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THE DEVELOPMENT OF THE DEVELOPMENT OF COGENERATION SYSTEMS IN COGENERATION SYSTEMS IN

TURKEY AND ITS FUTURE TRENDTURKEY AND ITS FUTURE TREND

Presented by Presented by

OZKAN AGIS OZKAN AGIS

Chairman Chairman

Turkish Cogen and Clean Energy Technologies Association Turkish Cogen and Clean Energy Technologies Association (TURKOTED)(TURKOTED)

4th SE EUROPEAN CODE WORKSHOP10 – 11th of March 2011, Thessaloniki, Greece

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1. GENERAL ENERGY POLICY1. GENERAL ENERGY POLICY• The republic of TURKEY (population 73 million, area 780,000 km²)

forms a natural bridge between Europe and Asia. TURKEY is a

rapidly growing economy and over the past decade, its GDP has

increased at an exceptional rate compared to other OECD

countries. Turkey is the 17th largest economy in the world. From

2000 to 2010, the economy is expanded on average by 5% a

year, despite the damages of the last global crises. The

unemployment rate was 12% in 2010, while per capita GDP is

slightly over 10,000 USD. As it is in all developed economies,

services constitute 64% of GDP in 2010, industry 26% including

construction, textiles, vehicle manufacturing, food processing. The

agriculture accounts 10% of GDP.

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• Turkey has applied for full membership to European Union, almost

50 years ago but accession talks are going on since 2005. EU

membership bid manifests itself in growing harmonisation with EU

legislation. The recent evidence of such a nice harmonisation is

the senkron operation of Turkish H.V. Grid with European Grid

since 18th September 2010 (through Babaeski – Mariza (Bulgaria)

H.V. lines and through Babaeski – Kometini (Greece) H.V. lines).

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2. ENERGY SUPPLY AND DEMAND2. ENERGY SUPPLY AND DEMAND• TURKEY’s total primary energy supply (TPES) was 106 millions

tonnes of oil equivalent (Mtoe) in 2009. Turkey depends on import of 74% if its TPES, including almost all oil and natural gas and most grade coal.

• The indigenous production constitutes only 26% of the total energy demand.

• Turkey will likely see the fastest medium to long term growth in energy demand among European countries. It has a young and urbanising population and energy use per capita is still comparatively law (app. 1.5 Toe/capita). Therefore, ensuring sufficient energy supply to a fast growing economy, remains the government’s main energy policy concern.

PRIMARY ENERY DEMAND IN TURKEYPRIMARY ENERY DEMAND IN TURKEY

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28,8%

6,8%30,8%

5,0%28,7%

N. Gas

Hydro+Wind+Geoth+SolarOil

Coal

Others

Figure 1. Primary Energy Demand of Turkey

(2009: 106.1 Mil. Tep, 1990-2009 Average Demand Incerase 3,7%)

ENERGY DEMAND AND LOCAL PRODUCTIONENERGY DEMAND AND LOCAL PRODUCTION

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0

50

100

150

200

250

1980 1990 2000 2008 2010 2020

Production

DemandMT

oe

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As one of the government’s primary policy goals, energy security has attracted more focus than market reform and environmental protection. However, Turkey has progressed greatly in all areas of energy policy since 2000, by attracting energy investments. To attract investments, the following measures have been taken:

Privatization process have been started. As of today, 90% of the Regional Electricity Distribution Systems and 50% power production plants are privatized.

Power sector reforms have been progressed significantly and comprised moving last reflective whole sale tariffs in the electricity market.

The share of public company in electricity generation is in declining, from 100% in 2000 to 45% in 2010.

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• Thanks to attracted electricity tariffs in the market, well known

power generation companies are investing for power generation to

get a share in power market like RWE, OMW, E-ON,

FINMECCANICA, IBERDOLA.

• The government tries to increase the domestic energy supply. In

that sense, lignite production has been doubled in last 10 years.

• The government is also determined to utilise Turkey’s large hydro

potential, wind power and geothermal energy and aims to

introduce nuclear power.

• In natural gas sector, reform has been slower, largely owing the

security of supply concerns and needs to be accelerated.

However, Botas is successful in the operation of gas transit from

gas rich countries to Europe.

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3. KEY POLICIES3. KEY POLICIESTurkey’s energy policy broadly follows the strategic objectives: security of supply, to meet energy expectations of economic growth and environmental protection.

1. Security of Supply

Ensuring sufficient energy to a growing economy, has been main energy concern. A key part of Turkey’s policy is energy diplomacy with the supplier countries in the region, which have more than 70% of the proven oil&gas reserves of the world. Turkey has been quite seccessful by the supply agreements with Russia, Iran, Azerbaijan, Egypt, Algeria, Nigeria, Qatar. These agreements and the related projects strenghten Turkey’s role as a transit country, an energy corridor and terminal between its neighbouring suppliers and the international markets.

Natural Gas Import of Turkey 2009Natural Gas Import of Turkey 2009(35,8 billion (35,8 billion mm33 Üretim:0,7 billion Üretim:0,7 billion m m33 ) )

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56

15

14

123

Russland

Iran

Aserbaidschan

Algerien

Nigeria

NATURAL GAS CONSUMPTION REACHED NATURAL GAS CONSUMPTION REACHED 36.86 BILLION m3 IN 2008 36.86 BILLION m3 IN 2008

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In the following chart you will see, how natural gas purchases have been developed with the gas suppliers:

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““Baku-TBaku-Tiflisiflis-Ceyhan-Ceyhan” Crude Oil ” Crude Oil Pipe line Pipe line

Caspian -Turkey Natural gas Pipeline Caspian -Turkey Natural gas Pipeline (South Caucasus N. Gas Pipeline)(South Caucasus N. Gas Pipeline)

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Blue Strem Natural Gas Blue Strem Natural Gas PipelinePipeline

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SOUTH EUROPE NATURAL GAS RINGSOUTH EUROPE NATURAL GAS RING

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TURKEY – GREECE NATURAL GAS PIPELINETURKEY – GREECE NATURAL GAS PIPELINE

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Karacabey

Alexandhroupolis

Kipi / İpsala

Komotini

KızılcaterziDeğirmencik

Turkey-Greece Natural Gas Pipeline

Marmara Sea

Çanakkale

İstanbul

(Dedeağaç)

(Gümülcine)

Bursa

Tekirdağ AmbarlıPendik

Hersek

Muallim

NABUCCO NATURAL GAS PIPELINE NABUCCO NATURAL GAS PIPELINE PROJECTPROJECT

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2. Attracting the Domestic Energy Production

To attract the domestic energy production incentives were enacted with the renewable energy law in 2005. At the end of last year, revision of the incentives was passed from the Parliament, which increased feed-in tariffs, especially for agro residues firing and geothermal energy production. In renewable energy production, the target is 30% of total production in 2030. To secure this, the government is issued a Decret of Strategy in 2009.

3. Environmental Protection Became an Integral Part of

Energy Production

Turkey has been a Party to UNFCCC since 2004 and to the Kyoto Protocol since August 2009. Turkey has gained a special status within the Annex – I Parties to UNFCCC. However, Turkey is the only Annex – I country that has not set mitigation target for the past 2012 period. It is also the only OECD country that does not have a national emission target for 2020.

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•Efforts to limit energy related GHG emissions focus on promoting renewable energy, energy efficiency, nuclear power.

•In recent years, Turkey has improved its policies to control a pollution. For example, old coal or lignite-fired plants are being equipped with the flue gas desulphurization units. The limits of gas emissions and discharge limits of the liquid waste are exactly same with the values given in German Standard of TA LUFT ½.

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4. POWER SUPPLY AND DEMAND BALANCE4. POWER SUPPLY AND DEMAND BALANCE

• The total power generating capacity (the total installed capacity) in Turkey was 48,588 MW in 2010. The break down of this capacity upon the sources is shown in Graphic – 1 below:

Graphic 1. The installed capacities of the power plants upon the sources of energy

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• You can see from this graphic, natural gas firing capacity is 16,081.3 MW You can see from this graphic, natural gas firing capacity is 16,081.3 MW which constitutes 33.1% of the total.which constitutes 33.1% of the total.

• If we look at the break down of this capacity upon the power producers, If we look at the break down of this capacity upon the power producers, we have the following (Graphic 2):we have the following (Graphic 2):

• As you can see, Public Utility Company, EUAS has almost 50% of the As you can see, Public Utility Company, EUAS has almost 50% of the installed power capacity.installed power capacity.

Graphic 2.The installed capacity of the power plants upon the power producers

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• As far as the electricity generation is concerned:

1. Upon the sources of generation

• Once again, the share of generation by means of natural gas is 45.90% of total electricity production.Graphic 3. Electricity Generation upon the sources

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2. Upon the power producers

• As you see, in 2010, the share of public utility company EUAS was only 45.37%.

Graphic 4. Electricity Generation upon the Power Producers

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5. INCREASING TREND OF DEMAND5. INCREASING TREND OF DEMAND

• The increasing rate of the demand (consumption) is quite sustainable. Despite the global crises, the average of increase in demand was 6% in last 7 years (since 2003).

Graphic 5. Annual demand increases of last 7 years

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6. ELECTRICITY MARKET OPERATION6. ELECTRICITY MARKET OPERATION

• The Electricity Market Law (No:4628 is enacted on year 2001. this Law created EMRA as the Regulating Authority of the Electricity Market. EMRA has several tasks:

issues licenses,

determines and approves regulated tariffs,

sets the eligibility limit for market opening,

drafts secondary legislation on the electricity market,

resolves dispute,

applies penalties.

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• EMRA has the powers to issue licenses for all market activities: generation, transmission, distribution, wholesale and retail. Separate licenses are required for each market activity and for each facility where the activity is carried out. Generation and distribution licenses are granted for at least 10 years and not more than 49 years.

• The gradual opening of the electricity market began in March 2003, when all consumers directly connected to the transmission network and those consuming more than 79,000 MWh per year to choose their supplies.

• EMRA defines this eligibility threshold for a year at a time in 2010 is set at 100 MWh.

• The transmission system operator TEIAS and distribution systems operator TEDAS are obliged to provide a non-discriminatory transmission and connection services to all system users, including eligible consumers, connected or to be connected to the transmission system.

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7. MARKET DESIGN7. MARKET DESIGN• Turkey’s electricity market model combines bilateral agreements

that are expected to cover the bulk of electricity demand with day-ahead and real time balancing mechanism as well as a settlement system for imbalances.

• Within the scope of the balancing and settlement implementations, two different prices were produced namely an hourly marginal price and systems, imbalance price. The hourly marginal price was calculated on an hourly basis and announced daily through the web site of TEIAS. Theoretically, this price was the market price indicating the supply-demand situation of the electricity.

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• The second phase of the transition, started on 1st December 2010, entails switching from day-ahead planning to the “day-ahead market”, which is a spot market. However, the practice of hourly reconciling imbalances in the real time balancing market will continue.

• If the result of the tender does not ensure sufficient supply, the Council of Ministers may authorize state owned generation company (EUAS) to build new power plants.

• After August 2006, when the Transitional Balancing and Settlement Regulation came into force, suppliers selling electricity through bilateral contracts terminated their contracts with the consumers and started to sell electricity to the balancing market. According to EMRA, from September 2006 to May 2008, the volume of electricity trade, based on bilateral contracts, fell by 38%.

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THE DEVELOPMENT OF THE DEVELOPMENT OF COGENERATION SYSTEMS IN TURKEYCOGENERATION SYSTEMS IN TURKEY

• Up to year 1984, Power related investments and operations were under the monopoly of Turkish Electricity Authority (TEK).

• Either the quality of electricity (frequency, voltage, availability, accessibility etc.) and supply was controlled by TEK.

• Industrial and/or residential consumers had to satisfy with the available and accessible electricity.

• In 1984, Law No:3096 was enacted by the Turkish Parliament. First time in Turkish power history, the subject law was giving the right of build, right of operation and right of ownership of the power generating facilities.

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• Thus, first cogeneration plant was built in 1992 (Yalova Elyaf – 4

MW).

• At that time, natural gas network was only available in Marmara

Region, Bursa, Eskisehir and Ankara (almost 1/6th of Turkey).

Therefore, the number of the new cogen plants were limited.

• After year 1995, gas network was enlarged by Botas and new

cogen plants were built.

• As you can see from bar-chart No.1, up to year 2004, the development of

Industrial Cogeneration Systems were in “Golden Age”.

• The total cogen plants capacity was reached to 5000 MW (15% of the total

capacity in Turkey). But, in 5 year afterward, only 2000 MW new cogen capacity

is connected to the grid.

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1992 41993 1271994 2001995 3321996 8371997 10401998 15601999 20562000 27342001 32002002 38002003 45002004 50002005 53002006 57002007 58002008 60002009 6400

4 127 200 332

8371040

1560

2056

2734

3200

3800

4500

50005300

5700 58006000

6400

0

1000

2000

3000

4000

5000

6000

7000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Inst

alle

d C

apac

ity

[MW

]

YEARS

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• After 2004, the natural gas prices were rising up so fast that, the existing

plants which were in operation, were loosing money due to non-affordable

gas prices. Consequently, new cogen investments were almost stopped.

• The graphic – 3 indicates, how natural gas prices were fluctuated from

March 2004 to November 2008.

NATURAL GAS AND ELECTRICITY PRICES (ELECTRICITY PRICES ARE SDF PRICES AFTER AGU. 06)

0,00

10,00

20,00

30,00

40,00

50,00

60,00

Mar

.04

May

.04

Tem.0

4

Eyl.04

Kas.0

4

Oca

.05

Mar

.05

May

.05

Tem.0

5

Eyl.05

Kas.0

5

Oca

.06

Mar

.06

May

.06

Tem.0

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Eyl.06

Kas.0

6

Oca

.07

Mar

.07

May

.07

Tem.0

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Eyl.07

Kas.0

7

Oca

.08

Mar

.08

May

.08

Tem.0

8

Eyl.08

Kas.0

8

MONTHS

Na

tura

l Ga

s P

ric

es

[c

en

t$/S

m3

]

0,00

2,00

4,00

6,00

8,00

10,00

12,00

14,00

16,00

18,00

Ele

ctric

ity P

rice

s

[$c

en

t/kW

h] (P

rice

s a

re S

DF

P

ric. A

fter A

gu

.06

)

Natural Gas Prices

Electricity Prices

Graphic 6. Change of Natural Gas and Electricity Prices from March 2004 to November 2008

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• “Renewable Energy Law” which was issued on 2005 offered incentives to “renewable energy sourced” electricity production (i.e. wind, hydro, geothermal, solar, biogas etc.). Since these are national sources, new power investors (local or foreign) gave No.1 priority to these new era. As of today, nobody is investing money, unless this investor needs power and heat or coolig energy at the same time.

• In the buildings, “existing flat owner’s law” is a big barrier on the way “micro cogeneration”. Because, only one rejecting (opposite) vote in the owner’s committee, could stop installation, micro or midi cogeneration installation in the buildings.

• Only shopping malls or new private Residential Projects are trying to incorporate the cogeneration projects with their civil engineering studies. Our Association tries to encourage them.

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• Nowadays, our Association is concentrated on the new mass housing projects to include cogeneration and trigeneration in their engineering deliverables. In that respect, we are getting the full support from MENR. The biggest barrier on the way is TOKI, State Mass Housing Administration. This public Administration is undertaking the construction of 100,000 houses (flats) in a year. Up to now, they are applying the conventional “Central Heating Systems” in their buildings. This system is against new “Energy efficiency and energy saving law” which was enacted in 2007. our Association prefers to convince the Authorities, including priminister Erdogan, with symposiums and conferences, explaining academically how big energy saving will be gained, in case cogeneration systems are to be incorporated with new mass housing projects.

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However, there are other factors influencing the slowing down

development of cogen plants. These are:

• Government was not agreed with our Association, to issue “The

Cogeneration Directive”, Despite, Turkish Cogen Association

prepared adaptable draft of law tender the name of “High

Efficiency Cogen Systems”, one week after European

Cogeneration Directive is approved (21.02.2004). Then, expected

incentives for cogeneration systems are not approved. This

situation discouraged the cogen investors.

• Anti – natural gas lobby convinced the government on the slowing

down of gas power plants, claiming that, “increasing gas supply is

also increasing Turkey’s dependency to gas supplying countries”.

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INCENTIVES FOR COGENERATION INCENTIVES FOR COGENERATION SYSTEMSSYSTEMS

80% higher cycle efficiency is accepted to benefit from the following incentives:

• Connection to the grid will be in priority,

•They don’t need to provide license from EMRA (Energy Market Regulatory

Authority),

•All micro cogeneration units don’t need to provide license. But their

connection to grid is still under discussion. Because new private operators of

the electricity distribution system prefer to deal with big customers,

•If biomass power based design covers the “made in Turkey” cogeneration

system, 0.4 US$ cent/kWh for steam or gas turbine 2.0 US$cent/kWh, for

internal combustion engine or stirling engine 0.9 US$cent/kWh bonus are

to be added at the top of feed-in tariffs.

ENERGY EFFICIENCYENERGY EFFICIENCY

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Turkey’s energy efficiency policy is guided by the 2007 Energy

Efficiency Law. This law is almost complying EU’s Energy

Efficiency Strategy’s goals.

Energy Efficiency Law (2007) aims to reduce energy intensity

by 15% below the reference scenario projections by 2020. the

following regulations have been prepared, based on the

Energy Efficiency Law:

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• Sharing the heating and domestic hot water expenses in the

buildings,

• Improving Energy efficiency for the utilization of Energy and

Energy Resources,

• Energy Performance of Buildings,

• Regulation on Appointment of Energy Managers in Schools.

Measures on new buildings focus on Energy Performance

requirements. The requirements cover energy needs for space

and water heating, cooling and lightening. The by-law also

mandates regular inspections of boilers and centralized air

conditioning systems. All these requirements largely follow EU

rules that are laid out in the Directive on the Energy

Performance of Buildings (2002/91/EC),

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• All new buildings must have an energy performance certificate

indicating their energy performance class. Existing buildings

will be required to have energy performance certificate by May

2017,

• Furthermore, the 2007 Energy Efficiency Law obliges large

energy users to appoint or contract an energy manager and to

report annually on energy consumption to MENR.

• Mandatory energy labeling of domestic appliances is

harmonized with EU directives. It covers lamps, ovens,

refrigerators, freezers, washing machines and dishwashers.

THANK YOU THANK YOU

FOR YOUR ATTENTIONFOR YOUR ATTENTION

Ozkan AGISOzkan AGIS

info@kojenerasyon.cominfo@kojenerasyon.com

ozkan.agis@enerko.com.trozkan.agis@enerko.com.tr

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