by natural gas does not show any significant difference compared to last year; due to climate and precipitation conditions, the share of electricity production increased significantly in the last months of the year.
Natural Gas Generation for the years 2008–2017 (Million Cm3)
With a share of 34% in electricity generation, hydroelectric power plants are important because it is an environmentally friendly, clean, renewable, high-efficiency, non-fuel-expense, long-lasting, domestic source of energy with low operating costs, which is not outsourced. The hydroelectric potential of our country is 1% of the world's total and 16% of Europe's total. However, the fact that hydroelectric power plants are a production method depending on meteorological conditions may sometimes cause problems. For example, the production of electricity obtained from hydropower plants throughout Turkey in October 2017 amounted to only 2,350 GWh due to low occupancy rates of barrages. By the end of October 2017, the share of total hydroelectric energy from streamed and barraged power plants in electricity production was 33%.
The Turkish government plans to increase the share of renewable sources in Turkey's total installed power to 30% by 2023. Turkey's targets for 2023 include:
- 34,000 MW capacity of hydro power plants;
- 20,000 MW capacity of wind power plants;
- minimum 5,000 MW of solar power plants;
- minimum 1,000 MWe geothermal energy; and
- 1,000 MWe installed capacity for biomass energy.
According to Ministry data, the power capacity of the energy sources of coal, natural gas and hydraulic do not change much over time. Installed power capacities of other thermal energy sources decreased about 5% from 2002 to 2017 in Turkey. Renewable energy sources such as wind, geothermal and solar energy appear in the installed power capacity list of Turkey, their contributions ranging from 0% to about 8%, 1%, and 2%, respectively over the years. Turkey's electricity power facilities are highly dependent on thermal energy, which increases Turkey's imports and environmental hazards. As for renewable energy sources that constitute our main subject, wind energy features rather far ahead of solar and geothermal. The total share of renewable sources is about 11%. The share of solar installed power capacity shows that it has made a great advance in recent years.
Hereby, it can be briefly concluded that renewable energy has been more popular in Turkey since 2005: the share of renewable energy in total electricity generation was 8% then (corresponding to slightly over 21,000 GWh), while it was over 9% (corresponding to about 7,400 MW) for installed power capacity in 2016. Added to that, wind energy from available renewables in Turkey has shown a significant increase. Wind accounted for about 74% of the total renewables-based installed power capacity of Turkey as of July 2017. Solar and geothermal-based installed power capacities account for the remaining 26%, with shares of about 16% and 10%, respectively.
Changes in the energy situation in the last 12 months which are likely to have an impact on future direction or policy
Due to the importance of the energy sector, the Turkish Government continues to study the development of Turkey's energy market very intensively. As per the Government's declaration in the context of recent active energy politics, there will be activities not only in the direction of deep-sea drilling, but also in land exploration. As a step in this process and for the first time in Turkey, the Government has initiated seismic investigation in an area 3.5 kilometres from the Iraq border. Through these detailed onshore studies, it is aimed to take a solid step by investigating energy sources located within the boundaries of Turkey.
As well as this, Turkey's first integrated solar panel production factory is planned to be founded in an Organised Industrial Zone in Ankara. Within this scope, it is aimed to start panel production at the end of 2018. Through this project, Turkey aims to be the production centre for renewable energy technologies.
The Turkish Government has very positive expectations of both deep-sea and onshore projects. To reach a successful result on both will greatly influence Turkey's energy market, and its economy as well.
The national energy and mining policy of the Ministry of Energy and Natural Resources was clearly stated in the context of all energy actions in 2017. The policies put into practice by the Government under the banner of 'Domestic YEKA' comprise six main objectives:
- Through YEKA projects, it will be possible to increase the share of domestic and renewable resources in electricity generation which protect nature. Local staff will specialise in terms of technical staff.
- Domestic production will be accelerated. The share of domestic production in electricity, in both solar energy and wind power plants, will be increased rapidly. Significant increases will be made in the production levels of renewable energy plants.
- With the reduction of external dependency, current production crises can be avoided with domestic production. There is a large share of energy in the current account deficit. One of the most important goals of domestic and national energy is to reduce the current deficit.
- Serious work is being done on unit costs, which affect the consumer in every case. In the new period, new strategies will be carried out to reduce these costs.
- The state will accelerate its efforts to provide all kinds of support for domestic energy sources. Products to be produced for two years by the solar panel and wind turbine production facilities will be acquired by the YEKA facilities.
In addition to YEKA, the number of power plants under the Renewable Energy Resources Support Mechanism ("YEKDEM") continues to increase. Installed electric power within the scope of YEKDEM reached 17,400 MW for the year 2017. This increase is due to the addition of 91 new plants to the list. Within the scope of YEKDEM, the number of power plants that sell electricity at a fixed price based on exchange rates increased to 647 in 2017.
Developments in government policy/strategy/approach
Turkey has become one of the fastest-growing energy markets in the world, paralleling its economic growth over the last 15 years. Turkey's energy sector has become the focus of attention within its geographic zone. In the last 15 years, a lot of radical energy reforms have been made by the Turkish Government.
The energy market of Turkey has been liberalised by the Government within an open, transparent and sustainable regulatory environment. The privatisation of energy generation assets, coupled with a strategy to clear the way for more private investment, has resulted in an increased share of private entities in the electricity generation sector, which have risen from 32% in 2002 to 75% at the end of 2017. A Directorate of Privatisation Administration of Turkey has been assigned in the context of privatisation of the energy market.
The two important developments of the last 12 months in terms of the energy markets in Turkey have been: the decision of the Organization of Petroleum Exporting Countries ("OPEC") to extend the term of the Petroleum Production Limit Agreement, speeding up renewable energy investments within the scope of combating climate change by many countries; and Russia's approval of the "TürkAkımı" Natural Gas Pipeline Project.
As is well known, it is necessary to discuss energy efficiency policies sensitively, because of their direct relation with the sustainability of economic growth and social development objectives, and their key role in reducing total greenhouse gas emissions. Through the energy efficiency studies carried out under the leadership of the Ministry of Energy and Natural Resources of Republic of Turkey, the objective is to reduce the energy density of Turkey (energy consumed per national income) by 20% in 2023 vis-a-vis 2011.
The following actions are carried out by the General Directorate of Renewable Energy within the scope of Energy Efficiency Law and related Regulations, which aim at increasing the efficiency of energy sources and the use of energy by aiming to contribute to the protection of the environment:
(i) Energy manager trainings, study project trainings and international trainings.
(ii) Studies (industrial facilities, commercial and service buildings, public buildings, dwellings).
(iii) Authorisations (Energy Efficiency Consultancy Companies, Universities and Trade Associations).
(iv) Measurement, Monitoring and Evaluation, Auditing.
(v) Energy Efficiency Support (Productivity Enhancement Project ("PEP") and Voluntary Agreements).
(vi) Promotion and awareness-raising.
(vii) Energy Efficiency Forum and Fair.
(viii) "Development of National and International Projects".
(ix) Planning and Coordination of Activities related to productivity.
(x) Efficiency and Greenhouse Gas Release and Monitoring Activities and Training Activities.
Within a progressed economy and the increased population of Turkey, privatisations, support and incentives provided in the energy sector, and action on reducing foreign dependency, are extremely important. In this context, the Turkish Government's approaches work to provide opportunities, and the projects targeted within the 2015–2019 Strategic Plan constitute a positive effect.
Developments in legislation or regulation
Energy Law is a field of law that could be developed within the framework of the search for renewable methods, even if it has some limitations based on international law in terms of exhausted resources, despite increasing daily energy needs.
While in the past, energy production was carried out by the public companies in a monopoly system, now, with new regulations like the Law on the Energy Market Regulatory Authority's Organisation and Duties No. 4628 and Natural Gas Market Law No. 4646, which entered into force as of the beginning of the 21st century, the Energy Law resources, and electricity and natural gas production, operated more freely. In total, the energy sector in our country has four basic aspects in the form of the electricity market, oil market, natural gas market and LPG market.
Energy Efficiency Law No. 5627, enacted on 2nd May 2007, aims at the efficient use of energy, the prevention of waste, the reduction of energy costs in the economy, the enhancement of the efficiency of energy sources and the use of energy to protect the environment. This law sets the rules for energy management in industry and in big buildings, project support, energy efficiency consultancy companies, voluntary agreements and so on. The last amendment to this Law made on 21st March 2018 includes the regulations regarding the Energy Performance Agreement, which means an agreement based on guaranteeing the energy savings to be provided after the application project and the payment of the expenditures made as a result of the application. As per the Law, public administrations and other public institutions within the scope of general government may sign energy performance agreements to reduce their energy consumption or energy costs, that enter into widespread use for periods not exceeding 15 years.
Also, Law No. 5346 on Utilization of Renewable Energy Resources for the Purpose of Generating Electrical Energy is the main legislation on electricity from renewable energy resources, enacted on 18th May 2005. The aim of the Law is to expand the use of renewable energy sources for generating electrical energy by establishing the necessary legal and regulatory framework while ensuring an increase in the use of renewable energy sources without disturbing free market conditions. According to this Law, companies wishing to become involved in renewable energy projects may obtain a licence from the Energy Market Regulatory Authority ("EMRA") to generate electricity from renewable sources.
In addition to this, Law No. 5686 on Geothermal Resources and Natural Mineral Waters regarding electricity generation was enacted on 3rd June 2007. This Law sets forth the rules and principles for exploring, producing and protecting geothermal and natural mineral water resources.
Moreover, new regulations are being drawn up by the Government regarding nuclear energy; the latest one is the Regulations Regarding Operating Organisation Personnel Qualifications and Training and Operating Personnel Licences No. 30029, published in the Official Gazette on 5th April 2017. In this Regulation, it is aimed to train qualified personnel to work in nuclear energy facilities. As is known, nuclear energy is not only an effective source of electricity, but also a very dangerous energy source. For this reason, the nuclear power plants must pass all safety precautions and be continuously checked. The Regulation on the Construction Supervision of Nuclear Power Plants and Regulation on Radiation Protection in Nuclear Plants have been organised for this purpose. The occurrence of a potential problem in nuclear power plants can have major and dangerous consequences. The necessary arrangements have been made against these possible hazards, and they continue to be done. In order to protect from radiation of nuclear plants and/or to be less exposed to radiation, the Regulation regarding Nuclear Facilities Radiation Protection was enacted to cover aspects such as site evaluation, design, construction, operation, removal from operation and regulatory control of the nuclear facilities, and the protection of employees and people from the harmful effects of ionising radiation in emergency situations.
Electrical energy is widely subject to legal regulation in Turkey. Consumers receive their electrical energy through intermediary companies. The intermediary companies are required to have a distribution licence and are controlled by the Government in all of their activities. In this respect, Law No. 6446 aims to establish a financially strong, stable and transparent electrical energy market operating in accordance with the provisions of private law in a competitive environment, and to provide independent regulation and supervision in this market in order to provide consumers with sufficient, high-quality, continuous, low-cost electricity.
There is also the Regulation on the Electricity Market Capacity Mechanism No. 30307 published in the Official Gazette on 20th January 2018. This Regulation aims to establish rules on the capacity mechanism to be operated by TEİAŞ in order to secure sufficient installed capacity and/or long-term system security, including the reserve capacity required for security of supply in the electricity market.
In addition to this, there is a new Regulation on Electricity Market Consumer Services published in the Official Gazette on 30th May 2018. This Regulation aims to determine minimum standards, procedures and principles on the basis of operations and transactions between consumers, suppliers and/or distribution companies in the supply of electricity and/or capacity sales and related services to consumers within the scope of free, non-free and final source procurement.
Judicial decisions, court judgments, results of public enquiries
Energy law is a legal branch that can be subject to disputes within the context of both private law and public law.
By reason of the fact that energy law is rapidly developing, the field and the energy market are very important in both the manufacturing sector and the business sector; disputes subject to legislation are increasing. The most frequently encountered disputes within the scope of Energy Law are related to thermal power plants, tariffs set for energy resources, and projects for expropriation.
Before making mention of court judgments and judicial decisions concerning Energy Law; it is crucial to state that a new institution called the Energy Law Research Institute Dispute Mediation Center was established to solve energy disputes before the court stage in Turkey. It operates with the aim of resolving disputes in the energy sector faster and with lower costs by the arbitrators who serve the energy sector and Energy Law.
Recently, one of the most important decisions in the context of energy activities within the boundaries of Turkey is the Constitutional Court of Republic of Turkey decision regarding the Ilısu Dam and hydroelectric power plant ("HEPP"). According to the decision of the Constitutional Court, it was decided that the Ilısu Dam and the HEPP project planned to be built in the district of Hasankeyf within the boundaries of Batman province, was not contrary to the Constitution, and the claim of contradiction to the Constitution was rejected. According to the justification of the Constitutional Court decision; whether the determined district center (Hasankeyf) and municipal boundaries are in accordance with local requirements, and whether it fulfils the public interest, are in the discretion of the legislator.
One of the recent judicial events reflected in the energy market is the demand made by the Republican People's Party ("CHP") regarding the cancellation and suspension of the Akkuyu nuclear power plant project between Russia and Turkey. The Constitutional Court rejected the demand regarding the cancellation and suspension of enforcement of the agreement that Turkey and Russia had signed on the establishment of the plant. The Constitutional Court declared that the justice of international agreements could only be controlled in their form, and that the content of the agreement could not be controlled by the Constitutional Court.
Consequently, it is important to remember that judicial decisions on energy projects are crucial for investors who plan to invest in the future, because of their precedent decision character.
Major events or developments
In Turkey, some activities are carried out in order to supply rising oil and gas demand by domestic sources. In this context, work in the marine areas of the Black Sea and the Mediterranean has gained momentum. In recent years, the structure of hydrocarbons exploration in our seas has been rapidly established along with developments in marine drilling technology, exploration and production opportunities in high (1,000–2,000m) water-depth areas.
In 2018, we have seen a new milestone in Turkey's energy history. Hitherto, the marine drilling programme, which started in the 1970s, has not been realised due to the lack of domestic equipment and human resources. In 2018, for the first time, the ship named "Fatih" came from the port of Hoylandsbygda on the southern coast of Norway to Kocaeli province, and was sent to the Mediterranean after preparations were completed. "Ship Fatih" carried out the first drilling of Antalya openings at 2,600m depth in the summer of 2018, so that a very important step was taken in the oil sector in Turkey.
At the same time, by the investment and leadership of the Azerbaijan Republic State Petroleum Company ("SOCAR") and as one of the largest oil and gas operations in Europe, the Middle East and Africa ("EMEA"), Turkey's first strategic investment-incentive-certificated private sector project, "Star Refinery" is to be commissioned in September 2018, and scheduled to begin formal and actual production in 2018.
Through the Star Refinery Project, which has an annual crude oil processing capacity of 10,000,000 (ten million) tons, it is aimed to produce distillate fuels, which are experiencing a shortage of supply in the domestic market, by the production of petroleum products such as diesel, jet fuel and LPG at Aliaga-İzmir Province within the framework of petrochemical feedstock, where Turkey is dependent on foreign imports.
Star Refinery, which will implement refinery-petrochemical integration as the largest private sector investment in a single location in Turkey, is strategically important not only for the energy sector but also for employment: within the scope of the project, 3,000 (three thousand) engineers from 14 countries; a total of 17,000 people will be employed.
At Turkey's first Energy and Mining Forum held in 2018; it was announced that the largest offshore (sea) project in the world is being prepared in wind energy. The tender of the project is planned to be realised within 2018.
As is widely known, Turkey has rich reserves of boron, and it completed the year of 2017 with export and production at record levels. In this context, it is planned to establish a team consisting of people who have worked in the most competent positions in the world to develop the ground-breaking process at boron facilities with strategic importance in 2018.
One of the most important projects for Turkey – the Trans-Anatolian Natural Gas Pipeline Project ("TANAP") – has been 99.9% completed by 2018; the Phase 1 section that will go to Europe, has been realised by 80.7%. A total of 93.5% of the project has been completed. Due to these developments, the first commercial gas flow to Turkey via the pipeline was set to commence in June 2018.
It is important to note that Turkey is substantially increasing investment in the energy sector and as a result, continuing to develop its regional position and the bilateral agreements to which it is a party, by reducing its external affinity and strengthening its commercial and strategic contacts with companies around the world.
Proposals for changes in laws or regulations
Turkey has great potential in terms of both heat generation and electricity production from renewable energy sources such as solar, wind, hydroelectric, geothermal, biomass and wave, although it will be necessary to update the legislation in order for this potential to pass through in full. There is significant demand-management potential in the industry to reduce peak demand in electricity, but also a need to improve legislation and the market structure.
Even if legislation and incentives exist in the field of efficiency, the target effect has not been fully achieved yet. In this respect, legislative development is foreseen by the Government.
The Ministry has developed a strategic plan for 2015–2019 for the energy market. This plan is founded on the themes of the current needs of the energy sector, expectations for the future and the policy development required in the field of natural resources. The Ministry's 2015–2019 Updated Strategic Plan consists in total of eight themes, 16 objects and 61 purposes.
In the field of energy and natural resources:
- good governance and stakeholder interaction;
- regional and international activity;
- technology, R&D and innovation; and
- improving the investment climate,
Additionally, in the energy sector:
- security of supply; and
- energy efficiency and saving;
and in the natural resources sector:
- efficient use of raw materials; and
- security of raw materials supply,
are constituted in the framework of the plan.
The establishment of energy-storage systems, and the establishment of the legislative infrastructure for the integration of energy-storage systems into the network, are in the scope of the Ministry's plan. The other purpose is the completion of nuclear energy legislation infrastructure. Also, a project-supervision structure in mines should be observed and the necessary legislative infrastructure should be established to ensure that the project audit is conducted in the most rational and result-oriented manner.
However, all the developments in the Turkish renewable energy sector may be considered too insufficient to be able to achieve the renewable energy targets in 2023 (30% of total energy production). In the coming years, Turkey will give more importance to the utilisation of its renewable energy resources with the assistance of useful laws and amendments as well as major incentives to remove any outstanding barriers to renewable energy investments.
Originally published by Global Legal Insight's Energy 2019.
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