China may be halting construction of coal-fired power at home but abroad it’s still investing in coal, even as it pushes aggressively into renewable energy markets.
In the years ahead, the kind of investments China makes in Turkey will prove an important test of its emerging leadership on energy and climate.
China has strengthened its bilateral relationship with Turkey in recent years. Chinese wind power companies MingYang and Goldwind were among eight international consortia that took part in a tender for a one gigawatt wind project in July, organised by the Turkish Ministry of Energy and Natural Resources.
Despite Turkey’s on-going national state of emergency and political instability following a coup attempt in July 2016, companies, including those from China, have not been put off bidding for a stake in Turkey’s future energy infrastructure.
Securing overseas energy contracts is now a top priority for President Erdoğan’s government, which hopes to mend Turkey’s budget deficit by reducing dependence on energy imports. To do this it wants to fully utilise domestic energy resources such as wind and solar, but also coal.
The announcement of the winning tender in Istanbul, by Siemens and the Turkish conglomerates Türkerler and Kalyon, was followed by extreme rainfall. Although the downpour came just ten days after another extreme precipitation event, city officials and residents were caught off-guard. The high wind speeds toppled a crane at the Haydarpaşa port, which crashed into an oil tanker resulting in a fire and explosion.
The accident was a reminder that extreme weather events are expected to become more intense and frequent globally, marking a “new normal” in Turkey.
As climate change is caused by burning carbon, China can either adversely contribute to this pattern by investing in coal power or use its energy investments to steer the country in a more sustainable direction.
Actions speak louder than words
In early July, the much-acclaimed Paris Agreement appeared to pass the “Trump stress test” when 19 of the 20 G20 members (including Turkey and China) endorsed the Hamburg Climate and Energy Action Plan for Growth, a joint strategy to pursue climate goals set out in the Paris Agreement.
But away from the high level meetings, the Turkish government’s actions on climate and energy were telling.
During a press meeting following the G20, President Erdoğan made it clear that Turkey would not ratify the Paris Agreement until its demands on technology transfers and access to climate finance were met.
On July 9, the day after the G20 summit closed, Erdoğan addressed the leaders of the global oil industry at the 22nd World Petroleum Congress held in Istanbul. This major event was also accompanied by extreme weather in Turkey, in this case a heatwave.
In his speech to the oil industry leaders, Erdoğan stated that demand for global energy is expected to double by 2050 and that Turkey’s primary objective is to fully tap into domestic energy sources, including its low quality coal reserves, while continuing to import fossil fuels.
Chinese investment is key to making this happen.
Since assuming his position in late 2015, Turkish Minister of Energy and Natural Resources and Erdoğan’s son-in-law, Berat Albayrak, has paid several visits to China to push for greater energy investment in Turkey. In March 2016, Albayrak and the head of China’s National Energy Administration, Nur Bekri, met to discuss new cooperation opportunities in energy. During this visit, Albayrak also met with some of China’s coal industry giants.
The recent newsletter of the Turkish Exporters Assembly suggests that Turkey “aims to establish a proper legal infrastructure, lift all trade barriers, [and] develop an effective cooperation in the field of customs and standards” with China.
The interest is mutual. Chinese firms are keen to participate in the Turkish energy market, particularly following the country’s long-awaited “centres of attraction” programme, announced in a state-of-emergency decree in November 2016.
The programme seeks to incentivise new investments through interest-free credit and low-interest working capital loans, and covers 23 provinces in the eastern and south-eastern Anatolian regions that face regional economic disparities.
So far, 53 Chinese companies – 39 of which are new players in the Turkish market – have applied to the Ministry of Development for permits to take part.
Closer engagement on energy
Despite occasional setbacks, Turkey and China have undoubtedly been developing closer economic ties. Several bilateral agreements were signed between 2010-2012, helping trade to grow, although largely in China’s favour. The number of high-level visits and business delegations has increased accordingly.
In 2015, Turkey’s total exports to China were US$2.4 billion (15.8 billion yuan) just a tenth of China’s exports to Turkey, which totalled US$24.9 billion (164 billion yuan).
Erdoğan has referred to this uneven trade balance, underlining his desire to see further direct Chinese investments. Turkey and China’s successive G20 presidencies in 2015 and 2016 also helped redress the balance, and today China is Turkey’s second largest trade partner globally after Germany, and principal trade partner in East Asia.
Turkey wants to attract energy investment quickly and China is looking to shift excess capital and production capacity, particularly in the power sector and as part of its Belt and Road Initiative (BRI).
Erdoğan’s personal visits to China in 2015 and 2017 have stimulated action, and followed a number of deals signed in 2012. One of these included Hattat Holding and China’s AVIC International signing an agreement worth US$1.5 billion (10 billion yuan) for the construction of a coal-fired power station in the Amasra region, a key site of popular dissent against coal projects.
Another involved Ağaoğlu construction group, which is known for its close ties with the Turkish government, reaching an agreement with China’s wind turbine maker Sinovel for a 600-megawatt installation, valued at US$1 billion (6.6 billion yuan).
Both the former energy minister Taner Yıldız, and current minister, Berat Albayrak have made deals on energy investment and technical cooperation, particularly in areas of nuclear and thermal power generation.
During one of his recent visits, minister Albayrak stated that Turkey needed to expand installed power capacity by at least 50 gigawatts over the next decade, which would require an investment of US$100 billion (659 billion yuan).