2020

TURKEY- Energy & Infrastructure Forecast 2020

Risks and Opportunities

Economies and businesses are always shaped by expectations, just as market expectations are important in economic forecasts themselves. Within our professional capacity, we have tried to outline a draft forecast for the upcoming days. While it may not necessarily foresee the future in all its detail, it is better to have one, rather than none. Here are our short term new year predictions:

Energy supply security is within our prime concerns. Our installed capacity has reached to 92+ GWe, whereas peak demand at 52+ GWe in August 2019. Electricity generation has reached to 303+ billion KW-hours in 2019. Our local lignite production was about 50+ million metric tons in 2019. Hard coal production was 2 million metric tons. Imported hard coal was 30 million metric tons. Natural gas consumption was expected 53 billion cubic meter (bcm) in 2019.

The relative decline in production activities reduced demand. The need for more electricity generation was not seen last year. We observe stagnant electricity generation, investment and rehab activity. There is no new investment in the power plants. Most of them are transferred to private companies through privatization. The investments in environmental equipment ESP-FGD rehab are not seen yet. Owners of thermal power plants have secured a new 2.5-year environmental equipment exemption from parliament, however they have received a strong reaction from environmentalists. It is not right for thermal power plants to extend exemption in environmental investments. Investments in environmental equipment for old thermal power plants should be made as soon as possible.

Last year we have seen serious blockages in project financing.

According to the latest reports of Credit Rating Agencies, we are not in the position of investment grade country. Instead of making negative evaluations, Credit Rating Agencies stopped evaluating for us. We need to give confidence to international markets. Foreign resident investors, bankers leave their property, property and stock.

The increase in US Fed interest rates, 25bp increases with 3-month renewals throughout the year, we understand that hot money will be absorbed from all over the world and directed to the US market.

The price of oil barrels has played in the $ 70-80 band over the past year. There is Eastern Mediterranean offshore gas but how to transport is still on paper. It takes at least 4-5 years for a solution.

Russian natural gas is very expensive, 1000 m3 comes to us 310-320 US$. The price of Russian gas at the German border has dropped from $ 9.50 to $ 8.25 for 1-MMBTU. The price in the USA is around $ 3.00 for 1-MMBTU. The increase in the amount of US shale gas and German renewable energy incentives have made a significant contribution to this price drop. Depending on the price of oil, it is expected that Russian natural gas will be reduced in general.

On our side there is little change in price reaching to the end consumer. There is a discount on wholesale prices on purchase, but the discount on end-user prices depends on pre-election policies.

Our energy market is expected to restructure debt around US $ 50+ billion. Change of ownership in power plant properties may occur. Our end-2019 growth is forecasted in the range of 4-5%, it is higher in the public forecasts. Politicians believe that energy investments should increase more than the growth rate. It is too difficult to pronounce all this in the current environment.

It is not easy to find revenues to cover public expenditures. Public institutions show ease in the commissioning of new power plants. In the past, test and trial and temporary admission procedures were serious and long-term. Now it is finalized in a couple of days.

Refractory distortions, equipment and I&C system, synchronous failure sensations are appearing in the new power plants. CFB designs do not work in compliance with our domestic lignite. Domestic coal, which contains a lot of water moisture, does not burn in the CFB combustion chamber. It is necessary to constantly use supplementary liquid fuel to burn local coal continuously. Local coal enters the combustion chamber as ice in winter and as mud in summer. The water in the domestic coal should be reduced by preheating. Bag filters are not enough, ESP should be added. Afşin-B- type "indirect firing preheated pulverized coal combustion" design seems more compatible for our domestic lignite coals.

New combined cycle power plants were commissioned. But what if the Russian gas is cut off for some reason? We have a serious risk of gas supply. TurkishStream offshore pipeline from South Russia to West end of Turkey came into realization, it is not clear what amount will be given to Turkey.

Afsin Elbistan -A thermal power plant is privatized and changed hands. It is a very old plant with operational problems. The new group started engineering work for 4x344 MWe rehab, and new 2x344Mwe units. Such large projects require a large financial package and experienced staff. Afşin Elbistan -A power plant works without necessary environmental equipment, FGD is not installed and ESP is inadequate. Thanks to the capacity mechanism the price goes harmonious to the market. It is futile to repair this power plant, it is more convenient to dismantle and re-build it.

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The defective units of Afşin Elbistan-B power plant were repaired and recommissioned. The availability of operating units is not yet at the desired level. The coal fields are still closed due to past landslides. How long will the domestic open pit coal from Kışlaköy coal field with most trucks carry this system? Investors are not willing to invest in new thermal power plant investments, there is no serious investor. International financing groups are waiting, they are in no hurry for new investments. They are considering the situation to buy old facilities that have fallen in value too.

Imported coal power plant investment projects will end. The political authority has a clear attitude not to use of more imported coal, which increases and adversely affects the current account deficit. After that, import coal investments are not recommended. In the international spot market of imported coal (South Africa, Colombia, Australia) the price of US $ 90-100 per metric ton (about US $ 3.00 / MMBTU) is already very expensive.

There are no new energy investments in our Southeast. The region absorbs and uses energy - electricity, but our people do not pay the bill. Instead of spending more money for security, it would be wiser to investigate the possibilities of solving problems through dialogue.

With the renewables application, certain teachings came to the renewable energy market. Companies have learned well what to do, hydro, solar, wind investments are on their way. Unit electricity production costs began to decrease. These are the most pleasing news, domestic production opportunities are increasing. With the activation of the specialized solar regions, three-digit solar energy plants can be reached. We expect to continue the investments wind and solar, each with a capacity of 1000 MWe.

The news "Japanese nuclear project of Sinop was canceled", appeared, then denied. We do not see much work for Akkuyu nuclear other than on-site civil construction. There are financial problems. The long-term high purchase price guaranteed of nuclear power raises serious concerns.

What is the possibility of nuclear domestic fuel, was it possible to import fuel from more than one country? Where will the used fuel go? If there are no answers, what is the possibility of abandoning the nuclear business? How much does it cost? When will the least costly models be made for future production and consumption estimates?

In COP25 Madrid 2019 there are serious sanctions against coal and fossil fuels on the agenda, and the situation will become more evident at COP26 Glasgow 2020 meetings.

More investments in environmental equipment, more clean coal technologies will be required. In the near future, there will be total escape from coal all over the world and a total financing cut in fossil fuel power plant investments. While economic growth is the critical in energy strategies, it is necessary to increase efficiency, reduce demand growth or keep it steady.

Always trust the Turkey's business people. Believe in the great domestic market power of a land with population of 82 million. Be cautious about the "fragility" warnings of economists. Don't borrow, stay in cash, save money if you have extra money, cut costs, do run your existing business. Continue your advertising, engineering and feasibility studies. Don't worry, hard times come and go.

Happy new year to you all.

Ankara, 02 December 2019