Dr Stephen Mills, IEA Clean Coal Centre, UK, examines developments in the Turkish coal sector, as the country continues on its upward growth trajectory.
Turkey has one of the fastest growing global economies – currently the 6th largest in Europe and the 16th largest in the world. Recent years have seen an economic growth rate of between 9 – 11%/year. This rapid economic expansion, along with a growing population and increasing industrialisation has triggered a general increase in energy demand. During the last decade, the rate of increase in demand for natural gas and electricity has been second only to China. Over the next ten years, the current level of energy demand is expected to double.
Like many countries, Turkey faces energy supply issues. Indigenous energy resources are limited almost exclusively to lignite and smaller amounts of hard coal. As a result, there is a heavy dependence on imported sources of energy. More than 90% of Turkey’s oil and 98% of its natural gas is imported, as is much of the hard coal consumed. The cost is considerable, accounting for around a quarter of the country’s overall annual import bill. In 2011, total energy imports came to more than US$ 54 billion. By 2012, it was US$ 60 billion. By 2017, the International Monetary Fund forecasts a figure somewhere in excess of US$ 70 billion.
The continuous rise in energy demand makes it imperative for the country to meet more of its needs from its own resources, in particular, its lignite reserves. Fortuitously, there are large deposits scattered throughout much of the country and a major government objective is to capitalise on them. As part of this, 2012 was designated “domestic coal year”. This was backed by a government policy initiative, which gave increased priority to the use of domestic lignite for power generation.
A major aim is to re-direct investment in power generation away from natural gas to lignite/hard coal. The Turkish Ministry of Energy and Natural Resources has put in place a strategy aimed at boosting lignite production. Over the next decade, the aim is to reduce the country’s share of electricity generated by gas-fired power plants from around 40%, to less than 30%. Clearly, lignite-fired power plants have a strong competitive advantage in terms of fuel cost and supply.
Turkish coal resources
Even though often of poor quality, lignite remains the country’s most important indigenous energy resource. In order to further incentivise Turkish lignite, in 2012 the government announced that it will be given free of charge to serious investors for a period of 30 years, provided that it is used for power generation. Investors will be supported for an initial period, although the government retains the right to revoke any such arrangement after 6 months.
Unsurprisingly, much of Turkey’s lignite production is supplied directly to power plants – 82% by tonnage in 2012 – with most of the balance going to industrial users. Indigenous hard coal is supplied mainly to the power sector and coking plants, as well as the iron and steel sector. Lignite production greatly exceeds that of hard coal. Nearly 90% of lignite reserves are owned and/or operated by public sector organizations, which produce between 31 – 34 million t. The private sector produces a further 7 million t. The greatest concentration of lignite mines is in the northwest region around the towns of Soma (scene of the recent mining tragedy), Seyitömer and Çan.
Turkey’s main hard coal producer is the aptly named Turkish Hardcoal Enterprise (TTK). This is responsible for the country’s hard coal: essentially all such reserves are owned by the company. Unlike lignite, hard coal deposits and commercial production is limited to a single region, the Zonguldak basin in the northwest of the country, situated between Eregli and Amasra on the Black Sea coast. Production is currently around 3 million tpa. This meets only a tenth of the annual demand: as a result, 90% (usually 27 – 30 million tpa) of the hard coal consumed is imported from Russia, Colombia, Australia and the US. This is directed to various coastal coal-fired power plants, such as ISKEN's 1320 MW Sugozu power plant, steel works and industrial sites, although some is also used for domestic heating.
In the near term, as new coal-fired generating capacity comes online, the scale of hard coal imports is expected to increase. Restructuring and privatisation of the hard coal sector is underway, aimed at increasing production to around 12 million tpa by 2023. Although this would make a sizable dent in the total, the country will still need to rely on imports for the rest.
The times, they are a changing
Ongoing events are ushering in a period of change in the energy sector and some ambitious targets have been put in place. One is to add 18 GW of new coal-fired generating capacity before 2020. There is also an overarching goal of possibly doubling the current total of 64 GW of installed generating capacity by 2023, the centenary of the founding of the Turkish republic. This will require a lot of investment by generators and other organisations. Estimates of the total needed for the coming years vary; however, it will run into many billions of dollars. For instance, for the period 2010 – 2020, the Turkish Energy Market Regulatory Authority estimates that the investment needed for power generation will be US$ 225 – 280 billion. Whether such goals are attainable, only time will tell, but there is clearly a significant increase in generating capacity on the cards.
At the moment, an increasing number of state-owned power assets and coalfields are in the process of being transferred to the private sector. This, in addition to the thriving Turkish economy in general, has made the energy sector something of a magnet for foreign investment. Much comes from EU member states, followed by North America and Asia. Between 2003 – 2012, FDI amounted to US$ 125 billion. Forecasts suggest that for 2014 alone, it will be around US$ 16 billion.
In some cases, investment opportunities encompass both mining operations and power generation and, as part of the ongoing privatisation process, some mines are being sold, packaged with specific power plants. For instance, in June 2013, TKI’s Seyitömer coalfield was transferred to the Çelikler Seyitömer Electricity Generation Co., along with the associated power plant.
Again, interest is also coming from overseas investors. For example, in 2011, China’s state-owned Zhejiang Energy Group signed a protocol with Turkey’s Polat Madencilik for the development of a coalfield and construction of a lignite-fired power plant in the province of Aydin. Stage I of the project is focusing on the production of 3 million tpa of lignite from local mines, while Stage II will develop either a 660 MW generating unit, or possibly two of 300 MW. Other Chinese companies are also becoming involved: in May 2013, Turkish company, Hattat Holding, agreed a deal with Harbin Electric International to build a new US$ 2.4 billion 2.6 GW coal-fired power plant in Amasra, in the province of Bartin.
Overall, there are a lot of coal-related developments in the pipeline and some ambitious targets to be met. Even if some of these proposals fail to materialise, the next few years look set to be interesting and busy ones for the Turkish energy sector.
Written by Dr Stephen Mills. Edited by Jonathan Rowland. The full report appears in the November 2014 issue of World Coal. Subscribers can view the full article by logging in and downloading the issue here.
Read the article online at: https://www.worldcoal.com/special-reports/10112014/world-coal-regional-report-turkey-turkish-delight-coal1553/