Introduction
Sustainable Economy and Finance Research Association (SEFiA) and London based think tank E3G have jointly prepared a report titled “Financing the Coal Phase Out: The Case of Turkey”, the new report analyzes the cost of Turkey’s coal phase-out on a power plant-by-power plant basis. The report examines in depth the financial outlook of the plants, which is seen as one of the biggest obstacles to coal phase-out in the electricity sector, and explores potential financing mechanisms for a gradual transition from coal to renewable energy.
The report takes one step further than previous studies in Turkey, which have so far explored the technical possibilities and economic dimensions of coal phase-out. The report also aims to identify the potential financing needs of coal-fired power plants that need to be retired in order for Turkey to reach the 2053 net-zero pathway.
According to the report’s prominent findings;
- In 2026, with the introduction of a carbon price in Turkey, coal-fired power plants will incur a total loss of $45 billion until the end of their license period.
- With the introduction of the carbon price, all but two coal-fired power plants in Turkey will start incurring losses as of 2026.
- The study sets the carbon price in Turkey from 2026 as only one-third of the current carbon price in the European Union Emissions Trading System (EU ETS) until 2035. After 2035, this price rises to only half of the EU ETS. Even the carbon price assumed at such a low level leads to losses for power plants.
- In the coal phase-out scenario, the share of domestic resources in electricity generation rises from 51.3% to 73.6% between 2021 and 2035.
First, imported coal-fired power plants phase-out
Due to their high marginal costs, the report reveals that imported coal-fired thermal power plants would be the first to be decommissioned if a carbon pricing mechanism is implemented. In the coal phase-out scenario in the report, the share of domestic resources in electricity generation increases from 51.3% to 73.6% in the period between 2021 and 2035, and consists entirely of “domestic and renewable” resources. In the business-as-usual scenario, the share of domestic resources (renewable and domestic coal) only reaches 59.2% in 2035.
SEFiA Director Bengisu Özenç emphasized the potential negative economic and social consequences of delaying coal phase-out plans, which are technically feasible for Turkey and inevitable in line with global developments:
“Turkey’s 2053 net-zero target is not only important for climate goals, but also for maintaining its competitiveness in a changing global trade order. The first step towards achieving this target is to clearly articulate an official position on coal phase-out in electricity supply and to plan towards this goal. As you know, Turkey is planning to introduce a national emissions trading system in the near future. It is obvious that the introduction of such a system, which envisages the pricing of carbon emissions, will negatively affect the financial balances of coal-fired power plants. Our study shows that even under very low carbon prices, coal plants will not be able to sustain their operations. In this respect, coal phase-out should be targeted at an early stage, before losses start to occur. In this way, a multi-layered, multi-stakeholder planning can be achieved, and an inclusive and fair exit strategy can be put forward with appropriate financing opportunities.”
İbrahim Çiftçi, Financial Research Director of the Sustainable Economy and Finance Research Association (SEFiA), drew attention to the coal phase-out mechanisms that Turkey can also benefit from,
“Coal phase-out is the lowest hanging fruit for decarbonization to begin in line with the net zero target. Today, there are many initiatives in the international arena for coal phase-out, such as Coal Retirement Mechanisms (CRM) or Coal Transition Mechanisms (CTM), which Turkey can also benefit from. Instead of planning new coal-fired power plants, Turkey should as soon as possible plan for the transition that it has committed to with a net zero target in order to maintain security of supply in energy, to ensure the continuity of the electricity sector, which is a sector with high debt ratios, and to prevent a crisis in this sector from threatening the overall economy by affecting the secondary sectors that provide input to the banking sector.”
Öykü Şenlen, Senior Fellow at London-based think tank E3G, emphasized that Turkey should join international initiatives or diplomatic cooperation, noting that we are diverging from global trends in the transition from coal to clean energy:
“Turkey risks diverging from the rest of the world by planning new coal capacity despite economic challenges and social backlash. Despite recently shelved or canceled projects, Turkey is still planning more than two-thirds of the planned coal power capacity in the OECD and EU, and is the only OECD country in the top ten worldwide. Many of Turkey’s OECD, EU and G20 counterparts have made significant progress in moving away from coal. Like them, Turkey should engage in international initiatives and seek opportunities for diplomatic cooperation to support the transition from coal to clean energy in line with climate goals.”
Financing the Coal Phase Out: The Case of Turkey report was shared with the public at a meeting held at Assembly One Tower in Ankara on April 25, 2024. The meeting, which concluded with a panel discussion on alternative scenarios for coal phase-out, was attended by public institutions and organizations as well as civil society organizations working on climate change and energy.