DRAFT
IMPACT SCENARIOS of CARBON FINANCE on
the RENEWABLE POWER CAPACITY of TURKEY
Prepared under the Project:
Capacity Building for Climate Change Management in Turkey
Prepared by:
Ramazan Aslan (Futurecamp Turkey)
Edited by:
The Project Team and the MoEF Climate Change Department
July 2010
Capacity Building for Climate Change Management in Turkey Project
Disclaimer
The findings, opinions, interpretations and conclusions expressed in this report are entirely those of
the author and should not be attributed in any manner to the Ministry of Environment and Forestry,
the State Planning Organization, Turkish Industrialist’s and Businesmen’s Association(TÜSİAD) and
the United Nations Development Programme.
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Capacity Building for Climate Change Management in Turkey Project
Table of Contents
Introduction............................................................................................................................................. 4
1. Electricity Generation Characteristics of Turkey ................................................................................. 5
2. Electricity Demand and Supply Projection .......................................................................................... 8
3. Strategy for Electricity Generation by Renewable Resources ........................................................... 10
4. Carbon Markets ................................................................................................................................. 14
4.1 Market Mechanisms and Price Development ................................................................................. 14
4.2 Future of Carbon Markets and Alternatives for Turkish Renewable Projects .............................. 17
5. Carbon Finance as a Mean to Increase Renewable Electricity Generation....................................... 18
5.1 Methodology and Assumptions ...................................................................................................... 18
5.2 Results ............................................................................................................................................. 22
6. Summary and Conclusion .................................................................................................................. 23
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Capacity Building for Climate Change Management in Turkey Project
Figures
Figure 1 Share of Fossil Fuels in Electricity Generation of Turkey by Years (%)
Figure 2 Electricity Demand Development by Years
Figure 3 Installed Capacity and Shares by Sources – June 2010
Figure 4 Electricity Generation and Shares by Sources – 2008
Figure 5 Development of Cumulative GHG emissions of Turkey by Years
Figure 6 Development of Total and Electricity Generation CO2 emissions by Years
Figure 7 Electricity Supply and Demand Projection by TEİAŞ for 2009 and 2018 Period
Figure 8 Share of Sources in Electricity Generation in 2018
Figure 9 An Illustrative Cash Flow Chart for a Typical Carbon Reduction Project (Source: Worldbank)
Figure 10 Development of Carbon Prices
Figure 11 Credit Price Ranges and Averages by Project Type, OTC 2008
Figure 12 Credit Price Ranges and Averages by Project Type, OTC 2009 (US$/tCO2e)
Tables
Table 1 Breakdown of Installed Capacity by Sources in 2018 (MW)
Table 2 Renewable Source Potential, Utilization by 2010 and Target for 2023
Table 3 Breakdown of Renewable Private Sector Generation Licenses by Source
Table 4 Wind Power Projects in Operation by June 2010 and Applied VER Standard
Table 5 Volumes and values of project based transactions in 2008 and 2009
Table 6 Decrease in Capital Cost by Learning Rate for each Technology Types
Table 7 Financial Assumptions used in the Modeling
Table 8 Emission Reduction Factors for each Technology Type
Table 9 Voluntary Credit Price Changes by Project Type in 2008
Table 10 Analyst Expectations for CDM/JI and EU ETS
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Capacity Building for Climate Change Management in Turkey Project
Introduction
The electricity generation in Turkey is dominated by fossil fuels. As shown in Figure 13, the share of
fossil fuels in total generation has been steadily increasing for last two decades and reached to the
peak share of 82,5% in 2008. The 57,4% of total electricity generation in 2008 was from imported
fuels (natural gas, imported coal and liquid fuels). The high level of fossil fuel dependency in the
electricity generation is the major cause of increase in the national GHG emissions. Since 1990, the
total GHG emission of Turkey has increased more than twofold and reached 366,5 million tons of
CO2e in 2008. Within the same period, the GHG emissions generated upon the electricity generation
is increased more than threefold from 30 million tons in 1990 to 101,4 million tons in 2008.
Figure 13 Share of Fossil Fuels in Electricity Generation of Turkey by Years (%)1
Being a net energy importer and high fossil fuel dependent for energy generation, Turkey is in need
of decreasing its dependency on fossil fuels in order to secure energy supply as well as to decrease
foreign trade deficit and to reduce carbon emissions. This can only be possible with transition to low
carbon economy. The effective measures in place have been promoting increase in renewable energy
capacities and end-use energy efficiency.
Turkey has significant hydro, wind, solar, biomass and geothermal power potential. Among them,
only hydro potential is utilized to some extent with dam type HEPPs. There is also growing number of
small-scale hydro, wind and geothermal power plant investments but their share is very small
comparing potentials of these resources. On the other hand, solar and biomass power applications
hardly exist.
According to the energy security strategy paper2 of the Ministry of Energy and Natural Resources, the
share of Turkey’s renewable energy including the hydro power is aimed to be increased to 30% in the
overall energy generation by 2023. In order to reach this target, the entire technical and economic
1
2
Source: TEİAŞ, http://www.teias.gov.tr/istatistik2008/33.xls
Approved by the High Planning Council on 18 May 2009. Issue No: 2009/11
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Capacity Building for Climate Change Management in Turkey Project
potential of hydro and economic potential of geothermal power will be utilized, the installed wind
power capacity will be increased to 20.000 MW and possible potential for other sources (as biomass
and solar) are also planned to be utilized till 2023.
In this study, the role of carbon finance as a mean to reach Turkey’s 2023 target is assessed and
impact of this additional revenue on financial returns of projects are analyzed.
1. Electricity Generation Characteristics of Turkey
Turkey’s electricity demand is growing rapidly. The average growth rate between 1998 and 2008 was
5,9%. Exceptionally, the demand for electricity was decreased during the years when Turkey
experienced severe financial crisis, (1,1% in 2001 and 2,2% in 2009 (estimated)). In overall, the
increase in demand was between 3,9% and 8,8% for those years when the increase in demand
continued. The average of first 5 months of 2010 also signals recovery in the electricity demand
following the decrease in 2009with 6,7% increase in demand compared to the previous term back in
2009.
Figure 14 Electricity Demand Development by Years3
The electricity generation resources of Turkey are dominated by fossil fuels. By June 2010, the 65% of
total installed capacity is based on fossil fuels. Among them, natural gas has the largest share with
36,4% of total installed capacity. Turkey has low calorific lignite reserves and share of lignite in
installed capacity is 18%. Mostly state-owned dam type hydro power plants are the main capacities
from renewable sources with 28% share. Wind, geothermal, small-hydro and other renewables have
7% share in total generation. Figure 15 shows total installed capacity by sources and corresponding
shares of each sources in total capacity as of June 2010.
3
Source : TEİAŞ, http://www.teias.gov.tr/istatistik2008/23.xls
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Capacity Building for Climate Change Management in Turkey Project
Figure 15 Installed Capacity and Shares by Sources – June 20104
When it comes to the electricity generation, dominance of fossil fuel is more apparent. By the end of
20085, the share of fossil fuel base electricity in total generation was 82,5%. Again natural gas base
electricity generation got the lion’s share with almost half of total generation (49,7%). When
compared with high share of natural gas and other fossil fuel base electricity generation, the low
share of hydro and other renewable in electricity generation with a 17.4 % share are considered far
low. However, the installed capacity of those have significant share in total installed capacities. This
can be explained by low capacity factor of these renewable power plants.
Figure 16 Electricity Generation and Shares by Sources – 20086
Turkey’s high dependency on fossil fuels (mostly imported) is not sustainable. As an industrializing
country, the energy supply is vital for economic growth of Turkey. Any price increase or problem in
supply of oil or natural gas will have immediate negative impacts on its economy and electricity
generation. The large share of fossil fuels in electricity mix is also one of the main reasons of increase
4
Source: TEİAŞ, http://www.teias.gov.tr/yukdagitim/kuruluguc.xls. Liquid+Natural Gas plants given in this link is added to the natural gas
capacity considering the limited liquid fuel usage in these plant and suggestion of TEIAS: http://www.teias.gov.tr/istatistik2008/7.xls , cell
B64. Similarly, solid+liquid plants are also considered in the imported and hard coal power capacity.
5 Official statistics of electricity generation for 2009 has not been announced by TEIAS during report writing.
6 Source: TEİAŞ, http://www.teias.gov.tr/istatistik2008/32(75-08).xls
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Capacity Building for Climate Change Management in Turkey Project
in GHG emission for last two decades. In order to decrease GHG emissions, the share of renewable
sources in electricity generation needs to be increased.
Figure 17 Development of Cumulative GHG emissions of Turkey by Years7
Turkey’s GHG emissions were doubled by 2008 and reached to 366,5 million tons CO2e comparing
1990 level (Figure 17). In 2008, around 80% of the total emissions of Turkey were from CO 2 while one
third of CO2 emissions were from electricity generation (Figure 18). In other words, more than one
quarter of total emissions (27%) are due to electricity generation by fossil fuels. Other important CO2
sources are industry, road transportation, residential and cement production.
Figure 18 Development of Total and Electricity Generation CO2 emissions by Years8
7,8
Source: TUIK, National GHG Inventory of Turkey (1990-2008) submitted to the UNFCCC in 2010.
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Capacity Building for Climate Change Management in Turkey Project
2. Electricity Demand and Supply Projection
The latest published projection of TEİAŞ which is the national authority responsible for preparation of
long-term electricity demand and supply projections is valid for the period of 2009-2018. The
projection of TEİAŞ is based on different scenarios for demand and supply. In supply analysis; existing
capacity, power plants in construction phase and projects with energy licenses are considered.
Figure 19 shows the demand and supply projections for different scenarios. According to this
projection, reliable generation of power plants will not be sufficient to cover electricity demand by
2015. In other words, if new capacities are not installed and operationalized in coming years, Turkey
is expected to face significant electricity shortage by 2015.
Figure 19 Electricity Supply and Demand Projection by TEİAŞ for 2009 and 2018 Period 9
Breakdown of installed capacity by sources and years are given in Table 7. According to the projection,
installed capacity of natural gas, imported coal, and hydro and wind will increase but others are not
projected to change. It is worth to mention that, compared with existing capacity, the projection can
be considered as conservative, for example, the wind capacity is already reached the figure of 2018
by June 2010 (Figure 15). This is also valid for geothermal, biogas and waste. According to the
projection, the share of hydro capacity will be highest with 37,4% and share of natural gas will be
32,6%.
9
TEİAŞ Capacity Projection (2009-2018),
http://www.teias.gov.tr/eng/ApkProjection/CAPACITY%20PROJECTION%202009-2018.pdf
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Capacity Building for Climate Change Management in Turkey Project
Table 7 Breakdown of Installed Capacity by Sources in 2018 (MW)
YEARS
LIGNITE
2009
2010
8.260
8.260
2011
8.260
2012
8.260
2013
8.260
2014
8.260
2015
8.260
2016
8.260
2017
8.260
2018
SHARE IN
2018 (%)
8.260
14,7%
H.COAL+ASPHAL.
555
555
555
555
555
555
555
555
555
555
1,0%
IMPORTED COAL
1.838
1.838
2.248
3.464
4.678
4.678
4.678
4.678
4.678
4.678
8,3%
NATURAL GAS
14.693
14.839
15.645
17.556
18.396
18.396
18.396
18.396
18.396
18.396
32,6%
GEOTHERMAL
85
85
85
85
85
85
85
85
85
85
0,2%
2.100
1.800
1.800
1.800
1.800
1.800
1.800
1.800
1.800
1.800
3,2%
DIESEL
206
206
206
206
206
206
206
206
206
206
0,4%
OTHER
251
251
251
251
251
251
251
251
251
251
0,4%
27.989
27.835
29.051
32.179
34.232
34.232
34.232
34.232
34.232
34.232
60,7%
41
52
60
60
60
60
60
60
60
60
0,1%
14.886
16.381
18.058
19.877
19.877
19.877
19.877
21.077
21.077
21.077
37,4%
570
743
1.012
1.012
1.012
1.012
1.012
1.012
1.012
1.012
1,8%
43.485
45.011
48.182
53.128
55.182
55.182
55.182
56.382
56.382
56.382
100,0%
FUEL OIL
THERMAL TOTAL
BIOGAS+WASTE
HYDRO
WIND
TOTAL (MW)
The share of sources in electricity generation for 2018 is also given in Figure 20. As it can be seen in the
figure, the natural gas share will be the highest with 42,7% and the share of total fossil fuel will be
75,4%.
Figure 20 Share of Sources in Electricity Generation in 2018
The projection shows that Turkey’s fossil fuel dependency will continue at least for a mid-term
period. Even though the hydro capacity will increase, non-hydro renewables are expected to remain
fairly low with a 1,5% share in the total generation.
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Capacity Building for Climate Change Management in Turkey Project
3. Strategy for Electricity Generation by Renewable Resources
The principals of electricity market restructuring and market operations given in the Electricity
Energy Market and Supply Security Strategy Paper can be found below10:





Market restructuring and market operations are to be built and maintained to lead
enhancing of energy security;
In order to secure a sustainable electricity market, climate change and environmental
impacts of every activity of the market shall be taken into account;
Losses from electricity generation, transmission and consumption shall be decreased to
minimum level, efficiency shall be increased and cost of electricity shall be decreased via
competitive environment which will be reached according to resource priority of energy
politics and whole gains with these measures shall be used to serve electricity with
affordable prices to consumer;
In order to decrease import dependency in energy generation, new technologies shall be
promoted, resource variety shall be ensured, domestic and renewable sources shall be
deployed at maximum level;
Share of domestic contribution in new investments shall be increased.
The Strategy Paper also indicates the target for increased share of renewable energy resources in
total electricity generation of Turkey by 2023, is central to the national energy policies. The
associated overall target is to ensure share of renewable sources in the energy mix to be 30% at
minimum in order to reach this target by 2023:





Entire technical and economical capacity for hydroelectricity shall be utilized;
Installed capacity of wind energy shall be increased to 20.000 MW;
Entire 600 MW geothermal capacity, which is the proven potential capacity for electricity
generation shall be put into operation;
The target is to enable expansion of solar power utilization within the electricity production
and use the national potential at maximum level. Technological developments on electricity
production from solar power will be closely followed and implemented in order to promote
electricity generation from solar energy.
Based on technological developments and legislative provisions; electricity production plans
will be prepared by taking into consideration of potential developments on utilization of
other renewable energy resources. In the case of increased utilization of those resources,
the share of fossil fuels and primarily imported resources will be reduced.
Considering the current installed capacity of renewable sourcesas of June 2010 (Figure 15), the
intended targets according to the Electricity Energy Market and Supply Security Strategy Paper are
considered practically ambitious. The estimated potential of renewable resources, the existing
10
Source: Energy Ministry, http://www.enerji.gov.tr/yayinlar_raporlar/Arz_Guvenligi_Strateji_Belgesi.pdf (page 2)
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Capacity Building for Climate Change Management in Turkey Project
capacities and 2023 targets are given in Table 8. In order to reach these targets, additional 22.500
MW hydro, 19.000 MW wind and 420 MW geothermal capacity needs to be operationalised till 2023.
Since the numerical targets for other sources (solar and biomass) are not given in the Strategy Paper,
they are stated as ‘As Possible’ for the year 2023.
Table 8 Renewable Source Potential, Utilization by 2010 and Target for 202311
Sources
Potential
Utilized
2023 Target
TWh/year
GW
GW
GW
Hydro
130
37
14,5
All potential
Wind
150
48
1
20
Geothermal
4,2
0,51
0,09
All potential
Solar
380
?
~0
As Possible
Biomass
3,4
0,43
0,09
As Possible
Th Energy Market Regulatory Authority (EMRA) is the main body regulating activities in energy
market. The EMRA has been issuing generation licenses to private sector since 2003 and the total
capacity of renewable energy issued to the private sector nearly reached to 20.000 MW by October
2009. The breakdown of renewable generation licenses by resources is given in Table 9:
Table 9 Breakdown of Renewable Private Sector Generation Licenses by Source ,200912
Source
Capacity (MW)
Hydro
15.978,7
Wind
3.321,3
Geothermal
103,9
Biomass
57,2
Other
86,6
Total
19.547,7
Even though the total licensed capacity will be in operation, the total renewable capacity will be
much more behind 2023 targets, particularly for wind. On the other hand, there are several national
obstacles hindering further utilization of renewable sources for electricity generation including the
licensed ones. The main barrier is the lack of incentives as renewable energy investments are not
adequately competitive comparing fossil fuel fired power plants in countries where reductions of
carbon emissions has a price .In turkey, the main incentive for renewable investments has a range of
11
12
Source: ETKB, Mavi Kitap: http://www.enerji.gov.tr/yayinlar_raporlar/Mavi_Kitap_2009.pdf (page 9) and Worldbank Report.
Source: EMRA, www.enerjikongresi.com/doc/2009/sunumlar/AhmetOCAK.ppt (page 7)
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Capacity Building for Climate Change Management in Turkey Project
5 to 5,5 €c/kWh feed-in-tariff for 10 years which is insufficient to enable to promotion of renewable
investments, other than large hydros.13
Due to lack of incentives on renewables, investors seek other supporting mechanisms in order to
start up their investments. One of the complementary supporting mechanisms for those investments
in Turkey is the voluntary carbon market. The investors of renewable electricity projects also applies
for voluntary carbon standards (such as Gold Standard (GS)14, VCS15, VER+16) in order to sell issued
certificates to buyers who want to offset their emissions on voluntary basis. To give an example for
wind projects, as it can be seen in Table 10, the entire wind power projects excluding the small size
projects also applies for VER standards in terms of generation of additional revenue by selling carbon
credits.
Table 10 Wind Power Projects in Operation by June 2010 and Applied VER Standard 17
NO.
Location
Company
Installed
Capacity
(MW)
VER
Standard
1
İzmir-Çeşme
Alize Enerji Elektrik Üretim A.Ş.
1,50
-
2
Çanakkale-İntepe
Anemon Enerji Elektrik Üretim A.Ş.
30,40
GS
3
Manisa-Akhisar
Deniz Elektrik Üretim Ltd. Şti.
10,80
VER+
4
Çanakkale-Gelibolu
Doğal Enerji Elektrik Üretim A.Ş.
14,90
GS
5
Manisa-Sayalar
Doğal Enerji Elektrik Üretim A.Ş.
30,60
GS
6
İstanbul-Çatalca
Ertürk Elektrik Üretim A.Ş.
60,00
GS
7
İzmir-Aliağa
İnnores Elektrik Üretim A.Ş.
42,50
GS
8
İstanbulGaziosmanpaşa
Lodos Elektrik Üretim A.Ş.
24,00
GS
9
İzmir-Çeşme
Mare Manastır Rüzgar Enerjisi Santralı
San. ve Tic. A.Ş.
39,20
GS
10
İstanbul-Hadımköy
Sunjüt Sun’i Jüt San. ve Tic. A.Ş
1,20
-
11
İstanbul-Silivri
Teperes Elektrik Üretim A.Ş.
0,85
-
12
Balıkesir-Bandırma
Yapısan Elektrik Üretim A.Ş.
30,00
VER+
13
Balıkesir-Şamlı
Baki Elektrik Üretim Ltd. Şti.
57,00
GS
13
Worldbank - Project Appraisal Document on a IBRD Loan and a Proposed Loan from Clean Technology Fund to TSKB and TKB with the
Guarantee of Turkey, May 2009 (http://wwwwds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2009/05/11/000333037_20090511030724/Rendered/PDF/468080PAD
0P112101Official0Use0Only1.pdf
14 For further information on GS Standard please refer to website: http://www.cdmgoldstandard.org/Home.80.0.html
15 For further information on GS Standard please refer to website: http://www.v-c-s.org/
16 For further information on GS Standard please refer to website: http://www.netinform.net/KE/Beratung/Service_Ver.aspx
17 Source: EPDK, Gold Standard and VER+ Registries
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Capacity Building for Climate Change Management in Turkey Project
NO.
Location
Company
Installed
Capacity
(MW)
VER
Standard
14
Muğla-Datça
Dares Datça Rüzgar Enerji Santralı
Sanayi ve Ticaret A.Ş.
17,00
GS
15
Hatay-Samandağ
Deniz Elektrik Üretim Ltd. Şti.
20,00
VER
16
Aydın-Didim
Ayen Enerji A.Ş.
31,50
GS
17
Çanakkale-Ezine
Alize Enerji Elektrik Üretim A.Ş.
20,80
GS
18
Balıkesir-Susurluk
Alize Enerji Elektrik Üretim A.Ş.
18,90
GS
19
Osmaniye-Bahçe
Rotor Elektrik Üretim A.Ş.
57,50
GS
20
İzmir-Bergama
Ütopya Elektrik Üretim Sanayi ve
Ticaret A.Ş.
15,00
GS
21
İzmir-Çeşme
Mazı-3 Rüzgar Enerjisi Santrali Elektrik
Üretim A.Ş.
22,50
GS
22
Balıkesir-Bandırma
Akenerji Elektrik Üretim A.Ş.
15,00
GS
23
Balıkesir-Bandırma
Borasco Enerji ve Kimya Sanayi ve
Ticaret A.Ş.
45,00
GS
24
Manisa-Soma
Soma Enerji Elektrik Üretim A.Ş.
45,00
GS
25
Hatay-Belen
Belen Elektrik Üretim A.Ş.
15,00
GS
26
Tekirdağ-Şarköy
Alize Enerji Elektrik Üretim A.Ş.
28,80
GS
27
İzmir-Urla
Kores Kocadağ Rüzgar Enerji Santralı
Üretim A.Ş.
15,00
GS
28
Balıkesir-Bandırma
As Makinsan Temiz Enerji Elektrik
Üretim San. ve Tic. A.Ş.
20,00
GS
29
Mersin-Mut
Akdeniz Elektrik Üretim A.Ş.
33,00
GS
31
Edirne-Enez
Boreas Enerji Üretim Sistemleri A.Ş.
15,00
GS
32
İzmir-Bergama, Aliağa Bergama RES Enerji Üretim A.Ş.
52,50
GS
33
Hatay-Belen
Bakras Enerji Elektrik Üretim ve Tic. A.Ş.
15,00
GS
34
İzmir-Çeşme
Ares Alaçatı Rüzgar Enerjisi Sant. San.
ve Tic. A.Ş.
7,20
-
35
Çanakkale-Bozcaada
Bores Bozcaada Rüzgar Enj. Sant. San.
ve Tic. A.Ş.
10,20
-
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Capacity Building for Climate Change Management in Turkey Project
4. Carbon Markets
4.1 Market Mechanisms and Price Development
Kyoto Protocol which came into force in 2005, has established flexible mechanisms composed of
Clean Development Mechanism (CDM) and Joint Implementation (JI) and Emission Trading
System(ETS). While CDM is accessible for the non-Annex Parties of the UNFCCC, JI is applicable for
Annex—I parties which are subject to emission reduction targets as per the obligations of the
Protocol for Annex-B Parties.
Turkey has been a Party to the United Nations Framework Convention on Climate Change (UNFCCC)
since 24 May 2004 and to the Kyoto Protocol as of 26 August 2009. However, since Turkey is listed in
the Annex-I of the UNFCCC and a non-Annex B Party of the Protocol, it cannot benefit from CDM or JI
mechanisms yet considering the first commitment period(2008-2012) of the Kyoto Protocol.
CDM is the dominant project based mechanism in global carbon transactions. By 2009, around 75%
of total project based transaction volume and 80% of total value of transactions are CDM based
(Error! Reference source not found.).
Table 11 Volumes and values of project based transactions in 2008 and 200918
However, Turkey is not part of the compliance regime and not able to access to the compliance
markets of the Protocol, voluntary carbon markets which operates independently have been
providing additional revenues for a significant number of Turkish renewable energy projects such as
wind, geothermal, hydro and landfill gas. Contrary to the CDM or JI projects, emission reduction
credits (VER) of these projects cannot be used in compliance markets established under the Kyoto
Protocol. Rather they are purchased by corporate companies or individuals based on the purpose of
offsetting their emissions.
As mentioned in the earlier sections, the low penetration rate of Turkey’s renewable energy projects
to the energy market is clear and the lack of sufficient financial incentives for those relatively
expensive technologies hindering the situation. Hence, the voluntary carbon market is one of the
supportive mechanisms for Turkey that low carbon technology implementers can benefit by selling
emission reduction certificates and create an additional revenue stream additional to electricity
revenues (Figure 21).
18
State and Trend of the Carbon Market – 2010, World Bank Carbon Finance, May 2010 page 37
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Capacity Building for Climate Change Management in Turkey Project
Figure 21 An Illustrative Cash Flow Chart for a Typical Carbon Reduction Project (Source: Worldbank)
Development of carbon prices between April 2008 and April 2010 is given in Figure 22. Due to the
financial crisis, carbon prices had a sharp decrease during the last quarter of 2008. CER prices was
around 10-13 € during the most of time of the year 2009. Starting from March 2010, there is a trend
of increase in carbon prices.
Figure 22 Development of Carbon Prices19
The change in price of VERs in OTC market (largely managed by bilateral agreements) during 2008
and 2009 are depicted in Figure 23 and Figure 24 respectively. In contrary to the compliance markets,
voluntary markets are more sensitive to VER project types and host country selection. This is mainly
because of the motivation of buyers, who don’t only consider emission reduction, but also other
social and environmental perspectives of the VER projects. The decrease in VER prices (other than
solar) is mainly due to the financial crisis. In response to the global financial crisis, companies cut
19
State and Trend of the Carbon Market – 2010, World Bank Carbon Finance, May 2010 page 5
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Capacity Building for Climate Change Management in Turkey Project
back on discretionary funding for corporate social responsibility initiatives, including offsetting
emissions20.
Figure 23 Credit Price Ranges and Averages by Project Type, OTC 200821
Figure 24 Credit Price Ranges and Averages by Project Type, OTC 2009 (US$/tCO2e)22
20
http://www.forest-trends.org/documents/files/doc_2433.pdf page ii
Ecosystem Marketplace, New Carbon Finance: http://www.forest-trends.org/documents/files/doc_2343.pdf
22 Ecosystem Marketplace- New Carbon Finance: http://www.forest-trends.org/documents/files/doc_2433.pdf
21
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Capacity Building for Climate Change Management in Turkey Project
4.2 Future of Carbon Markets and Alternatives for Turkish Renewable
Projects
Kyoto Protocol aims to reduce emissions of developed countries below 5% of 1990 levels by
regulating the first commitment period between 2008 and 2012. As approaching to the end of this
period, the international climate change negotiations for the Post2012 still ongoing and large
uncertainties exist. However, there are intense discussions continues in terms of reaching a legally
binding agreement before 2012. Hence, huge uncertainties also exist about the future of carbon
markets and even it is not certain that whether flexible mechanisms of Kyoto Protocol will continue
following 2012.
On the other hand, what is certain about the future of carbon markets is the continuation of
Emission Trading scheme of EU (EU ETS) which is designed to regulate emissions of EU countries even
after 2012so called the EU ETS Phase III.
At present, Turkey is not a participant of any compliance market and renewable projects can only
benefit from the voluntary carbon market. In recognition of the circumstances of the Post-2012
period, the following alternative scenarios are considered for Turkey in relation to the new carbon
regime and markets:
Scenario-1 “No compliance, no voluntary”: Turkey will hold its current position and will not
participate to any compliance market. By the time voluntary carbon market(VCM) collapse,
there will not be any opportunities for VER projects to be gain additional revenues from the VCM
in Turkey to generate carbon revenues which is additional to their operating revenues.
Scenario-2 “No compliance, but voluntary”: Turkey will hold its current position and will not
participate to any compliance market. However, voluntary markets will retain to operate and
Turkish VER projects will continue to generate carbon revenue upon selling their VER
certificates.
Scenario-3 “A participant to compliance”: International negotiations will conclude with
continuation of current flexible mechanisms (or similar to these mechanisms), Turkey will
participate to one of them and will be a CDM or JI country. Turkish renewable projects will be
eligible to generate and sell CDM or JI credits (CERs or ERUs) in the compliance market.
Scenario-4 “Benefits from NAMAs”: Turkey will benefit from Nationally Appropriate Mitigation
Actions (NAMAs) which are still under negotiation and subject to approval by parties in
upcoming COP16 or subsequent conferences.
Even though Turkey is a candidate member of the European Union, and finally will be member of
the EU, since renewable power projects are not included the EU ETS scheme23, Turkish
renewable projects will not be eligible to benefit from the EU ETS scheme in terms of selling
carbon reduction certificates. On the other hand, being the largest multi-national carbon scheme
in the world and covering more than 10.000 installations24, price forecast on European
Allowance Units (EUA) for Phase III are more credible and can be used to analyze the impact
23
24
See EU Directive: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:140:0063:0087:EN:PDF
See: http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/08/35&format=HTML&aged=0&language=EN&guiLanguage=en
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Capacity Building for Climate Change Management in Turkey Project
carbon prices as an upper limit, in any kind of future mechanisms for Turkish renewable projects.
In this analysis, price forecasts for EUAs are used as indicative prices for renewable projects in
case of NAMA(s) applications.
5. Carbon Finance as a Mean to Increase Renewable Electricity
Generation
This section provides a forecast analysis on the impact of carbon finance with respect to its
contribution in addressing Turkey’s ambitious target for increased share of renewables by 2023.
As the international negotiations for reaching a legally binding agreement for the Post-2012 still
continues, any change in Turkey’s position under the carbon markets before 2015 is not seen
possible. This is mainly due to long process for international treaties before coming into force as they
are subject to approval of parties’ following adoption of the new treaties by their parliaments.
Hence, in this study, the investment analysis and impact of carbon finance on financial returns are
conducted for renewable power plants based on the assumption that those are to be operationalized
by the year of 2015.
5.1 Methodology and Assumptions
In order to analyze the impact of future carbon reduction prices on renewable investments; the
financial return of renewable projects with or without carbon revenue is calculated based on capital
and investment costs, Operations and Maintenance(O&M) costs and price projections for carbon
reduction certificates according to the different carbon mechanism scenarios.
Current feed-in-tariff (55 €/MWh) is used as selling price of electricity generation from these plants.
Capital Costs of Technologies
In terms of selection of the capital costs of renewable technologies by 2015; the Worldbank Study25,
the market analysis and data tables of NREL26 and EU Commission Staff Working Document27 are
benefited from.
The projection for capital cost of technologies by 2015 is also available in the Worldbank Study. Since
these projections are based on 2005 prices, these are converted to 2015 prices using CPI deflator28.
NREL market analysis doesn’t provide projections for capital cost of technologies but rather provides
the status of 2007 and 2008 (in 2006 prices). These prices are also converted to 2015 prices with CPI
deflator. The calculated prices are adjusted for the year 2015 by learning rates for each technology.
The learning rates are the decrease in cost of technologies for each doubling of capacity due to
25
Technical and Economic Assessment of Off-Grid, Mini Grid and Grid Electrification Technologies, The Worldbank Group, September
2006.
26
See NREL for data on Energy Tech. Cost: http://www.nrel.gov./analysis/docs/re_costs_20090806.xls
27
See: http://ec.europa.eu/energy/strategies/2008/doc/2008_11_ser2/strategic_energy_review_wd_cost_performance.pdf
28
US CPI between 2005-2010 is 12%. See: http://data.bls.gov/cgi-bin/cpicalc.pl. It is assumed that same CPI will be realized between 20102015. Hence price deflator is set to be 1,2544 (1,12^2) for converting 2005 prices to 2015 prices.
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Capacity Building for Climate Change Management in Turkey Project
technological and operational improvements in these kind of technologies. The formula used to
calculate the future cost of technology is given below29:
The learning rates for each technology type and estimated 2015 capacities for each technology are
taken from the EU Commission Staff Working Document30. The calculated decrease by 2015 for
capital cost of each technology types are given in Table 12.
Table 12 Decrease in Capital Cost by Learning Rate for each Technology Types
Learning Rates
Capital Cost Decrease
Rate from 2007 to 2015
23%
15%
Wind - Onshore (Good Wind)
8%
16%
Wind - Onshore (Moderate Wind)
8%
16%
Wind – Offshore
8%
21%
Solar thermal (with thermal storage)
10%
15%
Geothermal
10%
10%
Biomass Gasifier
5%
10%
MSW/Landfill Gas
11%
8%
12,5%
9%
-
5%
Electricity Generation Technology
PV
Biogas
Mini Hydro
Average of 2015 capital costs which are based on studies of the Worldbank Report and NREL Analysis
are taken into account for the investment analysis. Capital costs for each technology types by 2015
can be seen in Table .
O&M Cost
Operation and Maintenance (annual fixed and variable Costs) for each technology types are taken
directly from the Worldbank Report providing the prices of 2005. It is assumed that, deflator to
convert the O&M costs to 2015 prices and decrease in O&M costs due to learning rate offsets each
other.
29
Ref 22, page 11.
Ref 25, page 16. For Mini Hydro projects, since hydro power technology is already matured and construction cost has the largest share in
total cost for this technology, an indicative decrease rate ie. 5% is applied to reflect learning rate.
30
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Capacity Building for Climate Change Management in Turkey Project
Financial Assumptions
The financial assumptions which are used in finance model are given in Table 7. The construction
periods are also given in Table .
Table 7 Financial Assumptions used in the Model
Interest Rate
Equity Share
31
Loan Repayment Period
Corporate Tax
Carbon Crediting Period
EUR/USD
7%
20% or 30%
10 yr
20%
20 yr
1,3
Emission Reduction Factors based on Technology Types
In Turkey, there are certified emission reduction projects based on wind, hydro, landfill and
geothermal resources32. The emission reduction factors for these technologies are obtained from the
most recent registered Gold Standard PDDs33. For biogas projects, the factor for landfill is used in
order to simplify the study while the factor is cross-checked by an Indian biogas project34. The
emission factor for biogas gasifier is to be the similar with the grid connected renewable sources
(other than solar and wind) as this kind of technology leads to CO2 emission reduction but not lead to
methane reduction. It is assumed that, whole land fill and biogas projects will reduce methane
emissions comparing baseline.
Table 8 Emission Reduction Factors for each Technology Type
Electricity Generation Technology
Emission Reduction
Factor (tCO2e/MWh)
PV
0,60
Wind – Onshore
0,60
Wind – Offshore
0,60
Solar thermal (with thermal storage)
0,60
Geothermal
0,55
Biomass Gasifier
0,55
MSW/Landfill Gas
3,00
Biogas
3,00
Mini Hydro
0,55
31
For technology types having 2-yrs long construction period, the equity share is set to be 30%, and for others 20%.
For registered Gold Standard projects from Turkey see: https://gs1.apx.com/myModule/rpt/myrpt.asp
33 See emission factor calculation given in PDD of wind project with registry no. GS 653:
https://gs1.apx.com/mymodule/ProjectDoc/EditProjectDoc.asp?id1=653. Emission factor for geothermal, biomass gasifier and mini hydro
projects are calculated with average of BM and OM factor stated in this PDD as per the rule of the emission factor calculation tool of
UNFCCC: http://cdm.unfccc.int/methodologies/PAmethodologies/tools/am-tool-07-v2.pdf (page 16).
34 See: http://siteresources.worldbank.org/EXTECAREGTOPENVIRONMENT/Resources/5114321179513928596/Animal_Manure_Management.ppt
32
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Capacity Building for Climate Change Management in Turkey Project
Carbon Reduction Prices
There are only a few credible studies on future carbon price forecasts. It is assumed that 2008 prices
for each generation types which are also given in Table 9 will be applicable in 2015 for voluntary
market prices. As given in Table 1010, -the price projections of some analysts for Phase III period of
EU ETS (2013-2020) are used for the CDM/JI and EU ETS prices in 2015.The single projected price of
CDM/JI which is 20 €/tCO2e (26 USD/ tCO2e) as given in this table, is taken as it is while the average
estimation of three different prices(35, 48 and 30,10) presented is taken as a reference for EU ETS
price forecast which is 37,7 €/tCO2e (49 USD/ tCO2e)..
Table 9 Voluntary Credit Price Changes by Project Type in 200835
Project Type
PV
Wind - Onshore (Good Wind)
Wind - Onshore (Moderate Wind)
Wind – Offshore
Solar thermal (with thermal storage)
Geothermal
Biomass Gasifier
Price (USD/tCO2e)
21,98
12,60
12,60
12,60
21,98
18,00
16,80
MSW/Landfill Gas
Biogas
Mini Hydro
16,80
16,80
5,20
Table 10 Analyst Expectations for CDM/JI and EU ETS36
As stated in Table 8, wind energy potential of Turkey is 48.000 MW. But according to the State
Generation Co. (EÜAŞ)37, only 8.000 MW of these potential has high level wind speed (ie. capacity
factor is >= 35%). The entire 40.000 MW potential have a moderate wind speed (ie. capacity factor is
25%-30%). Since wind energy is the most critical energy source as a non-hydro renewable energy
source of Turkey, it is analyzed in three sub groups which are given in Table .
35
Fortifying the Foundation – State of the Voluntary Carbon Markets 2009: http://www.foresttrends.org/documents/index.php?pubID=2343 (page 9) – Prices are converted to 2015 prices with 1,2544 CPI deflator.
36 State and Trends of Carbon Markets, Carbon Finance, World Bank, May 2010 (page 58) – Prices are converted to 2015 prices.
37 See: http://www.euas.gov.tr/_EUAS/Images/Birimler/apk/EUAS-Sektor_Raporu2009.pdf (page 8)
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Capacity Building for Climate Change Management in Turkey Project
Table 11 Technical and Economical Assumptions for Different Electricity Generation Technology in 2015
Electricity Generation
Technology
PV
Capacity
(MW)
Operating
Years
Capacity
Factor38
Capacity Cost
in 2015
(USD/kW)
Generation
Cost in 2015
(USDc/kWh)
Construction
Period (yr)
5
25
20%
6.330
1,21
1
Wind – Onshore (Good wind)
Wind – Onshore (Moderate
wind)
100
20
35%
1.459
1,69
1
100
20
30%
1.459
1,95
1
Wind – Offshore
Solar thermal (with thermal
storage)
100
20
39%
2.858
1,69
2
30
40
41%
4.746
2,27
2
Geothermal
20
30
85%
4.090
1,70
2
Biomass Gasifier
20
25
85%
2.874
3,93
1
MSW/Landfill Gas
5
25
75%
2.924
1,54
1
0,06
25
85%
3.252
2,98
1
5
50
50%
2.764
1,09
2
Biogas
Mini Hydro
5.2 Results
The result of financial analysis according to different technologies and carbon prices is given in
132. Threshold IRR is the expected equity IRR by investors in Turkey which are derived from the
World Bank study39. Threshold IRRs for offshore wind, land fill and biomass gasifier technologies are
not stated in this study. Since there is no operational offshore wind power plant in Turkey, expected
equity IRR for this kind of investments is assumed to be 20%. For biomass gasifier and landfill gas
technologies same IRR expectation for biogas is used. It is assumed that, geothermal plants will
collect CO2 from brine and transfer for industrial usage without additional revenue.Hence, no project
emission will generate. The possible additional revenue from selling of byproducts of biomass
technologies (i.e. fertilizers) are not also taken into account.
Table
According to the result of financial analysis, none of the listed renewable electricity generation
technology will be financially attractive without additional carbon finance in 2015. Onshore wind
plants in the areas with high level wind speed, landfill gas and biogas power plants will be attractive if
they secure emission reduction certification and sell those certificates in the voluntary markets based
on the price assumptions listed in Table 9. However, the wind projects having smaller capacity factor
(moderate wind speed) and geothermal projects can be financially attractive if they can secure
additional carbon finance with EUA prices. Mini hydro power plants are also expected to get closed
to achieve threshold IRRs when they also secure carbon revenue with EUA prices. However, PV, solar
thermal and offshore wind projects cannot be financially attractive under any carbon finance scheme
38
Most of capacity Factors are taken from EU Commission Document (Ref:22). Considering high solar irradiation rate of Turkey, factor for
PV stated in this document (11%) is assessed low, hence, capacity factor from ‘PV Roadmap’ of IEA is used, please see:
http://interenerstat.org/papers/2010/pv_roadmap.pdf (Page 22, Figure 11). With similar approach, 50% of capacity factor stated in
Worldbank Study (Ref.20) is used for Mini Hydro.
39 World Bank, Loan Appraisal Document, March 2009.
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Capacity Building for Climate Change Management in Turkey Project
in case electricity feed-in – tariff prices would be increased to 71,5 USD/MWh40. The carbon prices
which promote these technologies financially attractive are given in the last column of
13. It is clear that, other than price for mini hydro, at least till 2015, none of this prices are
realistic, hence these technologies shall have higher feed-in-tariffs to be more attractive by private
investors.
Table
Table 13 The Result of Financial Analysis (Equity IRR) for each Electricity Gen. Technologies and Carbon Finance Scenarios
Electricity Gen.
Technology
Threshold
IRR
PV
Wind – Onshore
(Good Wind)
Wind – Onshore
(Moderate Wind)
25%
Wind - Offshore
Solar thermal (with
thermal storage)
20%
Geothermal
IRR w/o
VER
IRR With
VER
IRR With
CER
IRR With
EUA
Difference
(Max - Min IRR)
ER Price to Reach
Threshold
(USD/tCO2e)
Neg.
Neg.
Neg.
Neg.
N/A
991
11,6%
15,4%
19,8%
28,4%
16,8%
-
7,1%
10,1%
13,5%
19,9%
12,7%
-
3,3%
5,6%
8,1%
12,4%
9,1%
96
Neg.
Neg.
Neg.
3,2%
N/A
399
15%
8,8%
11,3%
12,5%
16,1%
7,3%
-
Biomass Gasifier
20%
7,1%
11,5%
14,2%
22,4%
15,3%
-
MSW/Landfill Gas
20%
14,5%
50,4%
76,3%
144,5%
130,0%
-
Biogas
20%
8,9%
40,7%
66,1%
135,2%
126,3%
-
Mini Hydro
15%
8,7%
9,2%
11,4%
14,2%
5,5%
62
15%
15%
25%
6. Summary and Conclusion
In this study, the effect of carbon finance as an additional revenue to the renewable electricity
generation is analyzed. The renewable electricity generation technologies analyzed are listed below:








40
PV
Wind
Solar thermal (with thermal storage)
Geothermal
Biomass gasifier
MSW/Landfill Gas
Biogas
Mini Hydro
Converted to 2015 prices with 1,12 CPI deflator.
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Capacity Building for Climate Change Management in Turkey Project
According to the result of financial analysis based on the current VCM conditions, carbon finance
opportunities for Turkish renewable projects under the voluntary market would be limited to wind
power projects with high speed wind potential and also limited to landfill and biogas projects with
financial viability. PV, solar thermal, wind projects with moderate or lower wind speed potential,
geothermal, biomass gasifier and mini hydro projects are not projected to be financially attractive
even with additional VER revenues based on the VER prices of 2015. If any new carbon scheme or
NAMAs will lead carbon prices around estimated EUA prices in Phase III, wind projects with moderate
speed can be financially attractive. The potential electricity generation through those projects is
estimated to be around 40.000 MW. The national target for installed capacity for wind projects by
2023 is 20.000 MW but, if the current feed-in-tariff prices are not to be increased, the highest
available carbon prices in voluntary market will not be sufficient to enable investments of the wind
projects with low speed potential. Hence, the investments would be limited to the 8.000 MW wind
power projects which are financially attractive based on their high speed wind potential. The
additional 12.000 MW wind capacity are projected to be utilized if CDM/JI or EU ETS like carbon
scheme will be applicable by 2015, will result additional reduction of 18,9 million tCO 2e emissions41
considering baseline emissions.
In addition to the wind, the entire geothermal energy potential for electricity generation (510 MW)
and biomass gasifier as well as most of mini hydro (<= 5 MW) potentials can be utilized with any
carbon scheme leading emission reduction prices around EUA price forecasts by 2015.
41
Annual electricity generation with additional wind PPs = 12,000 MW x 8760 hr * 30% capacity factor =31.536.000 MWh. Multiplying with
Emission Factor = 0,6 tCO2e, emission reduction amount becomes 18,9216 million tCO2e/year.
24