ISSN 2330-717X

Turkey: Capacity Mechanism Applications – OpEd


With the Electricity Market Capacity Mechanism Regulation, it is aimed to establish a sufficient installed power capacity and to maintain a reliable installed capacity for long-term system security, including the necessary reserve capacity for supply security in the electricity market.

In other words, the domestic production of thermal power plants, which will guarantee capacity support, is provided to the maximum domestic production. We are paying for the high price of not so wise investment decisions.

If the power plant is generating electricity at high prices, we have to shut down.In the energy markets, the capacity mechanism was introduced, followed by exemption from environmental equipment. Natural gas firing combined cycle power  plants benefit from the application of the capacity mechanism as well as plants with imported coal. There is nothing in capacity mechanism for solar or wind plants.

In a sense, capacity mechanism incentives are given  to thermal power plants.  There is exemption made in investment expenditures in the construction of environmental equipment, for bigger electrostatic dust collectors and new flue gas desulphurisations. Even though the operators have any exemption, they stop running existing environmental equipments.

Because these environmental equipment consumes between 6-8% internal demand on the basis of power plants, so you can sell more electricity when you are not running these equipment, and earn more money. The environment is embedded in dust, nearby agricultural lands are spoiled who cares.

Who do we apply the capacity mechanism to existing thermal power plants? Existing lists give a certain idea which companies and plants selected.

Energy markets have faced inappropriate rulings however so far we have not received such misapplication before.

All kinds of incentives are misısed in our geography.It is  expected that capacity mechanism of thermal power plants would help in terms of price disadvantageous situation, but should we help them?

Imported fuel is expensive, whereas it is difficult to burn domestic fuel without additional expensive imported fuel if appropriate technology is not chosen earlier.Imported coal investment is a gamble, Imported coal is feasible if coal price is less than ballpark 60 us$ per ton 6000 kcal/kg lhv.

Now spot price is floating between 80-90 us$ per ton.In free market economy, consumers do not pay the incorrect investments of the investors. Investors pay their incorrect investment decision by going bankrupt.

Natural gas is dependent on foreign sources, and natural gas purchases increase the current account deficit. If you have made combined cycle investments by firing natural gas, now imported fuel prices are expensive, you are starting to think about switching off the power plants.

In order to realise their wrong investment decisions, investors have occupied – confiscated fertile agricultural lands, destroyed the green forests, closed the beautiful sea shores, now they have to payback the outcome of the wrong investment decisions. You didn’t make any noise when you were making money. Capacity mechanism means taking public institutions hostage.

Other countries have investments on wind -solar- renewable orientation, we are going to another direction, let the markets free as they wish provided that they pay the consequences of their incorrect decisions.

Let the operators produce electricity with these fuel prices, if they can produce cheap, otherwise they should power off the plant, consumers and tax payers are not responsible to stay back of this power plants, to support with incentive.

Why there is no enough energy, I need to think about this question. Because there is no new energy investments, no one wants to invest, there is no domestic or foreign financier with any investment appetite, we have 90 thousand Mwe installed power, we have 50-thousand mwe peak demand, whereas our maximum electricity generation capacity is not safe.

So we published the regulation of capacity mechanism, we have published a new regulation which brings the change of the regulation because it was released premature in a hurry. The solution of this work is in improving the domestic investment environment. Threats don’t get anywhere. This great country, with more than 80 million human population, so high intellectual capital will soon find solutions one way or another.

Turkey is passing through hard times of economic difficulties due to incorrect economic and social policies of the  ruling party, there is limited or even no local or international finance, no money to sustain new local investments, foreign companies are leaving the local market, local companies have huge debt burden to carry out daily expenses. Companies are sold at very low prices. Investment in energy sector moved to low end.

Energy companies are feeling hard times to pay their salaries. Country opened 2x1000Mwe one wind and  one solar tender, it is finalised however winning parties have no finance to realise the project. Imported coal  thermal power plant investments are not encouraged any more, nor naturalgas firing ccpp projects, since both need to pay imported coal. Local coal projects are prefered but again there is no available project finance. Financing companies have no appetite for new investment ventures.

So all in all, business is not easy  these days at our end. We could not excape from  frenzy struggle of local elections, which could not be finalised in i\Istanbul. Istanbul mayor elections will be renewed on 23rd June, and nobody is interested in anything else. When we search “turkish economy”, in Google, we come up with not so promising evaluations of experts in Reuters, dw, bbc, cnn, bloomberg. Country is in deep recession, which does not deserve with so much human reserves, so much natural resources, located in very strategic geographical  point of world, at the cross roads of three continents. We hope intellectuals , academicians, business people will find better solutions how to overcome these difficulties in the long run.

We hope to advise better news in the future days to come, but at this point in time, I have no more advise than “wait and see”, until that time.

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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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