Hydropower, Solar, Storage
Reaching for Turkey's Hydropower Summit
Issue 5 and Volume 22.
Turkey still presents significant opportunities for hydropower development
By David Appleyard, with additional reporting by Bethany Duarte
With its high dependence on imported fuels and electricity demand growth topping 7% a year, Turkey is increasingly turning to development of its domestic resources to meet demand. Coupled with its favourable 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. The country has a volume of some 186 km3/year of water flowing through its 177,000 km of rivers in five separate watersheds.
The geography provides considerable opportunity for hydropower development. But it is only following measures to privatize the national electricity system began in 2003 that the exploitation of this huge resource began to accelerate. Today, though some 60% of the country's hydropower potential remains undeveloped, Turkey has more than 500 hydropower plants operating, generating a combined capacity of more than 15 GW and with 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% and 29%, 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% of Turkey's electricity supply.
However, the government has introduced policies aimed at diversifying the energy supply sector by supporting domestic sources in particular, in a bid to curb the share of natural gas to lower than 30% of total demand. 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$ cent 7.3/kWh (€ cent 5.6/kWh) with an additional 'local-content' bonus of US$ cent 1-2.3/kWh (€ cent 0.7-1.8/kWh) which is payable for 10 years, with the local content bonus available for five years.
Other reforms centred on the liberalised 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% of its primary energy demand from renewables by 2023.
In other examples, the Energy Market Regulatory Agency (EMRA) has 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, explains that, post-liberalisation, this development drive was spearheaded by Turkish companies – there is a significant engineering capability in Turkey – that 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 says.
However, he adds that given the scale of this development – estimating that around 70 GW of new power generating capacity is 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 as a result of a more challenging finance market, he explains, adding that the classic buyers or developers of those assets, the European utilities, are in difficulties themselves, but Mallieu also notes 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 continues: "That slowdown is also 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. 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."
Furthermore, Mallieu highlights other factors which 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% 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.
Says 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 is keen to stress 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 neighbours which 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."
Indeed, he highlights the potential for additional hydropower investment even while the market for new-build projects is decelerating: "What might come out of this situation is a shift to the rehabilitation market. The base for hydro is already very big and they will be sold by the government and acquired probably quite a lot in the coming years. So that might give burst to a rehabilitation market. He notes that many Turkish hydro projects are run-of-river including cascades of plants along rivers. Such a design necessarily limits storage capacity and as a result Mallieu sees other opportunities too: "To store energy on the other side you have the variability of hydropower and you have wind and solar on top of that which are also very highly variable. So it might be that in coming years the pumping storage power plant market will also grow or start in Turkey."
Certainly, the government continues to pursue its market liberalization programme and with it the privatization of the bulk of the nation's existing hydropower assets. It plans to move to a fully deregulated electricity market by 2015.
The most recent figures available note that of 613 offers to privatize hydroelectric plants the treasury has achieved an overall revenue of more than $427 million.
For example, the privatization process for 52 hydroelectric power plants belonging to the state-owned Electricity Generation Company (EÜAŞ) divided the assets into 19 groups for the purpose.
More recently, in May the Privatization Administration of Turkey tendered for the operational rights of a further five hydropower installations.
According to media reports, in the first round, Metek Hydro made the highest bid for the operating rights of the power plants Vicera and Esendal for 49 years with a bid of $1.85 million. In the second round, two power plants, Dere and Ivriz were put out to tender, Ulke Investment placed the highest bid with $2.3 million, again for 49 years. And in the third round the Kayakoy plant was tendered and Veysi Mining won with a US$8.3 million bid.
Turkey's hydropower development
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% 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 16 and 17 US cents/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 which are in place. Furthermore, 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 the construction phase.
Building Turkish hydropower
For example, 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 feature a 13 m-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.
Located on the Botan River, a tributary of the Tigris River in the Southeast Antolia Region, Çetin will comprise of two power plants. The 401 MW Main Çetin features an Asphalt-Concrete Rock-Fill dam (ACRD) delivering a head of 140 metres and an inundated area of 10 km2. Construction began in 2012 and is due to be completed in 2015.
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, commissioned in 1992.
The largest hydropower project currently underway in Turkey is the 1200 MW Ilısu 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 is planned to 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 this year Russian hydro turbine manufacturer Power Machines OJSC signed a contract with Turkish company DSI to provide equipment for the 140 MW Kigi project, including three 46.6 MW turbines with pre-turbine gate valves, three generators of the same capacity, switchgear, and all other equipment for the turbine hall.
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 concludes: "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.
He continues: "To be independent of their import of electricity it has been strongly pushed by the government, in more or less a regulated way. Now I think things are changing in the Turkish market. 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. The liberalisation 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."
David Appleyard is Editor in Chief of HRW – Hydro Review Worldwide. Bethany Duarte was formerly Associate Editor.
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