Despite all the efforts to increase the share of renewable energy sources in the domestic energy portfolio, fossil fuel-based power plants still comprise nearly 45 % of the total local installed energy capacity. A significant number of these plants are gas-fired, and some are imported coal-fired power plants. Local coal is by and large very low quality and with low calorific value. Therefore the system depends on imported natural gas and coal to maintain its stability and to provide the base supply. Considering the substantial devaluation in the Turkish Lira, the fuel costs of existing plants have recently surged immensely. Most of these plants were financed in foreign currency with long-term payment tenors, burdening their cash flow. The revenues are in local currency, whereas the repayments are in hard currency.

In recent years license owners of electricity generation facilities have faced financial difficulties as natural gas and particularly imported coal prices or other expenses have increased, while sales prices in the electricity market have remained relatively low. As a result, some of these legal entities went out of business, and others had their licenses revoked. Consequently, the Regulation on the “Electricity Market Capacity Mechanism” came into force on 20 January 2018 to support stakeholders in overcoming these obstacles. The Regulation is intended to prevent economic uncertainties caused by changing market conditions as well as provide long-term system security.

2022-2023 has been a challenging period for the energy sector as natural gas supply, and prices have been rather volatile due to the sanctions imposed by Russia on Europe. However, dependence on fossil fuel-based power plants, unfortunately, did not lose any momentum. While environmental concerns unexpectedly lost priority. The environmentally not so friendly plants had to be resorted on.

In recent years, the subsidies to fossil fuels almost doubled. State support for fossil fuel-based power plants is now more than 200-fold than the renewables in Turkey.

Currently, 51 power plants are eligible to benefit from the “Electricity Market Capacity Mechanism,” and in 2022, 44 power plants were supported. The total subsidy in 2022 has exceeded 200 million USD.  The subsidies are continuing in 2023 as well. In January 2023, 43 power plants were paid around 13 million USD.

There is increasing public awareness against the use of fossil fuels to generate electricity. However, the increasing need for power and the upcoming elections are creating tremendous pressure on the Government to maintain energy security and keep electricity prices at the consumer end at low levels, thus pushing up inflation to higher levels.

This Post was submitted by Climate Scorecard Turkey Country Manager Dr. Semih Ergur