Turkey turning green?

This week’s pod turns to Turkey. While the country’s phenomenal economic growth has slowed in recent years, it still has grand ambitions to lessen its dependence on imported fossil fuels by expanding renewables. Listen to a discussion on the challenges and opportunities ahead for Turkey’s energy sector.

Guest: 

• Nazli Naseh, Editor, Montel-Foreks

Transcript

0:01

Did you know Montel uses artificial intelligence and machine learning to forecast spot prices, inflow to reservoirs, wind, and runoff river production. We can improve forecast for your individual power plants anywhere in new. Contact us at ai@motelnews.com for more info.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:34

Hello listeners and welcome to the Montel Weekly podcast, bringing Energy Matters in an informal setting. This week we are in Turkey, and we are looking at the country's ever expanding energy sector. Turkey is seeing demand growth of about five to 10% annually, but it has slowed down a bit under the COVID pandemic. Here we are to discuss what this means for the country's energy transition and helping me Richard Sverrisson to discuss this is Nazli, my colleague based in Istanbul. A very warm welcome to you, Nazli.

Nazli Naseh, Editor, Montel-Foreks: 1:05

Hi, Richard.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:06

So Turkey and the energy transition. What are the country's plans? What are its ambitions here?

Nazli Naseh, Editor, Montel-Foreks: 1:12

I think Turkey has been quite success. In introducing renewable generation into the mix. We have seen almost the double of the installed capacity in the last decade. And we currently have a quite a successful energy mix, and I think it's a, it's only agenda, the energy transition. For a couple of reasons. First of all, to obviously to reduce the carbon emissions, but also reduce the reliance of imported fuels as well, which is a big issue. And also create domestic jobs like manufacturing, producing the parts of the solar panels when. And also I think the country is taking this very seriously.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:51

So it's kinda a win-win in a way, isn't it? You are getting you are reducing the dependence on, on now, which are currently very expensive fossil fuels. Yeah. But you're also generating your own industries in terms of renewables, both manufacturing, not just solar and wind, but also EVs. So I've read,

Nazli Naseh, Editor, Montel-Foreks: 2:06

yes. We are not yet very forward with the electric vehicles yet because there are no tax incentives for the end users yet. But I think it's gonna be there and it's gonna be a big part of the demand growth within the. Short term, midterm, it's calculated around like 10 15% demand growths. We're a very big country and a lot of cars as well

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:30

as I've discovered here in Istanbul. Yes, it's a little bit crazy. Maybe the the EVs will alleviate some of, certainly some of the emissions and the pollution that you see in the bigger cities. But if we go back to the renewables grow, what's in the biggest expansion? Has it been wind or solar or combination of the two?

Nazli Naseh, Editor, Montel-Foreks: 2:47

Both. But we also have a big installed capacity in hydro power plants. That's a big thing for Turkey. And apart from that, both solar and wind almost doubled in the past couple of years. There has been a big interest from Turkish companies, spraying companies, and also the biggest season was the feeding tire. The government is looking to incentivize these projects. So it was an interesting investment.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:12

So that's my next question really, is like how are these projects financed? It comes directly through fit in Tars or through government subsidy?

Nazli Naseh, Editor, Montel-Foreks: 3:19

Yes. Usually these projects are financed with companie. A part of company's equity together with the financing banks like biggest Turkish banks also because these are subject to feeding tariff. It's a win-win situation for both parties, predictable the feeding tariffs. Up until this year we're in US dollars in foreign currencies and the banks were financing these with foreign currencies as well. That's the tricky part. Now.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:48

Of course.'cause the turkish lira maybe has not been so stable.

Nazli Naseh, Editor, Montel-Foreks: 3:50

Yes. So if you look at it from, let's say 2013, the US dollar currency almost quadrupled in eight years. And then these feed tars, let's say from this year. They're going to be in Turkish le but the financing are still in foreign currency and there's a big investment risk there.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:13

Absolutely.

Nazli Naseh, Editor, Montel-Foreks: 4:13

So in the past year, we've seen many refinancings from the banks together the investing companies. I even know some companies have did refinancing three times in the past two years.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:25

Seriously? Yeah. Yeah, because

Nazli Naseh, Editor, Montel-Foreks: 4:27

it's the currency is quite unpredictable.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:29

The turkish lira has been quite weak compared to the US dollar. That makes it very expensive for the government, is it looking at any ways to, to look at merchant projects or subsidy free issues? Is that on the agenda at all in Turkey?

Nazli Naseh, Editor, Montel-Foreks: 4:40

Yeah, there are Turkey, I have to say Turkey is very ambitious about the green project. So there are CCA tenders which are around 1000 megawatts per solar, 1000 megawatts per wind power. And they are with purchasing guarantees. So the country is looking into expanding this.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:58

And this is an annual tender or an annual auction?

Nazli Naseh, Editor, Montel-Foreks: 5:01

Yeah, both for the plant itself and manufacturing and creating jobs.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:06

Are PPAs at all a big thing in Turkey so far? Power purchasing agreements? Five or 10 year, 15 year

Nazli Naseh, Editor, Montel-Foreks: 5:12

with renewables?

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:13

Yeah,

Nazli Naseh, Editor, Montel-Foreks: 5:14

I think they are in the horizon, but not, not yet

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:17

because the expansion of the growth is still in the early phases. That's maybe comes when Yes. When a lot of these, when these subsidies reach the end of their lifespan or the plants that have been on the subsidies, then maybe the PPAs Yeah.

Nazli Naseh, Editor, Montel-Foreks: 5:29

It's not the yet the big thing, but I think it's will be soon the, with the industries and within the companies. I think so.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:36

What are the concrete objectives that Turkey has mostly in terms of, so and so we have, in some countries want to achieve. In the eu you want to achieve a certain percentage by 2030 or a net zero by emissions by 2050. Does Turkey have any concrete plans for the, for 2030 or 2050?

Nazli Naseh, Editor, Montel-Foreks: 5:57

Yes. I think I could summarize it, but saying turkey's most important strategy is to reduce the reliance on imported fuel. And this comes with renewable energy and mostly. So I think that's the number one priority at the moment. Obviously together with reducing the carbon emissions, but we don't really have the same specific aims as the eu, but obviously it's a EU is a big trading partner with Turkey. We have imports and exports. So I think many businesses will have to use the certificates, like guarantees of origin.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:31

So that's gonna be a growing importance. You think those sectors? Absolutely.

Nazli Naseh, Editor, Montel-Foreks: 6:35

I think we'll be growing parallel with the Europe European regulations.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:40

Excellent. We're sitting here in, in your office in Istanbul. It's, I can look out the window. It's very sunny. Yeah. Turkey's a very sunny country. Yes. So how, what's the outlook for the household sector in terms of solar?

Nazli Naseh, Editor, Montel-Foreks: 6:50

There are some developments there. The regulations have been east on it, but I think so far it's a, it's not a big thing yet. Because the investments are still higher than the power bills, let's say, for households. So I think it's a growing sector, but it's not exactly the fastest growing at the moment.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:08

So maybe that's one of the challenges. Going forward is the cost the cost of the energy transition is that an obstacle in, in, in expanding perhaps more rapidly than Turkey could?

Nazli Naseh, Editor, Montel-Foreks: 7:19

Yes and no because the alternative I think, is more expensive. The high gas prices and high coal prices and I think the renewable. In the end it's the cheapest and I think, no,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:32

of course it shouldn't be. No. But yeah. You mentioned hydropower as well. Is Turkey building new hydropower plants?

Nazli Naseh, Editor, Montel-Foreks: 7:39

Turkey has a lot of hydropower plants. There are almost around 30,000 megawatts. I think they are run of river and with dam type hydropower plants, and there are very big ones as well On the biggest rivers at the moment. I think there are maybe couple. In the pipeline, but not really.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:58

But I'm also reading geothermal. Geothermals has quite potential in Turkey.

Nazli Naseh, Editor, Montel-Foreks: 8:03

Yes. They're also inside the feed entire apps at the moment. They have 10 year purchasing guarantees from the government. It's growing, but it's still smallest after bio mass. So wind and solar has been the biggest one so far.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:16

It makes sense. Yeah. Because it's they're windy parts of Turkey, they're sun, sunny, and it's very sunny, so yeah. That doesn't make sense.

Nazli Naseh, Editor, Montel-Foreks: 8:22

Absolutely.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:22

If we turn to fossil fuels, there's still a lot of gas and coal being burnt in Turkey. Yeah. Is the country still building new coal fired and gas fire plants?

Nazli Naseh, Editor, Montel-Foreks: 8:35

Ccgt at the moment. No coal power plants. I think it'll be hard to find a bank to finance coal power plants from now on. Generally speaking, I don't think so. When it comes to nuclear as a base load, we have a project in Mersin, Akkuyu which is around 4,000. 800 megawatts. And it's gonna be operational, I think around 2023. That's the aim. It's gonna be that, it is gonna be hard to find the gas or coal investor,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:06

but nuclear is the country seriously. Wants to go for nuclear.

Nazli Naseh, Editor, Montel-Foreks: 9:10

Yes. There were three projects. Two of them are I'm not sure if they're gonna be operational. One of them I think is canceled lately. But Morrison the place is there, the equipment is there. And I think the government is. The purchasing guarantees are there. So it's gonna be operational? I think

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:26

so. Who's building that? Which kind of technology in terms of nuclear, is it is it Russian based? French based? It's

Nazli Naseh, Editor, Montel-Foreks: 9:32

Russian based. It's Russian. Russian based. Yeah.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:34

Because when you look at what's happened to some of the European pressurized reactors that are being built in Finland and in France, yeah. And also plans in the uk, the massive cost overruns. Delays. Delays, it's quite incredible to see. It's, some of 'em are very controversial now and, people I spoke to on this pods, doubt whether they'll even come online as planned anyway. What makes Turkey so sure that it can maybe avoid the traps that France and Finland have gone into, walked into.

Nazli Naseh, Editor, Montel-Foreks: 10:04

I think again, it's the reason to reduce the political reliance and on imported fuels. Nuclear is also, but in a sense it's a big basal power plant. And I think the project was set when the demand growth was big and was expected to be increasing, but. Maybe we don't need it so much right now.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 10:27

So that maybe raises some question marks about the whole project or

Nazli Naseh, Editor, Montel-Foreks: 10:31

I think it's going to be operational in the end. Okay. But we'll see what happens in 2023. We have elections coming.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 10:37

Okay. So that could change the picture. Yeah, it could. It's good. So you mentioned, and I mentioned in the intro about demand growth 10 years ago, there was phenomenal demand growth. Yeah. And also the country was growing at a phenomenal pace. Yeah. So that's since slowed down. How has that affected the power sector?

Nazli Naseh, Editor, Montel-Foreks: 10:54

Actually I could say that 10, 12 15 years ago, the total population was 70 million, right? Now it's around 81. It's a big demand growth with young population and also globally there was liquidity and we were attracting investment as well. But at the moment it has changed a bit with dropping the value of the Turkish layer, dropping investment. So I think the scenario is a bit bit different at the moment.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:20

But in terms of the electrification of transport, we touched on a little bit with EVs Yeah. Earlier. Is that something that's being clearly thought out or planned for getting. Fossil fuel cars and not just cars, but trucks and heavy goods vehicles off the road and being replaced by electric ones.

Nazli Naseh, Editor, Montel-Foreks: 11:37

I think hydrogen is an idea lately Turkey has been interested in that. The minister has been talking about this technology. With trains and mobility, hydrogen could be an idea. I think definitely there will be an interesting step with EVs, but nothing concrete yet.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:54

But what, is there any other there, is there a hydrogen strategy that's being been planned or been written? Is it terms of blue hydrogen, which is, I think

Nazli Naseh, Editor, Montel-Foreks: 12:01

it's going to be gray hydrogen. And that's the idea. It's very in the beginning phases of planning, but I think it's included in the midterm strategy at the moment. Hydrogen.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:12

That's very interesting. But I think the other aspect that I wanted to touch upon with you United, it was Ignite Turkey still burns a lot on Ignite. Is it developing its own ignite plants?

Nazli Naseh, Editor, Montel-Foreks: 12:23

Yes. We have more or less 10,000 megawatts of ignite power plants. And I can say that it's the only fossil fuel that we have in Turkey. We have a big area in z. So yes, we are currently using Ignite and also incentivizing

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:38

really, because this

Nazli Naseh, Editor, Montel-Foreks: 12:38

is, yes, there's a capacity mechanism in place. Which is a purchasing guarantee from Ignite and hydro power plants.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:47

It's, it is a quite contradiction here, isn't it?'cause on the one hand, a big rollout of wind of solar. Very reliant on high hydropower, but at the same time, there's ignite burning going on, on, on a massive scale, which is one of the most dirtiest fuels imaginable to, to produce to produce power.

Nazli Naseh, Editor, Montel-Foreks: 13:04

Yes, absolutely. I think as far as the lives of these power plants, they will be operational.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:10

It's yeah, and I think as long as they exist, maybe the country will struggle to reduce some of its carbon emissions.

Nazli Naseh, Editor, Montel-Foreks: 13:17

Yeah,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:18

there, there was a few years ago , there was talk of Turkey being a kind of gas hub. Yes. Taking the gas from parts of, Azerbaijan from the caucus and in, into Southern Europe. Is that still being talked about or is that sort of disappeared a bit?

Nazli Naseh, Editor, Montel-Foreks: 13:31

No, absolutely. Actually we have a PTI energy exchange. There's a new gas market. And it's operational. Soon in October there will be gas futures trading market. I think it's going to be an important thing in the Turkish gas sector. But the main obstacle is that bot the company's the country's gas company is handling all the contracts and most of the market. We cannot say yet that it's a liberal market yet, but the, it should be. It's getting there.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:02

It's getting there. I

Nazli Naseh, Editor, Montel-Foreks: 14:03

think so, absolutely.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:04

Is there any domestic gas production in Very little? Very little. Very little. If you see the prices currently being traded for gas in Europe, we, we've never seen these highs. Is there any chance that some of the gas can flow by Turkey into Europe or there's some more come that way?

Nazli Naseh, Editor, Montel-Foreks: 14:20

Yeah. And also. Currently there is very little gas production in Turkey, but there were discoveries recently that the Black Sea Discoveries, which are estimated to be around 540 BCM and considering we spend around 55, so almost 10 years demand for Turkey. I think that discovery. When it becomes operational, it's gonna help Turkey to become a gas hub as well. That's, I think, the plan.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:48

Let's talk a little bit about the foreign firms that are active in Turkey. Who are the main firms and what are they up to?

Nazli Naseh, Editor, Montel-Foreks: 14:54

I can say that since the early two thousands, there are many foreign firms active in many business. But recently, in the last couple of years, I think we can say that we see some fleeing companies or reducing their presence in Turkey. This is not just in energy, but automotive, telecom, textile. This, I think, is a result of, I can say political instability and, risk premium of the country. So we see less foreign companies at the moment, but Turkey definitely needs a foreign investment.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:27

But do you think we'll still think then Turkey is an attractive place for foreign companies to come and invest? Or is there more the flight going out of. The country.

Nazli Naseh, Editor, Montel-Foreks: 15:35

I think Turkey needs to do a economic recovery program. Which will include political stability and among many other things, and then the foreign investment will follow. Like I said before, Turkey needs the foreign investment. I think we're. Looking at the political and economical reforms once again.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:55

And then maybe that'll stimulate more companies Yeah. Looking to come in. Yeah, absolutely.'cause the country has these amazing resources. It has the wind, absolutely. It has the solar, as we mentioned, the hydropower and also geothermal. So once things, the ball gets rolling, there should be, ample opportunities for people to be active in these sectors, would you say?

Nazli Naseh, Editor, Montel-Foreks: 16:12

Yeah, absolutely.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:14

Nazli, thank you very much for joining the Montel Weekly podcast. So listeners, you can now follow the podcast on our own Twitter account at ly named the Montel Weekly podcast. Please direct message. Any suggestions, questions, or let us know if you think you have a good idea for a guest on the show, you can also send us an email to podcast@montelnews.com. Lastly, remember to keep up to date with all that's happening in energy markets on Montel News. You can subscribe on Apple Podcasts and Spotify or wherever you get your podcasts from. Thank you and goodbye. I.