Renewable Energy Investment and Current Account Deficit Analysis of Turkey

03/01/2018    Yazarlarımız English   

Renewable Energy Investment and Current Account Deficit Analysis of Turkey

Energy deficit and current account deficit problem are the two main problems of our country. Because of the lack of domestic fossil based energy resources, Turkey has to import large amount of its energy needs from abroad. This situation creates rigidity in current account deficit in Turkey.

Although Turkey does not have enough fossil based energy resources, it has enourmous renewable energy resources. We believe that, If Turkey can evaluate its domestic renewable energy resources, it can decrease its dependence to foreign energy resource and decrease the current account deficit at a significant level. In this essay, we try to analyze renewable energy investment and current account deficit of Turkey.

 In order to make clear analysis, efficiency, capacity factors, initial investment and operating and maintenance cost of energy plants should be examined. Because, even if a plant’s initial investment cost is low, the fuel cost or efficiency problem can make it more expensive than other resources. Therefore, while analyzing the renewable energy resources we have to consider the all aspect of the renewables.

In table 1 the capacity factor, initial investment cost and unit energy production cost of energy plants were given. Capacity factor defines the energy production ratio of plants in a given period when they are working in full capacity. In other words, it describes the efficiency of each power plants. Among the all power plants the highest capacity factor belongs to nuclear, natural gas and geothermal plants with 95 % and 90 % efficiency respectively.

 Table 1: The Capacity, Unit Energy Production and Initial Investment Cost of Power Plants
Plants Types Domestic/ Foreign Input Capacity Factor
Initial investment cost ($/kW) Unit cost of energy production (cent/kWh)
Natural Gas Plants Foreign input 85-90 500-1,300 3.6-10.6
Thermal Plants (Lignite) Domestic 50-85 2,000-3,000 4.6-12.0
Thermal Plants (Imported coal) Foreign input 50-85 1,500-2,500 4.5-8.8
Hydroelectric Plants Domestic 30-45 1,900-2,600 2.7-3.5
Nuclear Plants Domestic/ Foreign 85-95 2,500-5,000 3.0-8.2
Winds Domestic 25-45 1,200-2,500 5.1-14.6
Geothermal Energy Domestic 80-90 1,700-4,000 3.3-4.0
Solar Photovoltaic Plants Domestic 10-25 4,000-8,000 12.3-24.5
Biomass Domestic 80-90 2,000-3,500 4.8-8.0
Resource: MENR

Currently, the highest initial investment cost belongs to the solar power and nuclear power with (4.000-8000 $/kW) and (2,500-5,000 $/kW) respectively. Unit cost of energy production calculated by adding the initial investment cost of each power plants to the total producible electricity. For instance, if the economic life of the power plants is 20 years, the initial investment cost is added to the total electricity amount that can be produced in the economic life of the plants. The more expensive electricity can be obtained from solar power since solar PV plants can be worked only in day time. Their efficiency is changing between the 10-25 %.

 The initial investment and production cost of wind energy is close to fossil based power plants. However, except for the wind energy, initial investment cost of renewables is relatively higher than fossil based resources. Although the initial cost of hydraulic is relatively high, with the effect of the zero fuel and low operating & maintenance cost, it has the cheapest production cost of electricity among the all power plants. Since the capacity factors of almost all renewables depend on the climatic condition, the efficiency of them is generally lower than thermic plants. Nevertheless, the technologic innovation started to overcome the efficiency problem of renewables and it is estimated that efficiency and production capacity of renewable can compete with the fossil based resources in near future.

 Although the efficiency of renewables is low and initial investment cost is high, they have nearly no fuel cost. In case of the foreign dependency, fuel cost of the power plants should also be taken into account more carefully. Because, the security risk of foreign input and long term effects of the imported inputs on current account balance may be more important than the initial investment cost. Beside these, with the development of technology, the cost of renewables has been decreasing steadily. In the next two decades, it is estimated that the cost of renewables will decrease more than 50 %.

In table 2, fuel, operating and maintenance (O&M) cost of energy plants are given comparatively. Among the all power plants, the natural gas has the highest fuel cost with 3.6 $/cent, and it is followed by imported coal energy plants, lignite plants and nuclear power with the 1.96 $/cent, 1.84 $/cent and 1.00 $/cent respectively.

Compared to fossil based plants, the operation and maintenance cost of some renewables, solar and geothermal, are a little higher. Nonetheless, relatively high O&M costs are offset by the absence of fuel costs in renewables. In addition, the share of operating-maintenance cost in the total production of electricity is very little (Changing between 10-15 %) and can be kept constant for years. Beside these, while the fuels are generally obtained from abroad, the maintenance and operation services can be provided from inside the country. In other words, foreign dependency of the operating and maintenance cost of renewables is very little, and therefore they are domestic and they cannot affect the balance of payment.
Table 2: Operating-Maintenance and Fuel Costs of Power Plants
Plants Types Operating-Maintanance Cost
Fuel Cost (cent/kWh)
Natural gas 0.415 3.60
Thermic Plants (Lignite) 1.495 1.84
Thermic Plants (import coal) 1.413 1.96
Hydroelectric Plants 0.203 0
Nuclear Power 0.780 1.000
Winds 1.2 0
Geothermal 1.8 0
Solar (Photovoltaic) 1.6 0
Resource: MENR

In table 3, the effects of the fuel cost of energy plants in case of any price shocks was shown. According to this table, the share of fuel in total cost of the electricity production for coal, natural gas and nuclear power is 77 %, 90 % and 30 % respectively. In any price shock, such as 2-fold increase in fuel price, the cost of electricity will increase 66 % in natural gas, and 31 % in coal plants. This situation shows that the fossil based resources are open to the price shock risk of the producer countries.  However, since renewables does not need any fuel, they cannot be affected from exogenous price shock of fossil based resources.
Table 3: The Share of Fuel in Operating Cost and Changes When the Fuel Cost Increase
Fuel Type Operating and Maintenance Fuel Change in the Production Cost of Electricity When the Fuel Price Doubled
Coal % 23 % 77 % 31 increase
Natural Gas % 10 % 90 % 66 increase
Nuclear % 70 % 30 % 9 increase
Resource: MENR

After showing the capacity factor, initial investment and operating and maintenance cost of the renewables, we can analyze whether current and remaining potential of renewable energy resources of our country can be solution to the energy dependency and current account deficit problem of Turkey.

 Installed capacity of Turkeys’ renewable energy was 23.455 MW in Hydraulic energy, 20 MW in solar energy, 3.484 MW in wind energy, 358,4 MW in geothermal energy and 293,5 MW in biomass energy. Although the share of hydro is bigger than natural gas’ installed capacity, because of the effects of the drought and efficiency problem, only 24.7 % of electricity was produced from hydraulic energy in 2013. As mentioned before, efficiency problem is also lived in other renewable energy resources. The efficiency of solar power is changing between the 10-25 %, wind power 30-35 %, geothermal 90 %, biogas 60 %. Therefore, while calculating the producible electricity, energy efficiency of the each energy resources should be taken into account.
 In table 4, the installed capacity and economic potential of renewable energies are shown as of September 2014.  According to this table, Turkeys’ hydraulic installed capacity reached to 65 % in terms of economic potential. However, technical potential of hydraulic energy is higher than economic potential and Turkey only used 37.1 % of its technical potential. In USA, Canada and other developed countries, the ratio of technical potential (not economical) reached to 90 %. Comparing to developed countries it can be said that there are lots of ways to be covered. With the technologic development and price increase in fossil based resources, some of the technical potential will become economical for Turkey. However, since our calculation is based on current technology and price level, we omitted the technical potential and made our calculation according to the economic potential of renewable energies.

 Since Turkeys’ natural gas purchase price was changing between the 350-450 dollars/ 1000 m³ in 2013, we took the lowest price $ 350/1000 m³. 1 kWh electricity can be produced by using 0.212 m³ natural gas. With the 1000 m³ imported natural gas, at about 200 kWh electricity can be produced and 350 dollars are paid for this natural gas import.
Table 4: Remaining Economic Capacity of Renewable Energy in Turkey as of 2014
  Total Economic Potential (MW) Installed Capacity (MW) Installed Capacity Ratio (%) Remaining Capacity (%) Efficiency of Energy Sources (%) Producible Energy Quantity From Remaining Capacity Monetary Value of Producible Energy (Billion Dollars)
Hydraulic Power 36.000 23.455 65 35 45-90* 65.7 TWh 4.6
Solar Energy (1) (TMEC) 287.000 20 0.00007 99.9 10-20 400 TWh 28
Solar Energy (2) (MENR) 50.000 20 0.00007 99.9 10-20 65.7 TWh 4.6*
Wind Energy 48.000 3.484 7.25 92.75 30-35 118 TWh 8.26
Geothermal Energy
600 358.4 59.7 40.3 84 1.8 TWh 0.13
Biomass Energy (modern) 2.000 293.5 14.7 85.3 80 12 TWh 0.84
TOTAL           263-597.5 TWh 19.51-44.33
Resource: This table was prepared by us according to the latest data of natural gas cost, remaining capacity, and efficiency ratio of renewable energy resources under the current technological level.
* Average efficiency is taken 60 %,
** (1) TMEC: 287.000, ** (2) MENR 50.000
*** 1 TWh is equal to 1 billion kWh
According to these calculations, made under the above mentioned assumptions, remaining economic renewable energy potential of Turkey is changing between the 263-597,5 TWh. The difference arises from the different estimation of solar energy by Ministry of Energy and Natural Resource and Turkish Mechanical Engineers Chamber. MENR calculated the economic potential of solar energy as 50.000 MW (MENR, 2010). Nevertheless, according to the study of TMEC, below the 38.5 parallel of counrty, 11.000 km² fields are suitable for the PV energy investment. Even if half of the these areas are used, under the 1.600 kWh/m² solar energy potential and 10 % efficiency assumption, at least 287.000 MW solar power plant can be established and 363 TWh electricity can be produced from these areas. If the unlicensed practices are added to this estimation, producible electricity reaches to 400 TWh. This amount is 1.65 times more than the 2013 electricity consumption of our country (TMEC, 2013:145-148). Therefore we made our calculation by taking both of the assumptions.

In order to produce 1 kWh electricity, 0.212 m³ natural gas is used. So, according to the MENR assumption, the needed natural gas for 263 TWh electricity is 55.76 billion m³. Even if we take the minimum price as 350 dollars for 1.000 m³ natural gas, the needed money for the importation of this amount of natural gas is found as 19.51 billion dollars.

263 billion kWh * 0.212 =55.76 billion m³ natural gas
55.76 billion m³ natural gas * 350/1000 =19,51 Billion dollars.
When Turkish Mechanical Engineers Chamber’s estimation is taken:
597.5 Billion kWh *0.212 = 126.67 Billion m³ natural gas
126.67 billion m³ natural gas * 350/1000 = 44,33 Billion dollars

In other words, Turkey can produce between the 1,07-2,5-fold of current electricity consumption by using the remaining economic capacity of renewable energy resources. The monetary value of this electricity is changing between the 19.51 and 44.33 billion dollars. In our calculation, the minimum efficiency value of each renewable energy resources are taken into account under the current technologic conditions. Therefore, in case of the favorable weather conditions and with the development of the new technology, producible electricity quantity can be much bigger than our calculation. Moreover, these calculations cover only economical available value of remaining renewable energy resource. With the current consumption level, the fossil based resources will be more expensive in near future and some of the technical potential of the renewable energy resources will become economic for the investors. Hence, producible energy can be higher than our calculation when the technical potential of the renewable energy becomes economic for the country.

When we look at the above picture, we can say that renewable energy resources can meet all of the electricity needs of Turkey and decrease the current account deficit. However, there are some weaknesses of the renewable energy resources. First of all, renewable energy resources are highly depends on the climatic conditions and efficiency of them can be decreased or completely stopped in case of the bad weather conditions. For example, because of the drought, the capacity of the hydraulic energy cannot be used effectively in 2013. Secondly, harmonization of the demand and supply may be problem especially for wind and solar power, because the highest energy production is made in summer but the highest energy demand is made in winter. Since the electricity cannot be storable, to harmonize the supply and demand is very important. Lastly, power problem of the some renewable energy resources, such as wind energy, may affect the quality of electricity and creates network problems and give harm to the electricity appliance of the users. Therefore, in order to harmonize the supply and demand equilibrium and stabilize the some of the deficiency of the renewable energy resource, the renewables must be supported by other energy resources, such as coal, nuclear and thermal plants.

 Beside these, even if Turkey can succeed to evaluate all of its renewable energy potential at the maximum efficiency ratio, it cannot be enough to completely reset its current account deficit in energy side. Because, the large part of energy imports is made for the transportation sector’s usage. Today, nearly 60 % of energy import is used by transportation sector and around the 34 billion dollars were paid for this import. In other words, even if we succeed to terminate the imported energy consumption in heating and electricity, the contribution of these will be around the 21 billion dollars (table 5).

Table 5: The Share of Transportation Sector in Total Energy Import
  Total İmport
 (Billion $)
Energy Import (Billion $) Transportation (Billion $) The Share of Transportation Sector in Total Energy Import (%) Energy Import (Billion $) The Share of Energy Sector in Total Energy Import (%)
2002 51,5 9,20 5,41 58,80 3,79 41,20
2003 69,3 11,58 6,58 56,82 5,00 43,18
2004 97,5 14,41 8,64 59,96 5,77 40,04
2005 116,7 21,26 12,41 58,37 8,85 41,63
2006 139,5 28,86 16,61 57,55 12,25 42,45
2007 170,1 33,88 19,34 57,08 14,54 42,92
2008 201,9 48,28 27,03 55,99 21,25 44,01
2009 140,9 29,91 15,17 50,72 14,74 49,28
2010 185,5 38,49 21,03 54,64 17,46 45,36
2011 240,8 54,1 33,6 62,11 20,50 37,89
Resource: Turkish Mechanical Engineers Chamber (TMEC), 2013.
According to the data of Ministry of Transport, Maritime Affairs and Communications (MTMAC), the share of highway in load and passenger transportation is 80.63 % and 89.59 % respectively. The Ministry of Transportation prepared a strategic plan to decrease the weight of highway both in load and passenger transportation. Today, the high-speed railway network has been increasing steadily in intercity passenger transportation and underground project has been completed especially in metropolitan cities. It is expected that with the contribution of the high-speed trains and undergrounds, the share of railway in the passenger transportation will increase 5 times from 2.2 % to 10 % in 2023. In order to decrease Turkeys’ dependency to foreign energy resources, the share of railway, maritime and airline should be increased. So, unless the share of highway was decreased both intercity and inner city transportation, desired contribution cannot be provided in energy import.

In conclusion, the renewable energy investment can contribute the sustainable development, energy security, current account balance and economic and social stability of our country. With the evaluation of remaining renewable energy resources, at least 19.51 billion dollars can be saved and this amount can be increased up to 44,33 billion dollars. Current account deficit can be decreased at the same amount. Since nearly all of the economic crises are directly or indirectly related with the current account deficit, renewable energy can reduce the crisis risk of the country and support the social stability of the country. Dependency of foreign energy resources can be decreased and this situation also contributes the security of energy supply and protection of the environment. However, unless the energy needs in transportation sector are decreased by increasing efficiency and/or decreasing the share of highway, the desired result cannot be obtained. Therefore, the energy policy should be taken in integrity and must be created to include the transportation sector and energy efficiency. Otherwise, the impact of the renewable energy investment will be limited and desired yield cannot be produced.


                                                                                                                                                                                                         Ömer DEMİRDAŞ

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