Economics of Coal

Future of Coal in Global Markets

Many developing and developed countries have decided to phase out coal in the power sector in the short and medium term. In Europe, only four countries (Bosnia and Herzegovina, Kosovo, Poland and Serbia), along with Turkey, have not set a date for phasing out coal-fired electricity generation. With many banks and financial institutions announcing that they will no longer support coal-related investments, access to finance for new coal investments has become increasingly difficult. Ahead of the 26th Meeting of the Parties (COP26) in Glasgow, G20 countries, following China, South Korea and Japan, announced that they would no longer finance international coal projects. As a result of these dynamics, coal-based electricity generation was expected to slow down or decline worldwide.

In the second half of 2020, spot price of coal fell below $50 per tonne. The economic recovery after the coronavirus outbreak, problems with transport and increased demand for coal in China pushed prices up sharply. The economic crisis exacerbated by the invasion of Ukraine also pushed energy prices even higher. In June 2022, it climbed above $400, reaching the highest levels in history.

According 28 Lazard’s analysis of 28 October 2021, the levelised cost of electricity generation for coal plants ranges from 6.5 US dollar cents to 15.2 cents per kilowatt-hour (kWh). In the same analysis, the kWh cost of solar power ranges from 2.8 to 4.1 cents, and wind from 2.6 to 5 cents. This reduces the competitive chances of coal. Prices in Turkey are in parallel with the world. In the tender for the Çayırhan B Thermal Power Plant project held in 2017, the Kolin-Kalyon Enerji-Çelikler Joint Venture Group submitted the lowest bid at 6.04 cents per kWh 6.04 cents per kWh (the price at which they would sell the electricity they generated to the grid) and won the tender. The project was later cancelled. In the Renewable Energy Resource Areas SPP-4 tender held in June 2022, a solar power plant project to be built in Niğde won the tender with a price offer of 37.5 TRY kuruş per kWh (2.1 dollar cents at the exchange rate of 12 July).

IEA’s projections on share of coal in energy and power mix for 2030 and 2040

On the other hand, the challenge to find cost-effective substitutes for coal in industrial energy use (especially in iron, steel and cement sectors) means that coal might remain relatively important in meeting the energy demand in these sectors. 

Coal Consumption of Turkey in Other Sectors

Electricity sector is the main consumer of coal in Turkey, in line with the global trends. Between 1990-2020, the use of coal in electricity and heat generation increased approximately 5 times.

Consumption of hard coal, lignite and asphaltite by sector, 1990 – 2020. Data source: Energy Balance Sheets of the Ministry of Energy and Natural Resources

In 2020, 87% of lignite, 62% of asphaltite and 60% of hard coal was consumed for electricity and heat production in thermal power plants. 13% of hard coal was consumed for coke production, which, in turn, is used for steel

Sectoral consumption of lignite, Demand for coal by sectors (1000 TEP) Data source: Energy Balance Sheets of the Ministry of Energy and Natural Resources

Sectoral consumption of hard coal, Demand for coal by sectors (1000 TEP) Data source: Energy Balance Sheets of the Ministry of Energy and Natural Resources

Sectoral consumption of asphaltit, Demand for coal by sectors (1000 TEP) Data source: Energy Balance Sheets of the Ministry of Energy and Natural Resources

In 2020, 8% of lignite coal and 7% of hard coal was used for heating in the residential sector in Turkey. In 2000, the proportion of hard coal used in residential buildings exceeded 10%. In order to combat air pollution, natural gas has started to be used predominantly in the residential and service sectors, and by 2020, almost half of the energy used in residential buildings was natural gas. Hard coal and lignite are important energy sources in cement and iron and steel production. In the iron and steel sector, the use of lignite is much less than hard coal; the share of coke and gas is larger. In 2020, the amount of hard coal used in these two sectors was more than the amount of hard coal used in residences in the same year.

Steel production and coal use

Turkey is the 2nd largest iron and steel producer in Europe, and 7th largest in the world. Global steel production is dependent on coal. 70% of the steel produced uses coal. In Turkey, hard coal and coke accounts for 75% of overall energy consumption in iron and steel production.

98% of coke supply in Turkey is used by the iron and steel sector.

Energy consumption in iron and steel production according to energy sources, 2018. Data source: Energy Balance Sheets of the Ministry of Energy and Natural Resources