Turkish
economy has an impressive annual growth rate but this is challenged by the dependence
on imported energy (by over 70 %) as growing economy means increasing energy
demand and consequently negative impacts on current account deficit. In order to
have an idea about the size of the problem, consider that total energy demand
in 2010 was over 110 Mtoe and this amount is expected to double in the next 10
years. Therefore, country’s energy (supply) policy focuses on increasing domestic
production.
With
regard to increasing domestic production, It is fair to say that better utilization
of renewable energy is “the hottest” topic among all the options as in other
countries and the government has a special concern on increasing the share of
renewable energy in electricity supply. In parallel with this interest, two
laws have been enacted in 2005 and 2010 and aggressive goals have
been set for 2023.
- Increasing share of renewable energy resources to at least 30 % in total generation
- Complete utilization of technical and economical hydroelectric potential
- Increasing installed capacity of wind energy to 20 GW
- Commissioning all of geothermal potential
- Utilization of other renewables such as solar and biomass
In
order to reach these targets, many incentive mechanisms have been developed
including the latest feed-in-tariff (FIT) valid for 10 years after
commissioning of the power plant (also additional FIT for utilizing
domestically manufactured equipments), free land from treasury, 85 % discount
for grid connection and usage fees, etc. As a result of such incentives and
opportunities in the liberalized market, installed renewable energy capacity
has grown rapidly as seen below. This is definitely the success of promotive
renewable policy.
Figure 1: Development
of renewable installed capacity
However,
integration of higher amount of renewable has created significant problems as
follows: Turkish electricity market is liberalized and mainly based on
bilateral contracts (among participants) which are complemented by the pool.
This market mechanism is operating on two sub-market basis, namely day-ahead
and real-time markets. In other words, next day’s demand is balanced in the
day-ahead and generators are informed about their generation schedule for the
next day. In the real-time (following day), inevitable imbalance in the system
caused by changing consumption or generation pattern is balanced. As some of
the new renewable power plants (especially wind and run-of-the-river type hydro
power plants) are having imbalance problems in the real-time, they cannot meet
their day-ahead commitments. Due to these imbalances (missing or excess
generation) the system becomes very difficult to manage and generators are
penalized (by the marginal cost of the imbalance in financial settlement).
The
problem is quite complex unfortunately. For example, there are many new run-of-the
river type hydro power plants (HPPs) that are cascaded. As these plants don’t
have sufficient reservoirs, electricity generation of the ones in the
downstream heavily depend on how much water is released from the plants in the
upstream. Therefore, there are cases in which water released from a plant
located at the source can reach the plant at the end with a long lag resulting
in a big uncertainty on electricity generation schedules. On the other hand,
electricity generations in the wind farms are determined by the wind speed
which cannot be known exactly in the day-ahead due to changing weather conditions.
Moreover, as solar power plants (they are also intermittent sources like wind
plants) are introduced to the system, the amount of imbalance will be much
higher. In other words, if renewable capacity development continues as in
Figure 1, which is definitely desirable, there will be undesirable problems
like increasing imbalance problems for the operator and penalties for plant
owners.
Some
solution alternatives can be proposed for this problem. One of them is allowing
renewable power plants to be exempt from the day-ahead market. Thus,
electricity generated in these plants will be delivered to the system in the
real-time and no imbalance will occur. Apparently, this solution addresses the
imbalance penalty problem of the plant owners and aims integrating more
renewable energy to the system. However, it undermines technical and financial
cost of the exemption. Consider that the imbalance is positive, meaning there
is more renewable energy in the system than expected. Since electricity demand
and supply must be in balance all the time, system operator will have to
dispatch off some other power plants and these plants will lose revenue
unexpectedly. Naturally, this will lower the electricity prices in the market
but form a negative signal for new thermal power plant investments. In the end,
the system will be unbalanced in terms of installed capacity portfolio. If the imbalance
balance is negative meaning there is less renewable energy in the system than
expected, then system operator will have to dispatch on some other power plants
having higher generation costs, and this will put an extra burden on the
electricity price. In both cases, renewable energy generators are supported at
the expense of either other generators or consumers in an unsustainable way.
Second
option is forcing the problematic renewable generators to form balanced
portfolio groups and act together in order to minimize their total disturbing
effect on the system. For instance, fossil fired generators or HPPs with
reservoirs can be in the same group with run-of-the-river type HPPs, wind or
solar power plants and act together in order to be in balance all the time
while enjoying the benefits of the market environment. In particular, cascaded
HPPs can be forced to act as a single generation source. As they are located on
the same river, this can provide an efficient source management and water can
be utilized in electricity generation to the utmost extent. However, power
plants that can balance themselves or are located in the upstream of a river will
not be eager to be in such groups. Evidently, they will prefer to generate
electricity at peak hours independently in order to make more revenues.
Third
alternative is developing a new market mechanism, namely intra-day market. This
mechanism is based on providing a market place for the participants enabling
them to manage their imbalance before the real-time. For a specific hour in the
day, say 4 pm, market participants can be allowed to trade electricity until 2
pm. Thus, if a generator notices that an imbalance is likely to occur in a
couple of hours, this imbalance can be managed by selling the extra or buying
the deficit energy without being penalized. Moreover, the demand side can also
participate in the trade and this increases the efficiency of the balancing in
terms of system management and economic cost. It is fair to say that last option
seems much better as it can serve for renewable power plants’ inevitable
imbalance problem, utilizing demand side response and deepening the market
structure at the same time. More importantly, this is a completely market
oriented solution that can help make the market mechanism self-sufficient.
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