Follow-up Evaluation of the latest Turkish Nuclear Tender

Dear Energy Professional, Dear Colleagues,

Turkish Electricity Trading Public Company declared the long awaited electricity price of the sole bidder in the latest Nuclear power plant proposal, on 19th January 2009. The consortium, formed by Russia’s state-run Atomstroyexport, Inter RAO and Turkish Park Teknik, offered 20.79 (revised/ updated 21.16) US cents per kWh for the construction and management of Turkey's first nuclear power plant.

It is your writer’s sincere and humble feeling that the tender proposal was mismanaged by the Turkish partner of the Consortium, who was well aware of the local conditions, as well as the current prevailing local market prices.

The mismanagement wasn’t connected directly with the technical part of the Russian proposal – that is supposed to be acceptable, since the Turkish Atomic Energy Commission and the Public Evaluation Committee both have agreed and accepted the technical proposal.

Nevertheless, your humble writer still has reservations on quality of the industrial products of the Northern neighbor, and the sound project management of their industrial constructions.

In the end, the final JV price is considered to be too expensive compared to the prevailing other tender prices. One should keep in mind that the final price cannot be estimated upfront. We cannot compare the proposal price with other by American or European companies, since there is no other competitor.

Another reason why the financial part of the project isn’t easy to estimate is because nuclear power plant construction takes a long time – 5 years, 7 years, 10 years. One cannot estimate the future price based on today’s price – any calculation in this regard will be misleading.

It is just because one can’t compare nowadays price with the price in 15 years. Net Present Value (NPV) comparison is applicable to compare the other proposal prices. NPV cannot give you the prices 5-7-10 years ahead of present time, since Fuel prices are too volatile.

Today it may be 40 US dollars per a barrel of petroleum and tomorrow it may become 140 dollars. So you cannot estimate the price in 5 or 15 years ahead of present time based on any calculation of today’s price.

However we knew the other price as declared by local Park group in Afsin Elbistan C-unit coal fired thermal power plant proposal. It was 14.70 cents per kwh for first 5 years, and 16.50 cents per kwh afterwards.

In Afsin Elbistan, public authority has found that price too expensive and cancelled the tender. It is our wonder how the authority will find more expensive price appropriate in Nuclear tender.

Afsin Elbistan price was the upfront price to be escalated after the plant construction which is 4-5 years ahead of time. In Afsin Elbistan tender, it was open, fair, competitive race for all 30+ interested parties.

In the long run, Net Present Value (NPV) calculations / comparisons are not applicable to electricity prices in this high fuel price volatility.

Anyhow latest nuclear price is more expensive than the price in Afsin- Elbistan tender. It is a missed opportunity for the JV partners.

We have good business relations with our Northern Neighbor, and we do not wish to displease them. Anyhow it is our since feeling that there is no more risk left to displease our Northern neighbor with such an expensive, or should we say exorbitant or unreasonable price, in the end.

Your comments are always welcome.

Haluk Direskeneli is a Ankara-based Energy Analyst

Energy Overview of Ankara, 2009

Dear Energy Professional, Dear Colleagues,

Turkish Chamber of Mechanical Engineers is participating to 2nd Urban Symposium in Ankara on 17th January 2009 Saturday afternoon. As an active member of Energy Commission in The Chamber of Mechanical Engineers since graduation year of 1973, your writer is to deliver a speech on "Energy Overview in City of Ankara" in Ankara 2nd Urban Symposium in IMO Conference Hall.

It is much easier to give a speech on Turkey rather than the city of Ankara. The problems of energy supply and distribution are not isolated that of the whole country, hence your writer has tried to bring together some milestones of information to evaluate and prepare the speech document upfront. Here is the summary of that speech,

Natural Gas Interruption in the West

Household heating in City of Ankara is dependent on natural gas which comes mostly from Russia through Blue Stream pipeline. We also have Iranian gas in Ankara. City of Ankara will not be affected by the current Ukrainian gas interruption/ conflict. However North West of Turkey and City of Istanbul will be most affected.

On the other hand the current gas price is too high compared to other fuel sources. It is to be around 420- 450 US Dollars per thousand cubic meter in Western Europe which is the same tariff we are charged by the original supplier on the North.

That addiction is too costly as long as we are dependent on one source, the source supplier on the North will not hesitate to increase the prices to the maximum level that we can pay.

Solution is in more indigenous energy generation, from local coal, more coal gasification (IGCC), more electricity from renewable, wind, hydro, solar, more intellectual investment new engineering staff in nuclear technology for its better applications, with creating less waste, more control over operation.

Heating insulation of housing structures is also a good alternative/ green solution to reduce heating expenses. Insulation material (styrophor, rock wool etc.) is locally manufactured at reasonable prices. At this time payback period is less than 5 years, but in this ever increasing fuel expenses, it will be reduced to more reasonable/ comfortable price levels.

Clean Coal Technologies;

We should seriously consider more gasification (IGCC) from local coal, more CFB firing in thermal power plants to implement Clean Coal Technologies and more investments in centralized district heating systems in housing to be incorporated with new combined cycle power plants.

Natural Gas Privatization

Global Energaz was the highest bidder in an auction in March 2008 to buy Ankara's state-owned natural gas network, currently run by the Ankara Metropolitan Municipality, after offering US $1.610 billion for one of the most valuable assets in the country's privatization program. However the payment of the auction is not so easy for the winning partners in this global financial crisis.

The Ankara gas network has assets valued at US $570 million and 1.1 million customers. It is advised that approximately 3.2 billion cubic meters of natural gas were consumed in Ankara in 2007 and estimated that consumption would double over the next decade.

Green Energy, Wind/ Solar;

We should also consider alternative/ sustainable/ green energy such as wind turbines on windy mountains around Ankara i.e. Elmadag, HuseyinGazi crest. As the country begins to involve itself in wind energy investments, we should produce inland/On-shore wind turbines.

Wind turbines cost approximately 1 million to 1.2 million Euros per 1 Mwe unit on the global markets. But, the turbines produced locally in Turkey will have a lower price tag.

Solar panels are not that feasible in near future for Ankara environment.

Nuclear Technology Option;

In the long run to answer ever increasing energy needs, we may even consider planning for nuclear power plant on lower Kizilirmak river basin, provided that we educate our nuclear engineering staff in latest nuclear technology to carry out design, construct, operate and decommission properly by ourselves.

Air and Water Pollution;

We should plan to have more investments to exploit more of our local resources and reduce air and water pollution. Air pollution is the major problem in Ankara.

An important report prepared and released by the Organization for Economic Co-operation and Development, OECD, titled "Environmental Performance Evaluation Report: Turkey," was released on last days of 2008. The report said air pollution in certain areas (especially in Ankara) surpassed national air quality standards, calling on them to be brought up to EU standards, and offering support for the New Energy Efficiency Law.

Air pollution is created by poor quality coal firing in household heating during winter time, and car/bus exhaust all year. Natural gas and central heating systems should be encouraged in house heating and more mass transportation is to be introduced to reduce the problem.

Water pollution is not posing any major problem in the short run. Definitely, necessary funds should be allocated and water disposal infrastructure should be constantly upgraded in a detailed and long-standing program. Water scarcity in summer time and the poisonous substances in the available potable water are the most important problems at this time.

Privatization in Electricity Distribution

The Public Electricity Distribution Company in Ankara (Baskent distribution) distributes almost 10 TWh of electricity per year (2007) to 2.9 million customers. Turkey, with its 70 millions people, is comparable to the whole Central Europe.

The Turkish government relaunched the tender selling electricity distribution grids on July 1, 2008, after an interruption of the procedure in year 2007.

A consortium consisting of Sabancı, Verbund of Austria and Enerjisa has been awarded for the operational rights of the grid in and around the capital of Ankara and 5 other neighboring provinces for nearly US $1.225 billion.

It is no surprise that the winning partners will have difficulty to pay the auction price in this financial global crisis. There are rumors that all winning parties face similar financial difficulties.

Theft & loss within Ankara electricity distribution system is estimated to be around 8.7 % which is lower than national average 15.1 %, although these rates need to be verified.

Prevailing household and industrial customer satisfaction is not at expected levels, likewise energy quality and electricity interruptions are creating problems in within urban distribution.

Street lighting is not sufficient in the sub-urban regions of the city, whereas the main streets are equipped wastefully.

Turkish government sources have cut their estimate for the country's electricity consumption in 2008 to 198 billion kwh down from an earlier 204 billion kwh, acting undersecretary of the energy ministry, announced in an energy conference in December 2008.

Turkey's economic growth fell to 0.5 percent in the third quarter of 2008 as the global economic crisis bites firms and consumers. However, apart from that stagnation in 2009, similar to that of the year 2001, Turkish economy and electricity consumption is expected to be growing for several years in future.

Electricity consumption is growing about 8 - 9 % annually between 2000-2008 compared to the European states with year-on-year growth at about 2 - 3%. However in year 2009, a negative growth rate is expected.

Considering low per capita electricity consumption, almost 3000 kwh per capita which is at 25 % of EU states average level, fast urbanization, increasing population (moreover Turkish average age of population is only 27.3 in comparison with 38.5 at EU, with 42.3 at Germany) and increasing economic growth as well, it is expected that the electricity consumption will increase rapidly for the following years.

According to experts' estimation, Turkey will have to build about 50,000 MW of generation capacity till 2020 to meet its fast growing electricity consumption.

Available Power Plants to generate Electricity;

In order to respond to the ever growing energy demand of the city of Ankara, let us see what we have in the city boundaries,

Cayirhan local mine mouth lignite firing thermal power plant, 4x 160 Mwe

Ayen Energy natural gas firing combined cycle power plant in Ostim Organized Industrial Zone, 35 Mwe

Zorlu Energy natural gas firing combined cycle power plant in Sincan Organized Industrial zone, 60 Mwe

Baymina natural gas firing combined cycle power plant in Temelli, 770 Mwe

Hirfanli (Kirsehir, Meram Distribution) Hydroelectric dam, 4 each x 32 MW (400 Gwh)

Kesikkopru Hydroelectric Dam, 2x 46.2 Mwe, (250 Gwh)

KapuluKaya (KirikKale) Hydroelectric Dam, 54 MWe (190 GWh)

Kirikkale 13 each x 11 Mwe diesel engine + 1x9.5 MWe ST based oil firing mobile power plant, 150 Mwe

Esenboga Park oil firing mobile power plant, 53.7 Mwe

Kirikkale Tupras thermal power plant, 4 x 12 Mwe ST,

Bilkent University, BilEnerji CCPP plus CHP, 36 MWe

ORS Polatli, 10 MWe small CCPP

TAV, Esenboga International Airport auto producer three-generation, 4 MWe

KizilcaHamam (and Beypazari) Geothermal district heating and energy generation in future

Under the light of above information, our ball park calculation relieves that Ankara generates more electricity than she consumes at this time.

Missing Capacity in Hydroelectric Dams,

However, due to inappropriate planning, Ankara Greater Municipality gets potable water from KesikKopru Hydroelectric dam, approximately 140 million m3 per year.

That amount water captured from the main reservoir, reduces the electricity generation of the other downstream hydroelectric dams namely, Kesikköprü, Kapulukaya, Obruk (under construction), Boyabat (under construction), Altınkaya and Derbent.

That value of missing electricity capacity (approx. 80- 100 MWe) has to be compensated by the Greater Municipality under prevailing local commercial terms.

In any case, energy demand is still high in Ankara, and will continue to be higher in future.

Conclusion;

If you do wish to have energy supply security in your homeland, and if you do not wish to give any concession in your foreign policy, you should depend on your own young local engineering capability at a reasonable and independent cost.

You can only get it through your own hard work by employing your young talents with their latest scientific and intellectual capability, to design, construct, operate the power plants, learn more about nuclear technology, as well as employ the green technology, reduce air and water pollution. It is also a matter of survival of the fittest in this region.

Happy and Prosperous New Year to you all

Haluk Direskeneli is an Ankara-based Energy Analyst

Capital city may need to call on nuclear power

ANKARA - Growing dependent on its northern neighbor, the need to tackle air pollution and sustain reasonable prices may compel the building of a nuclear power plant in the lower Kızılırmak basin, notes an energy analyst, a proposition that angers electricity and environmental engineers

Satisfying the energy demands of Ankara will become increasingly costly and the capital may need to consider the nuclear option, warned a member of an energy commission for a chamber of mechanical engineers.

Speaking to the Hürriyet Daily News & Economic Review on the sidelines of a conference over the weekend, Haluk Direskeneli said: "Household heating in Ankara is dependent on natural gas, which comes mostly from Russia through the Blue Stream pipeline."

Direskeneli said the latest gas cut in the western pipeline that feeds Turkey would not hit Ankara. "We also have Iranian gas in Ankara. Ankara will not be affected by the current Ukrainian gas interruption, or conflict, unlike the northwest of Turkey and Istanbul. Direskeneli was detailing the capital's energy needs at the Ankara 2nd Urban Symposium, organized by the Union of Chambers of Turkish Engineers and Architects, or TMMOB.

Despite the relatively uninterrupted gas flow to the capital, prices may become increasingly high noted Direskeneli. "The current gas price is too high compared to other fuel sources. It is around $420 to $450 per thousand cubic meters in Western Europe, which is the same tariff we are charged by the original supplier to the north," he said.

"In the long run, to answer the ever increasing energy needs, we may even consider planning for a nuclear power plant on the lower Kızılırmak river basin, provided that we educate our nuclear engineering staff in latest nuclear technology to carry out design, construction, operation and decommission properly, by ourselves," he said, highlighting what he referred to as Turkey’s dire energy needs.

A particularly strong reaction to these comments came from electric and environmental engineers, who pointed to the problem of nuclear waste and the risk from operating nuclear plants.

"I know that there is not a definite solution to the nuclear waste problem. But faced with the choices, having a grasp of nuclear technology will do us no harm," he said.

His comments come just days before a consortium led by Russia’s state-run Atomstroyexport, together with Inter RAO and Turkish Park Teknik, the sole bidder in the tender to build and operate Turkey's first nuclear power plant, are to announce their energy unit price offer.

Tackling consumption

"According to experts' estimations, Turkey will have to build about 50,000 megawatts of generation capacity by 2020 to meet its fast growing electricity consumption," he said.

Providing energy for minimum and stable prices is only one aspect of a sustainable energy policy, as efficiency and reduced pollution form an integral part of energy procurement, said experts.

On average, Ankara uses its electricity with considerably more efficiently than the rest of Turkey. "Theft and loss within Ankara’s electricity distribution system is estimated to be around 8.7 percent, which is lower than the national average 15.1 percent, although these rates need to be verified," Direskeneli said.

The Capital Electricity Distribution Corporation’s deputy general manager, Mehmet Ali Atay, asserted that the figures were true. "Most of the loss is due to technicalities. People think shanty towns are responsible for most of the electricity stolen. I can assure you that it is much less compared to other parts of the city," he said.

Besides securing tenable prices for energy supplies, Ankara is under pressure to prevent air pollution that ran rampant in the 1990s and is feared to rise again. Ankara’s air quality may seriously decline if the distribution of coal to poor families, criticized by many as "alms giving to citizens," by the ruling Justice and Development Party, or AKP, does not meet environmental standards.

"Poor families have been supplied with coal for a long time, distributed by the municipalities, under Environment Ministry regulations. However, a new regulation last August removed the condition that coal should be used in rural areas, where it is much less likely to cause air pollution," said Environmental Engineers’ Chamber member Hasan Seçkin.

A report prepared and released by the Organization for Economic Co-operation and Development, or OECD, titled "Environmental Performance Evaluation Report: Turkey," released late 2008, said air pollution in Ankara had surpassed national air quality standards, Direskeneli said.

The problem is that alternative and renewable energy sources, such as wind or solar power are not long-term solutions for Ankara’s need for low-cost energy, at least with current levels of technology.

"Windy mountains around Ankara, like Elmadağ or Hüseyin Gazi crest may be suitable for generating wind power. However, wind power’s contribution to Ankara will not be to provide energy, but provide more jobs if wind tribunes for the rest of Turkey are produced here," Direskeneli said.

"Wind turbines cost approximately 1 million to 1.2 million euros per 1 megawatt unit on global markets. But, the turbines produced locally in Turkey will have a lower price tag," he added.

Due to high costs and difficulties of mass electricity production, solar panels are not feasible in the near future for Ankara and its region either, Direskeneli said.

19 Ocak 2009 Hurriyet Daily News,by Mustafa Oğuz

Thermal Power Plants Annual Overview

Dear Energy Professional, Dear Colleagues,

Here at this end of the globe, your writer sincerely advocates ratification of Kyoto protocol, more utilization of local coal/ wind/ hydro sources, more thermal power plants with clean coal technologies i.e. Circulating Fluid Bed (CFB), Integrated Gasification Combined Cycle (IGCC), firing local low quality lignite, more emphasis on national energy supply security, more professional education and creation of engineering backbone in nuclear technology, more green employment in green technology.

Within his humble capacity he tries to create a national common understanding all available and open to public scrutinizing/ upgrading. Your writer has recently received the Turkish annual thermal power plant outlook as of year end 2007, and carefully reviewed the report in detail and finally he had following horror story

The public power plant operation administration has received critics on the firing systems of the existing thermal power plants. They placed an order for a feasibility if that is correct to change the firing systems to CFB or keep as it is with renewal of the dust collecting systems, adding Flue Gas DeSulphurisation (FGD) and other environmental control facilities.

The foreign engineering company has advised then the ladder, keeping the existing systems of pulverized firing. Why? I tell you why. Because they have no CFB firing references in their affiliated Original Equipment Manufacturer (OEM) sister companies. So they receive million US Dollar engineering feasibility payments and advise the authority "do it as you do earlier"

The misery of that feasibility is that this country cannot prepare the same feasibility within her own intellectual power, unable to utilize the young brains, without running the same design software, but asking foreign companies to assist us. It is "beggar’s economy" for all beggars.

The outcome is that AfsinElbistan thermal power plants Unit A and B will not be changed to CFB but will be continued with the existing pulverized coal firing system, which is a proven failure for many years in the past. It is for sure that CFB and IGCC are better firing systems for Afsin Elbistan local coal. It is not incorrect to say that we do not need to pay a feasibility study to foreign engineering companies in order to certify that bare fact which is proven in the past 20 years of plant operation in Afsin.

Another misery is in ash dam construction. There is no ash dam in Afsin Elbistan Unit-B. It is under construction period and it is expected to be completed in 3 (three years) time. In that next 3 years, the collected ash will be kept in the open space next to the thermal power plant and continue to pollute the environment. Misery is that, the color photo of that disaster is in the 2007 annual report back page.

When we review the rehabilitation contracts, we shall find that all rehab orders are given to the original foreign suppliers of east European countries who are complete failure in their contracts. They should be disqualified upfront. To verify that statement, one should review the latest rehabilitation awards given in the power plants, Soma-B, Kangal, Yenikoy, Catalagzi-B. They are given to OEM companies with poor design and operations records of the past, in the same plants.

When a plant initiates a rehabilitation procedure, then the plant becomes immune to all environmental measures. Hence they continue the rehab contract without planning to complete, since they have no more obligations. They prolong the contract period, and do nothing for adding new dust collectors, ElectroStatic Precipitators (E/P), FGD systems, there is no haste for new ash dam, nothing for the new control upgrades, and nothing for more plant availability.

In the 2007 figures we come up with low capacity, low availability rates in all plants, which are important indications of urgent need for immediate privatization. In privatization scheme, the public authority should eliminate the caste system in prevailing tendering procedures. At present, wealthy government-friendly individuals and government- friendly companies occupy a higher caste, foreign businesses and smaller companies are deliberately treated as lower castes. If this is to become a fair, open, international tender, then they must implement equal rights for all parties, and for all types of corporation and investors.

We also need to change the paradigm. Public should leave the electricity generation. Private enterprises should run the plants with clear appraisal and monitoring by public and private institutions. With these principles in mind, we should get the crucial implementations in the future. Your comments are always welcome

Haluk Direskeneli is an Ankara-based Energy Analyst