Turkey - stuck in the twentieth century
Turkey enters 2017 with an energy strategy that looks increasingly anachronistic
The ill-effects of Turkey's failure to modernise its energy strategy could start to be felt in 2017. As economic growth and energy demand continue to accelerate, the country's strategy for meeting the needs of today's energy consumers looks more like one crafted for the previous century.
Political stability, under the single-party government of President Tayyip Erdogan, seemed to establish a platform for energy-market reforms. But, since 2012, the will to modernise the country's energy strategy seems to have vanished. Now, the thrust of energy policy is boosting the share of domestic coal in the energy mix and curbing over-dependence on natural gas.
Imported coal generated 15% of Turkey's electricity in 2015 (40 terrawatt hours) - slightly more than domestically produced coal, with a 14% share (36 TWh). The Turkish energy ministry's medium-term outlook projects that domestic coal's share will rise to 60 TWh by 2019 and some 4.5 gigawatts of coal-fired power plant capacity is under construction for the purpose of burning it.
More coal should reduce gas's share of power generation, which rapid economic growth has pushed to an unsustainable level, given that virtually all of Turkey's gas is imported - mostly from Russia. Between 2002 and 2012, economic growth ticked along at an average of 5% a year and primary energy demand rose sharply, by 75% between 2002 and 2015. Coal use grew by 80% over that period, but gas consumption increased by a spectacular 170% and reached 48bn cubic metres, swelling Turkey's import dependency (for all types of energy) to 75% and making the country Gazprom's biggest European customer, after Germany.
Energy imports have become a burden on Turkey's economy, an effect that has been exacerbated by the depreciation of the lira. There will be some relief in 2017 as the economy and energy demand slow down. But relief will be temporary and the government must urgently find sustainable ways of eliminating the structural problem posed by energy imports.
One solution would be to use its excellent natural resources to generate more renewable energy. But, other than hydropower, with 26GW of installed capacity, renewables have barely made a dent in the supply mix, despite the availability of generous feed-in tariffs. Turkey has just 5GW of wind (6.6% of its total installed generating capacity) and less than 1GW of solar-photovoltaic generating capacity (0.7% of the total). Even though Turkey is one of the sunniest places in Europe, it lags far behind peers, including Greece (2.6GW) and Spain (5.4GW). Meanwhile, besides cheap coal, the government is opting for nuclear power, with plans for three large plants by 2023 - using money that might be better spent revamping the ageing Turkish electricity grid so that it is equipped to accept more power from renewable-generation sources.
Even Turkey's attempts to turn its gas dependency to its own advantage, by becoming a distribution hub for Europe are at risk because it still hasn't put in place sufficient storage capacity - just 2.8bn cm at present. It also lacks a competitive wholesale gas market, a mechanism for setting prices and other standard accoutrements of a regulatory framework.
In the meantime, though, some infrastructure is coming: the Trans-Anatolian Natural Gas Pipeline will deliver 6bn cm a year to Turkey by 2018 and 10bn cm/y to Europe by 2020. The 32bn-cm/y Turkish Stream project is also a possibility, following a recent agreement between Moscow and Ankara. Plans are afoot for a natural gas pipeline parallel to the existing Kirkuk-Ceyhan crude oil pipeline.
In oil, surging car ownership, a preference for diesel and a booming aviation market have caused a structural middle-distillate deficit. Between 2005 and 2015, Turkey's diesel imports tripled, from 90,000 b/d to 270,000 b/d. Economic slow-down will take away some of the pain, but, again, the structural problem risks being left unresolved.
It's hardly a surprise that Turkey's contribution to the Paris agreement was unambitious. Turkey said it would cut annual growth in greenhouse-gas emissions to 4.2% from a business-as-usual projection of 5.6%. But average growth in GHG emissions over the past 25 years was just 3.4% per year, meaning that Turkey has actually pledged to increase its GHG emissions by at least 75% over the next 15 years. This is not promising, but it fits the path its energy planners have decided to follow. In 2017, they should rethink.
This article is part of Outlook 2017, our annual book looking at energy market trends for the year ahead. To purchase a copy, click here