You might not expect a foundation laying ceremony for a new power plant to make national news but in Turkey, where demand for power has been growing at 8 to 9 per cent a year for most of the last decade, the question of how it is generated is of great public concern.
One reason is that as much as half of Turkey’s power comes from gas and is therefore linked to the price of oil, with predictable effects on monthly household bills – a key issue in last year’s general election.
Another is the impact of that price on Turkey’s balance of payments. An extra $10 a barrel on the oil price adds about $4bn a year to Turkey’s import bill.
Hence the interest in the construction of a new power plant burning locally produced coal.
With a capacity of 270 megawatts, the Goynuk plant being built by Aksa Enerji is no giant. Big plants typically produce 1,1000 MW or more.
But the timing of the investment is significant, coming only months after Turkey experienced crippling gas shortages and power cuts when Iran and Azerbaijan simultaneously cuts supplies due to technical problems.
No surprise then that Taner Yildiz, energy minister, used the ceremony to announce an initiative to encourage more investment in plants burning local coal.
He said Turkey had enough coal in just five fields to supply plants producing 17,000 MW, equivalent to around a third of Turkey’s current installed capacity.
The government aims to open tenders this year for 5,000 to 6,000 MW of new plants, with plans for as much as 18,000 MW by 2023 for an estimated investment of around $25bn.
So, good news for Turkey’s householders and for its balance of payments.
Or is it? In fact, the benefits of all this investment will be neither immediate nor as marked as has been suggested.
To begin with, most of Turkey’s coal reserves are low-grade lignite – so-called brown coal, expensive to extract for the energy it can produce, and highly polluting.
Indeed, two tenders in the past decade for two 1,000 MW plants to use coal from the giant Afsin Elbistan field succeeded in generating only a single bid.
As one potential bidder explained to the FT, even if plants were given the coal for free, there is no guarantee they would be profitable without offtake guarantees - which Turkey is loathe to offer because of the upward pressure they put on power prices.
Other fields are better placed for exploitation and some plants will be built. But generating power from coal is complex and labour-intensive compared to gas. And gas prices, while currently high, may not always be so. And although they are pegged to the crude price, gas prices vary from supplier to supplier.
Turkey is currently in the enviable position of sitting between, on one side, some of the largest gas reserves in the world and, on the other, one of the world’s biggest and most lucrative gas markets, the European Union.
Pipelines have been under discussion for more than a decade. An agreement signed last month between Turkey and Azerbaijan allows for the construction of a 50bn cu m/yr pipeline to take 10bn cu m of Azeri gas to the EU. It guarantees Turkey 6bn cu m of gas at a substantial discount.
With Turkish gas demand expected to grow by 9 per cent this year from 44bn cu m to 48bn cu m, 6bn cu m is not at game changer but it is a big start.
More gas is set to follow, with Azerbaijan developing five more fields which together could fill the 50 bn cu m pipeline.
To Turkey’s south is Iraq. Enormous volumes of gas are expected in the next decade from southern gas fields controlled by the central government in Baghdad and from fields in the north of the country controlled by the Kurdish Regional Government (KRG) .
Already one Turkish company, Siyah Kalem, has reported concluding a gas deal with a developer in the KRG region and has applied to Turkey’s energy regulator for an import license.
More are expected to follow as the Baghdad government and the KRG eye the possibility of supplying Europe through Turkey, with the promise of more cheap gas for Turkey.
That’s just as well, considering that Turkey has already awarded generating licenses to 14,000 MW of new gas-fired plants, with applications pending for a further 15,000 MW.
If they get built, these plants will not require substantial extra gas imports. They will also threaten to make other new plants, burning Turkey’s low grade coal, redundant.
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