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NATURAL GAS INFRASTRUCTURE EXPANSIONS IN TURKEY: ECONOMIC FEASIBILITY AND A COST COMPARISON WITH PV INVESTMENTS A THESIS SUBMITTED TO THE GRADUATE SCHOOL OF NATURAL AND APPLIED SCIENCES OF MIDDLE EAST TECHNICAL UNIVERSITY BY BİLGE MANSIZ IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE IN EARTH SYSTEM SCIENCE AUGUST 2021 Approval of the thesis: NATURAL GAS INFRASTRUCTURE EXPANSIONS IN TURKEY: ECONOMIC FEASIBILITY AND A COST COMPARISON WITH PV INVESTMENTS submitted by BİLGE MANSIZ in partial fulfillment of the requirements for the degree of Master of Science in Earth System Science, Middle East Technical University by, Prof. Dr. Prof. Dr. Halil Kalıpçılar Dean, Graduate School of Natural and Applied Sciences Prof. Dr. Bülent Gültekin Akınoğlu Head of the Department, Earth System Science Prof. Dr. Bülent Gültekin Akınoğlu Supervisor, Earth System Science, METU Dr. Bora Kat Co-Supervisor, TÜBİTAK Examining Committee Members: Assoc. Prof. Dr. İzzet Arı Energy Economics and Management, Social Sciences University of Ankara Prof. Dr. Bülent Gültekin Akınoğlu Earth System Science, METU Assoc. Prof. Dr. Onur Taylan Mechanical Engineering, METU Date: 03.08.2021 I hereby declare that all information in this document has been obtained and presented in accordance with academic rules and ethical conduct. I also declare that, as required by these rules and conduct, I have fully cited and referenced all material and results that are not original to this work. Name / Last Name : Bilge MANSIZ Signature : iv ABSTRACT NATURAL GAS INFRASTRUCTURE EXPANSIONS IN TURKEY: ECONOMIC FEASIBILITY AND A COST COMPARISON WITH PV INVESTMENTS Mansız, Bilge Master of Science, Earth System Science Supervisor: Prof. Dr. Bülent Gültekin Akınoğlu Co-Supervisor: Dr. Bora Kat August 2021, 66 pages Turkey, from 1980s on, has greatly invested in urban usage of natural gas, which is mostly imported. Alongside urban usage, natural gas is now widely consumed for electricity generation and industry. Beginning with 2014, even remote towns are also started to be supplied with natural gas. While there are many environmental and societal advantages of natural gas consumption over coal and fuel-oil, it can be argued that natural gas supply of remote areas is mostly due to social or political concerns. Natural gas, however, is not pollution free and emits greenhouse gases, nonetheless. Therefore, a holistic and proper analysis of costs and benefits of these investments should include environmental and social concerns and should weigh in the opportunities of renewable alternatives compared to use of natural gas. In this study, 22 towns are selected from different locations, 6 from northern, 13 from centre, and 3 from southern regions of Turkey where natural gas investments are being planned. These 3 regions have differing solar power generation potentials received due to solar irradiation difference. In general, two towns from each city are chosen to be investigated to analyse the impact of investment difference knowing that their solar potentials are similar. To this end, the question of “Could PV investments be more feasible rather than natural gas investments in remote regions?” will be investigated. Keywords: Turkish Remote Natural Gas Investments, Renewable Alternative to Natural Gas, Solar PV, Cost-Benefit Analysis v ÖZ TÜRKİYEDE DOĞAL GAZ ALTYAPI GENİŞLEMELERİ: EKONOMİK FİZİBİLİTE VE PV YATIRIMLARI İLE MALİYET KARŞILAŞTIRMASI Mansız, Bilge Yüksek Lisans, Yer Sistem Bilimleri Tez Yöneticisi: Prof. Dr. Bülent Gültekin Akınoğlu Ortak Tez Yöneticisi: Dr. Bora Kat Ağustos 2021, 66 sayfa Türkiye, 1980'lerden itibaren, çoğunlukla ithal edilen doğal gazın kentsel kullanımına büyük yatırımlar yapmıştır. Bunun yanı sıra, artık doğal gaz elektrik üretimi ve endüstride de yaygın olarak tüketilmektedir. 2014 yılından itibaren uzak ilçeler de doğal gazla buluşmaya başlamıştır. Doğal gaz tüketiminin kömür ve fuel- oile göre birçok çevresel ve toplumsal avantajı olsa da, uzak bölgelere doğal gaz arzının büyük ölçüde sosyal ve politik kaygılardan kaynaklandığı söylenebilir. Çevresel avantajları olsa da doğal gaz kirlilikten ari değildir ve sera gazı salımı yapar. Bu kaygılar, yenilenebilir enerji alternatiflerine yönelebilecek bu yatırımların maliyet ve faydalarının doğru analizini engellemektedir. Bu tezde, doğal gaz yatırımlarının planlandığı 6 kuzey, 13 merkez ve 3 güney olmak üzere Türkiye'nin farklı bölgelerinden 22 ilçe seçilmiştir. Bu 3 bölge, güneş ışınımından kaynaklı olarak farklı güneş enerjisi potansiyeline sahiptir. Genel olarak, her bir şehirden ikişer ilçe seçilerek güneş enerjisi potansiyeli benzer yerlerde yatırımların etkisi de incelenmiştir. Bu çerçevede, "Kırsal bölgelerde doğal gaz yatırımlarından çok fotovoltaik yatırımları daha uygun olabilir mi?" sorusuna cevap aranacaktır. Anahtar Kelimeler: Türkiye Kırsal Doğal Gaz Yatırımları, Doğal Gaza Karşı Yenilenebilir Enerji Alternatifi, Fotovoltaik, Maliyet-Fayda Analizi vi to my son and to all who cares for nature vii ACKNOWLEDGMENTS I would like to express my deepest gratitude to my supervisor Prof. Dr. Bülent Gültekin Akınoğlu and co-supervisor Dr. Bora Kat for their guidance, advice, criticism, encouragement, and insight throughout the research. I also would like to thank Serkan ŞEN for his assistance in working conditions and suggestions, comments, guidance, and technical assistance in natural gas OPEX calculations. I would extend my special thanks to the distinguished contributors whose studies shed light to this study. Last but not the least, my gratitude is for Earth System Science (ESS) Program of the Middle East Technical University (METU) because it has provided the opportunity to bring about this thesis. viii TABLE OF CONTENTS ABSTRACT ................................................................................................................. v ÖZ ............................................................................................................................... vi ACKNOWLEDGMENTS ........................................................................................ viii TABLE OF CONTENTS ............................................................................................ ix LIST OF TABLES ...................................................................................................... xi LIST OF FIGURES ................................................................................................... xii LIST OF ABBREVIATIONS ................................................................................... xiii CHAPTERS 1 INTRODUCTION ............................................................................................... 1 2 BACKGROUND AND LITERATURE REVIEW.............................................. 5 2.1 An Overview of Turkish Natural Gas Market .................................................. 5 2.1.1 Brief History of Natural Gas in Turkey ........................................................ 5 2.1.2 Production, Import and Consumption ........................................................... 7 2.1.3 Distribution Sector ...................................................................................... 11 2.1.4 Tariff Setting ............................................................................................... 12 2.2 Comparison of Photovoltaic and Natural Gas................................................. 14 2.3 Energy Transition ............................................................................................ 16 2.3.1 Energy Transition in Turkey ....................................................................... 18 2.4 Solar Power in Turkey .................................................................................... 19 3 DATA AND METHODOLOGY ....................................................................... 29 3.1 Natural Gas Investment Calculations .............................................................. 29 ix 3.1.1 Number of Subscribers ............................................................................... 30 3.1.2 CAPEX Calculations .................................................................................. 33 3.1.3 OPEX Calculations ..................................................................................... 37 3.2 Externality of Natural Gas Use in Remote Regions ....................................... 38 3.3 PV Investment Calculations ........................................................................... 41 4 RESULTS AND DISCUSSION ........................................................................ 45 4.1 Outcomes and Results .................................................................................... 45 4.2 Sensitivity Analysis ........................................................................................ 47 4.3 Externality Estimation .................................................................................... 51 4.4 Limitations of the Study ................................................................................. 52 5 CONCLUSION ................................................................................................. 55 REFERENCES .......................................................................................................... 61 APPENDICES ........................................................................................................... 65 A. Population Estimation on the Selected Provinces of Expansion ....................... 65 B. Subscriber Estimation .......................................................................................