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Turkey: Energy And Infrastructure Forecast 2021- OpEd

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For Energy Markets employees, your author has been making predictions for the next year at the end of each year since 2013. These are purely personal opinions of your author. We Analysts are expected to make predictions for the next year at the end of each year. Economists make predictions, social scientists make political predictions. Some of these predictions hold, most of them don’t.

Many things happen during the year that affect the markets. The political preferences of the political administration change. If the election is approaching, pre-election optimistic economic and financial political policies come into play, so domestic and foreign politics inevitably steer events differently. It is necessary for all of us to make predictions to manage our business and direct investments. Together, we draw a forecast for the next year, we make adjustments to our predictions according to the events that occur during the year. As I was writing this article, things went so far that I had to refresh it many times and rewrite it.

In 2020, we faced unprecedented virus epidemic of the century. We, the 65+ year olds, were in lockdown at home in spring and autumn for a long time. We could not go out on the street. Even if we are protected from corona infection, due to inactivity, old age diseases such as heart-sugar-osteoporosis started to hit us.

Your writer had a sunny back balcony at home during the day. I had long phone conversations with close friends, whom I haven’t spoken to for a long time, from morning to night. I never missed Zoom meetings of colleagues when invited.

We are at home again 24/7 this New Year. We have no other topics but Covid-19 outbreak to talk about. All domestic and foreign TV news channels, all media only talk about Covid-19. Although global untimely incorrect policies are applied, late and incomplete decisions are made, and negative comments are made, we are experiencing formations that coincide with the same curve all over the world. The epidemic adjusts everywhere, forcibly pushing decision-makers in the right direction.

The hard power of the new generation F35s fighter planes, S400 missiles, large aircraft carriers are no longer needed. Payments to tenders have been postponed due to fear of the epidemic. Limited resources were quickly diverted to city hospitals, half-construction was accelerated. Başıbüyük, İstanbul and Başakşehir City hospitals on the European side were opened rapidly. Ankara Bilkent City Hospital became an expert center on pandemic. Hacettepe Ankara TIP IbniSina hospitals are specialized in treatment. Domestic production ICU (intensive care units), serial production of medical ventilators have accelerated, health personnel in need of new hospitals were recruited from the young staff of old hospitals, family physicians and provincial physicians were employed, and “city hospitals” were built in all provinces. With the weekend curfew, the rate of infection spread over time has been slightly reduced. The herd immunity advantage of the young population came into play.

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Land borders have been closed by all countries. The epidemic in immigrant camps in the south forced the immigrants to quickly return to Syria. It was a very important decision to close our borders. In particular, the borders of Iran, Iraq and Syria were very important in terms of stopping the epidemic. It was very dangerous for people infected through Iran and the Middle East to enter our country. On the other hand, we hear that the epidemic has also increased in our neighbors Russia, Bulgaria, Greece and Georgia.

The USA’s unpreparedness for the epidemic shook the entire system. In Britain, Prime Minister Boris Johnson, French president Macron, German Chancellor Angela Merkel, American president Trump and even Putin were quarantined for 14 weeks in separate times.

Russia is just realizing and learning about the seriousness of the situation. The Corona even defeated the unbreakable stubbornness of the Vatican and other religious institutions. Churches, cathedrals, synagogues and mosques were closed to worship.

The Saudis canceled the hajj and umrah programs altogether. They don’t take anyone to holy places. Due to the need for female health personnel, they removed the requirement for head scarfs.

In Germany, Angela Merkel took the epidemic in Germany under control with the sensitivity of academicians. Germany, which takes the outbreak forecast report of the 2012 Robert Koch Institute seriously and takes the necessary precautions, has relatively less casualty than other countries. Germany, which makes the necessary investments in health issues and has high emergency capacity devices ready, is considered to have saved. Germany hardened its rules for the epidemic again towards New Year’s Eve.

Oil prices have dropped to 20 US Dollars per barrel for a while in the world, since there is no demand so no production. There is no place to store the production, producers almost always thought of giving money to the buyer so that they could “buy and store it”. Now oil price is 40 US dollars per barrel.

Big discounts are expected in natural gas prices indexed to oil prices soon. Coal will no longer be extracted from underground mines so easily. Only limited mechanized unmanned underground mines can operate. Thermal power plants will remain completely idle in the future. Wind, solar and hydro resources that do not require manpower will gain importance.

After Covid-19, we will turn to completely renewable energy-focused resources. Investments will rapidly flow into renewable power plants.

Europeans canceled their summer vacation reservations, early booking refunds led hotel and airline companies to bankruptcy. Restaurants, cafes, indoor areas are closed and it will take a long time to open. Even after opening, nobody will go for a long time. Aircrafts started to be used only for emergency evacuation and medical equipment transportation. Intercity passenger transportation is over, only food trucks are operating on the highways. This epidemic will probably last 8-10 years with repetitive mutations, eventually the “new normal” world will be completely different, we will adopt new habits accustomed to living introverted.

The Covid-19 epidemic process continues. Staying at home has resumed around the world. There are optimistic political statements, but realistic academic comments say that this process will continue for a long time, even if it gets lighter, with new mutated waves every year. The Spanish flu of 1918 continued harder in the years 1919-1920, with similarly recurring mutations. The 1919 wave of mutations had taken more lives.

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The existence of the epidemic is unlike the power of any conventional war weapon. During the Covid-19 epidemic process, America’s heavy and superior new modern weapon power did not make any sense. Italy, Spain, England are not doing well. It will take a long time for them to recover from the epidemic. None of the new generation F35 fighter aircraft, S400 missiles, aircraft carriers have any importance. Luxury cars waiting in the parking lot, private airplanes that don’t fly up, idle private villas, unnecessary guards – all this makes no sense.

Without using any weapons, all countries were defeated by the virus, cinemas, concert halls are closed, streets are empty, nobody is around. In the Covid-19 process, it is useful to review the internal-external social policies which are paralyzed in the global environment. It is necessary to redraw the new normal world relations after Covid-19. The world after Covid-19 will be a brand new order that we cannot predict already.

In 2020, there was little change in energy production compared to the previous year. Our electricity production is 300+ billion kWh, our installed power is 95 + GWe in 2020, and our energy consumption is expected to be announced in August, with a peak of 52 + GWe. In 2020, our Natural Gas consumption will be 50+ bcm (billion Sm3), our lignite production will be 50+ million metric tons, hard coal 2+ million metric tons, our imported coal import will be 30+ million metric tons. The relative reduction of production activities in the Covid-19 process reduced the demand for electricity. We did not go on long journeys on highways – we could not due to lockdown. Many retirees preferred to spend the winter at their seaside cottage or village house in their hometown. They set up a stove and had the combi connected. Houses in big cities are crap. The cars waited for months in parking lots in front of the door. Petrol gas consumption decreased.

The need for more electricity generation was not seen last year due to the Covid-19 outbreak. We observe stagnant electricity generation, investment, and very little renewal rehab activity. New investments, environmental equipment ESP-FGD rehab investments are made in the power plants that are transferred to private companies with privatization, but it seems doubtful how effective it will be. The producers who own the thermal power plants achieved a new 2.5-year exemption from the parliament, but they got a big reaction from the environmentalists and the bill received a veto. As of the end of 2019, thermal power plants that delayed environmental equipment were closed. They stopped working.

Only Soma-B plants worked, which produced steam for home heating in the nearby city of Soma during the winter. Environmental equipment renovation works were carried out in 2020, but we have doubts how effective the expenditures were. It is necessary to spend 5-6 million USD for electrofilter renewal of a thermal power plant unit in the range of 150-210 MWe, and at least USD 20-25 million for the construction of a new FGD unit. We look at the expenditures, these numbers do not reach. Inefficient equipment replacement with little expenditure is not very rational and effective for us.

Extending the exemption of thermal power plants in environmental investments was not correct in our opinion from the very beginning. As soon as possible, investments in environmental equipment of old thermal power plants should be made. There is no longer any financing for thermal power plants in international markets. It is not possible to build a new thermal power plant.

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Last year, we saw serious blockages in project financing. According to the latest reports of International Credit Rating Institutions, it is difficult to say that we are in the “investment grade country” position. Instead of making negative evaluations, rating organizations stop evaluating for difficult geographies altogether in such situations. When the US FED interest rates are increased and 25bp increases with 3-month renewals throughout the year, we understand that hot money will be absorbed from the whole world and directed to the US local market.

The barrel price of oil has moved in the range of $ 40-50 in the past year. There is Eastern Mediterranean gas, but how it will be transported is still on paper. It takes at least 4-5 years, maybe 10-years for resolution. Russian natural gas is too expensive for us, 1000m3 comes to us 280-300 US dollars or 5 US Dollars per MMBTU, whereas price is 2.50 US Dollars in the US market.

The Turkish Stream natural gas pipeline from under the Black Sea was built, but it was subsequently subject to US sanctions. We have neither the money nor the capacity to pay. There are news that natural gas was found in the Black Sea. It was announced that the proven reserve is 400+ BCM. That is eight years capacity enough for us. This figure has not been able to meet domestic demand for a long time. It is necessary to build underwater pipelines, establish production platforms, and make serious investments.

New combined cycle power plants were commissioned. But what if, for whatever reason, Russian gas is cut off altogether? We have a serious risk of gas supply. Turk Stream came into play, it is not clear what amount will be given to us. The price of Russian gas at the German border has dropped per 1-MMBTU. The increase in the amount of US shale gas and the combined cheaper energy prices of German renewable energy incentives have contributed to this.

Depending on the oil price, there is an expectation that Russian natural gas exports will generally be reduced. On our side, there is little change in price reaching the end consumer. There is a discount on wholesale prices on purchase, but discounts on end-user prices are subject to pre-selection policies.

Debt restructuring of at least US $ 50+ billion will be made in our energy market. Changes in power plant ownership from private to private ownership can happen again. Our growth by the end of 2020 is expected to be the most optimistic stable, and optimistic public forecasts indexed to the elections are higher. Politicians believe that energy investments should increase more than the growth rate. It is not easy to find revenues to cover public expenditures. MENR and EMRA facilitate the commissioning of new electricity generation plants. In the past, test-trial control temporary acceptance procedures were carried out seriously and in a long time, nowadays it has started to be done very quickly.

EMRA withdrew money from the energy market under license fees for a long time. They bought buildings and made expenses. But the market is out of stock to pay more to cover such costs.

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Refractory breakdowns, equipment and I&C system, synchronous failure sensations are reported in the cheap power plants. CFB (Circulating Fluid Bed) designs do not work in compliance with our poor domestic lignite. Domestic coal, which contains a lot of water and ash, does not burn in the CFB combustion chamber, it is necessary to constantly use supplementary liquid fuel for continuous burning. Coal enters the combustion chamber as ice in winter and mud in summer due to high percent water. With preheating, the water in domestic coal should be reduced. Bag filters are not enough. ESP (electro static precipitator- dust collectors) are added. Afşin-B-like “indirect firing pre-heated pulverized coal combustion” design looks more harmonious for our domestic lignite coals.

Afsin Elbistan -A plant changed ownership. The new group has started engineering work for 4×344 MWe rehab, and new 2x344Mwe units, some environmental equipment has been purchased but it does not seem sufficient. Reports from third-party environmental organizations around indicated that the high pollution had not improved. For such large projects, a large finance package and experienced staff are required. FGD ESP are insufficient, the refurbishment cost is too high.

Thanks to the capacity mechanism, the price is compatible with the market. Environmental investments were postponed due to the latest exemption expectation, and the power plants were completely sealed and closed. Repairing the old thermal power plants are considered futile, we think it would be more appropriate to disassemble them and sell them as scrap, and rebuild them with a new design.

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The defective units of the Afşin Elbistan-B power plant were repaired and commissioned. Availability of working units is not yet at the desired level. The nearby coal field is still closed due to the landslide. How long will the open-pit coal, which comes from the Kışlaköy coal field, mostly transported by trucks, take this system? Afşin is not much willing for other new thermal power plant investments in Elbistan, there are no serious investors. Far East Financing groups are waiting, they are in no rush for new investments. They are considering the situation to buy old facilities that have fallen in value.

Imported coal power plant investment projects will end, but the political will has taken a clear stance on the use of imported coal, which increases and negatively affects the current account deficit. After that, imported coal investment is not recommended. The price of imported coal in the international spot market (South Africa, Colombia, Australia) at US $ 60-70 per metric ton (about US $ 2.00 / MMBTU) is still expensive.

There are no new energy investments in the southeast. The region absorbs and uses energy – electricity, but our people do not pay the bill. Loss and leakage too high. Instead of spending more money on security, we say it would be more rational if we search for possibilities to solve problems with dialogue.

With the YEKDEM (renewables) application, certain teachings came to the renewable energy market. Companies learned well what to do, hydro, solar and wind investments were on their way. Unit electricity generation costs started to decrease. These are the most pleasing news, domestic manufacturing opportunities are increasing. With the activation of solar specialization zones, three-digit Solar (GES) installed power can be reached. We expect the continuation of Wind (RES) and Renewable Solar (YEKA GES3) investments, each with a capacity of 1000 MWe.

“Sinop Japanese nuclear project was canceled”, news came out, then denied. On-site construction work continues for Akkuyu. There are still financing problems. The long-term high price with guaranteed purchase in nuclear power raises serious concerns.

More investment will be required in environmental equipment, clean coal technologies. In the near future, there will be a total run-off from coal and a total financing cut in fossil fuel power plant investments all over the world. While the critical goal of energy strategies is economic growth, it is necessary to increase efficiency, reduce or keep constant demand growth. Currently we have a surplus of supply, but this situation will not last long.

Difficult days come and go, be optimistic. Stay safe, Happy new year.

Haluk Direskeneli is a METU Mechanical Engineering graduate in 1973, and since his graduation, he has worked mainly in thermal power plant basic / detail design, manufacturing, marketing, proposal, sales and projects in public, private sector and US – Turkish JV foreign partnerships (B&W, CSWI, AEP, Entergy). He has worked on management issues and has provided consultancy to the domestic market, engineering companies, investors and universities on thermal power plant design software. He is a member of Chamber of Mechanical Engineers and METU Alumni Association Energy commissions.

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Haluk Direskeneli

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, Entergy), 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 Chamber of Turkish Mechanical Engineers Energy Working Group.

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