Turkey: Building a Market for Renewable Energy and Energy Efficiency
Boosting the Power Supply and Moderating Demand
April 8, 2013
Turkey’s energy policy priority has been to increase the energy supply to fuel the strong economic growth of the last decade. As energy demand is expected to grow further, reliance on imported fuel exposes Turkey to vulnerabilities by increasing the current account deficit as well as the environmental consequences, especially on greenhouse gas emission growth. Turkey also has room to improve energy efficiency, which will reduce the energy intensity of the economy and increase its competitiveness. With the enactment of the Renewable Energy Law in 2005, the government refocused its policies to promote private sector investments in renewable energy and energy efficiency.
However, promoting renewable energy and energy-efficiency investments faced challenges from a lack of knowledge of the new technologies, higher transaction costs, smaller investment amounts, and a dearth in long-term financing. Financiers clearly perceive these investments as higher risk, and thus access to finance with adequate maturity and terms remains scarce.
Turkey is a country with growing power and energy needs. Therefore it is important to diversify and make use of alternative and more efficient energy technologies. Luckily there is substantial room for energy efficient investments in the country and as private sector we are making use of this opportunity. CTF funds have certainly helped Turkey increase its renewable energy potential.
The government developed a policy framework for attracting investments in the energy sector. It established an electricity market in Turkey and promoted renewable energy investments through technology-based tariffs. It also established standards for labeling energy-efficient equipment, provided incentives, and initiated a public awareness campaign on the subject of energy savings investments and measures.
The Private Sector Renewable Energy and Energy Efficiency Project’s development objective is to help increase privately owned and operated energy production from indigenous renewable sources within the market-based framework of the Turkish Electricity Market Law. It also aims to enhance energy efficiency and thereby help reduce greenhouse gas emissions. IBRD financing and the cofinancing from CTF concessional funds provided the investors with incentives through the longer-term maturity and concessional costs of financing provided under the project, and enabled the banks to increase their technical capacity to assess the projects by increasing the demand for this kind of financing.
- As of August 2012, the project had financed 969 megawatts (MW) of renewable energy and energy-efficiency investments, which resulted in energy savings of 1,840 tera calories (TCal) or about 1 percent of electricity consumption in Turkey in 2009;
- within this portfolio, CTF financing has supported the development of nine small hydroelectric power plants, as well as six wind, one geothermal, and 20 energy-efficiency projects;
- the investments supported under the project are expected to contribute to a greenhouse gas emissions reduction of 3.3 million tons per annum over the life of the project;
- the project also contributed to the sustainable development of hydropower plants by introducing a new requirement calling for a cumulative impact assessment, and has opened the door to a policy dialogue on the environmental impact assessment requirements for smaller energy projects.
Geothermal is a very important resource that Turkish businesses are investing in, have grappled with. It is important because geothermal will help Turkey be less reliant on foreign energy.
Bank Group Contribution
The Private Sector Renewable Energy and Energy Efficiency Project was initiated in 2009 originally with US$500 million, and with additional financing of US$500 million provided in 2011, it amounts in total to a US$1 billion IBRD loan. US$100 million of cofinancing was provided by CTF, specifically for advanced renewable energy and energy-efficiency subprojects.
The project was implemented by the Industrial Development Bank of Turkey (TSKB) and the Development Bank of Turkey (TKB), which were able to use US$96 million of CTF funds to support a total investment cost of US$852 million, or leverage the CTF funds by 1 to 8.8. The project also attracted financing and training on renewable energy and energy efficiency from other international financial institutions (IFIs), such as the European Bank for Reconstruction and Development (EBRD), the German Development Bank (KFW), the Asian Development Bank (ADB).
Since the launch of the project, local commercial banks have entered the market for financing renewable energy. Though the market for advanced renewable energy technologies may require further support, small-scale hydropower and wind power projects are now being financed commercially. Other financial institutions have started financing energy efficiency investments also, but generally limited to large-scale industrial projects. To further scale up and develop the energy-efficiency market, the World Bank Group (WBG) is now preparing an energy-efficiency project aimed at promoting commercial bank lending to small and medium enterprises (SMEs) for energy-efficiency investments.