Gas, Coal, and the Atom: Turkey’s Diversification Hopes

Neither nuclear energy nor coal is exactly in vogue at the moment. After the Fukushima disaster in Japan and amid growing concerns about the environmental impact of coal, most countries are preferring instead to boost their consumption of natural gas, which is cleaner and – increasingly - cheaper.

Not so in Turkey, where the financial and political cost of importing gas, predominantly from Russia and Iran, has encouraged a diversification into both coal and atomic power. Both have taken a step forward recently, but it is debatable whether or not they are the best cure for Turkey’s gas dependence – if it needs curing at all.

Nuclear power has been in the headlines recently after the Turkish government announced the signing of an initial deal to develop the country’s second nuclear plant, after the Russian-built plant (still in construction after an agreement signed in 2010) in southern Turkey. A third plant will be constructed later, in line with a government strategy on nuclear power adopted in 2006 which aims to reduce reliance on costly gas imports.

The latest deal, signed on 3 May with a headline figure of $22 billion, was signed with a Japanese-French consortium including Mitsubishi Heavy Industries, Itochu, GDF Suez and Areva. The group will build a 4,800MW plant in the Black Sea province of Sinop.

The government of Recep Tayyip Erdoğan has been ebullient about the implications of the Sinop plant and the third facility which will follow (and which may be built domestically). Erdoğan has claimed that “we will not need to import one-third of our current natural gas imports when our nuclear plants are online, saving $7.2 billion annually”. Energy Minister Taner Yıldız has also said that the Sinop plant will save the country $84 billion over its 60-year lifespan.

But as David O’Byrne points out, the project doesn’t necessarily deserve the triumphalism which the government has given it. For one thing the deal is not a construction contract but just an agreement on exclusive negotiations.

For another, Turkey has previously rebuffed GDF Suez because of political disagreements between the Turkish and French governments. This could conceivably happen again, which would raise a question mark about GDF Suez’s involvement. So would any attempt at energy cooperation with Cyprus, which has already led to Italy’s Eni being shut out of projects in Turkey. These are only hypothetical but possible in Turkey’s politicised energy business.

Most significantly, the Sinop plant will not be producing electricity until at least 2023. The third plant will not be operating until several years after that, and even the first plant is not expected to be activated until 2020. So for the rest of the decade, with electricity consumption expected to rise around 7% per year, Turkey will remain reliant on other forms of energy, particularly gas.

In any case, the government’s plan is for nuclear power to supply only 10% of Turkey’s electricity by 2023, or around 9000 MW. Although that’s 10% higher than now, the realities of the energy mix mean that gas-fired plants will continue to underpin electricity generation – they provided 42% last year - even after 2023.

Gas-fired power accounted for 72% of the total increase of Turkey’s power generation between 2000 and 2009, a trend which is unlikely to change drastically in the medium-term. In this context nuclear energy is clearly not a panacea, especially given the cost, time, and potential for delays and shutdowns.

So in a bid to reduce the share of gas in the power mix, coal is also being touted as a convenient, cheap alternative. Turkey has ample coal and lignite reserves and early this year it boosted the financial incentives for coal-fired plants whilst cancelling the 20% incentives for gas-fired plants, in an effort to shift the balance away from imported gas. Major deals have been signed recently to build coal plants with companies from Abu Dhabi and China

Although Turkey relies heavily on coal imports at the moment, it’s boosting domestic coal mining and can rely on a more flexible global market than for gas. But coal is not without problems. The biggest is the environmental impact, which has led most European states to cut their reliance on coal; heavy reliance on it would undoubtedly cause some disapproval in the EU. For the long-term health of Turkey’s environment, particularly in fragile ecosystems in Anatolia, over-reliance on coal would be disastrous. Turkey’s environmental lobby may be small but is likely to become increasingly vocal and active, increasing the political cost of coal too. Like nuclear power, it is not a viable long-term solution.

The irony is, of course, that gas supplies cheaper and more flexible than ever. Azerbaijan’s gas production, and its exports to Turkey (en route to Europe) are set to soar in the coming years, and gas may one day come from Kurdish Iraq, the Black Sea, Cyprus, or Israel. Unconventional gas from Turkey itself may one day make it a shale hotspot. At a global level, changes in the gas market are creating new spot markets for gas, while an abundance of LNG will help to push down prices. In a few years’ time Turkey could be swamped with cheap gas.

Soaring demand will still be a challenge, and diversification of power-generation sources is undoubtedly needed. But in its rush for alternative power sources today, Erdoğan’s government – which has repeatedly demonstrated a kind of attention-deficit disorder on big infrastructure projects – may be locking the country into an energy future it does not need.

Building three major nuclear plants is a major commitment, not to be taken lightly; neither is an explosion in the number of coal-fired power plants. By the time all these projects come to fruition, the new global gas landscape could make them look rather like unneeded white elephants.

Alex Jackson is an analyst of political, energy and security issues in the Caspian region. He is based in London and can be contacted at ajackson320@gmail.com.