Turkey's plans to expand its thermal coal-fired power plant fleet have largely fallen by the wayside as the country grapples with a combination of economic and social headwinds, clouding what otherwise would have been one of the Atlantic market's few bright spots for demand.

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An estimated 70 GW of planned capacity has either been cancelled or indefinitely postponed since 2009, leaving the country with 85 operating coal-fired power plants and a total operating capacity of 19 GW, according to a review of the Turkish government data and web sources. An additional 33 GW is under various stages of planning, with only 2 GW under construction.

"There are quite a number of projects that will never see daylight," a Turkish utility source said. "The ones that will burn imported hard coals are definitely dead due to diminishing availability of soft loans and Turkey's strong policy for decreasing the current account deficit."

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President Recep Erdogan's strategy to shift utility purchases away from imported thermal coal toward domestic lignite, due to the impact energy imports are having on Turkey's balance of trade, had been expected to fuel domestic plant construction near lignite mines, the utility source said.

But the policy appears to have ground to a halt, as proposed lignite projects have been halted by strong environmentalist opposition.

The economic downturn under Erdogan's administration has alarmed international investors, while the currency crisis last year has stymied international lending.

"Some power/construction consortiums have struggled to get the necessary financing required to start building due to the Lira-US dollar exchange rate," a producer-trader source said. "Many of the power plants were looking to secure international finance to start construction but as the Lira has depreciated so much over the last 9-12 months, a lot of these loans would now be uneconomical. This has shelved both potential lignite and imported coal projects."

CURRENCY WOES HIT FINANCING

The plunging Turkish Lira, which fell by almost a third against the US dollar toward the end of 2018, has squashed financing and coal demand, according to S&P Global Platts Analytics.

"With Turkey's economy likely to contract in CY 19 and grow only slightly in CY 20, electricity demand and coal imports should continue to be limited," Platts Analytics said.

Joe Aldina at Platts Analytics said: "Some slowing in Turkey's imports was more or less the consensus view for 2019. But there was a longer-term expectation that Turkey would be one of the few bright spots for coal demand growth in the Atlantic Basin and a number of coal sellers, particularly from the US, were looking to Turkey as an outlet for production as European imports slow (and domestic US coal demand falls). New tariffs on US coal implement this year dash the short-term hopes of sending more US coal to Turkey, but there was still the hope that Turkey could be a longer-term partner for US suppliers."

Despite this, some US sellers have been looking toward Turkish demand to drive growth. Last year, Murray Energy and Javelin Commodities lobbied the Turkish government to raise the sulfur limit for coal imports in order to target the country for additional US export sales. XCoal has also expressed interest in longer-term opportunities in Turkey.

Turkey imported 2.72 million mt of thermal coal in June, up 30% from May and up 13% on the year, according to Turkish customs data. Total Turkish H1 thermal coal imports were 14.07 million mt, down 2% on the year, with the majority of imports coming from Colombia and Russia.

According to figures released by the Turkish Ministry for Foreign Affairs, Turkey produces a third of its electricity from coal generation and has the fastest growth in electricity demand among OECD members, with an annual growth rate of 5.5% since 2002.

The country's official energy strategy goals are to diversify oil and gas import sources, increase renewable and nuclear power capacity and energy efficiency, according to the Ministry. It remains to be seen whether coal will be used to meet Turkey's rising power demand.

-- Robert Mann, robert.mann@spglobal.com

-- Edited by James Burgess, james.burgess@spglobal.com