Monday, May 01, 2017
Energy business managing and making new energy investments are like running marathon races. You can not run 100m short race in this market. You can not change your position immediately. You can not change the fuel type. You can not look for domestic coal since it is cheaper and you have supply security. If you look at the short term, you will have hard times, maybe you bankrupt.
Gas-fired combined cycle power plants are still working because they supply electricity to the nearby big cities and industrial centers as base power plants. Gas-fired combined cycle power plants have also full capacity operation supply security and sales guarantee due to Build-Operate-Transfer contracts.
The situation of other gas fired CCPP stations are not so good. Natural gas prices have not yet reflected on the domestic market. There is currently a big size combined cycle power plant that does not operate, and does not generate electricity, does not make money. When in operation, plant operates at a 30% capacity maximum.
Many thermal power plants which are burning imported coal have occasionally stopped operation due to "Commercial Victimization" cause. "Commercial Victimization" is the code name.
Although imported coal prices have fallen below US $ 60 per ton, the cost of electricity generated in imported coal-fired thermal power plants has surpassed market electricity sales prices.
Eventually investors who did not want to sell electricity to the market at low prices naturally made obvious economic decisions. Some preferred to stop the business for a certain period of time.
We used to say, "This happens only in combined cycle power plants." Now we witness the same situation with imported coal plants. We shall leave the domestic coal under the soil and would use foreign imported coal resources for a while. That is changed.
There are large gas deposits in Australia. China and Japan were buying cheap Australian gas. Australia has set up two large facilities to generate electricity, in Wheatstone and Gorgon power plants.
Each investment had a price tag of $ 60 billion.
Australians would sell LNG to all over the world.
Five years ago the gas was US$ 17.50 per MMBTU.
Now gas price is US$ 6.50 per MMBTU.
Investments were feasible in the past, but now not any more. Now Japanese buyers are pushing Australian gas producers for high price reduction.Let's see where they deal.
Australians can not carry out new projects in Australia anymore.
The third project, Browse, has been canceled.
There is no more good news in terms of feasible energy security based on the feasibility of imported fuel investment projects.
We need new plans to make forward-looking strategies on a specific tried-and-tested model for energy.
The current generally accepted option is to add the maximum possible renewable energy into national grid.
Feed-in support policies for national networks is changing, with reverse capacity auction on the market.
Fossil-based electricity production will gradually decrease in time.
There will soon be carbon tax in all over the world.
Emissions trading will be practiced.
After a while, the domestic coal can also be expensive for the market and that situation will create "Commercial Victimization".
These comments can be very frightening to you, if you are living in the dream world, so we have to face hard facts.
If the incentives for energy investments are limited and they only add global imbalances to the financial markets, it seems that only investment in renewable resources are more likely feasible.
Turkey is far behind in terms of LNG and CNG resources.
LNG is still seen as an alternative to liquid petroleum fuels. While CNG vehicles were widespread in Europe, we only practiced in public transportation applications.
You might think that imported coal prices are profitable even in the free market sales of imported coal plants at a time when the imported coal price is lower than US $ 60 per metric ton.
But this is very misleading.
As long as the electricity purchase guarantee agreements do not reach close to the power plant life, the risk of investing in the power plants and use of more domestic coal, which is full of unknowns, can be hardly taken a feasible choice today. The imported coal which is used for imported coal-fired thermal power plants is taxed at US $ 15 per tonne, and this practice discourage more investments.
If you need electricity desperately by all means, then the price is not important, since the price is paid seems inexpensive anyway.
At the moment, the best way for market investors is to agree on what to do with local lignite and decide how to invest on local resources. Investors are to make their new investment programs in accordance with their already known market figures.
Due to the special circumstances of countries, economic powers may create some exceptions. But in the future it seems that financing of coal investments will become increasingly difficult.
Haluk Direskeneli, is a graduate of METU Mechanical Engineering department (1973). He worked in public, private enterprises, USA Turkish JV companies (B&W, CSWI, AEP), in fabrication, basic and detail design, marketing, sales and project management of thermal power plants. He is currently working as freelance consultant/ energy analyst with thermal power plants basic/ detail design software expertise for private engineering companies, investors, universities and research institutions. He is a member of ODTÜ Alumni and Chamber of Turkish Mechanical Engineers Energy Working Group.
This article is written for the "EurasiaReview" news web site.
Ankara, 1st May 2017