Demand for energy and natural resources has been increasing due to the economic and population growth in Turkey. It has posted the fastest growth in the OECD, with an annual growth rate of 5.5 percent since 2002. Since then, Turkey’s primary energy supply has increased from 78.4 Mtoe to 155 Mtoe, a two-fold increase within 17 years. Turkey’s growing economic performance has also been reflected on the country’s electricity generation infrastructure given the dramatic rise in the total installed capacity from 31.8 GW to 88.5 GW, and in the electricity consumption from 132.6 TWh to 305.5 TWh as of end-2018. To satisfy the increasing needs of the country, the current capacity is expected to reach 110 GW by 2023 through further investments to be commissioned by the private sector as underlined in the 11th Development Plan for 2019-2023.
The success of a privatization and liberalization program going on since 2002 has handed over all of the power distribution assets and 78 percent of the power generation assets to the private sector, creating revenues of USD 23 billion for the Treasury. In the same period, about USD 100 billion of new public and private investments were completed in power generation, transmission, and distribution assets. The privatization of electricity generation assets and the strategy to clear the way for more private investments has resulted in an increased share of private entities in electricity generation, from 40 percent in 2002 to 85 percent in 2018. Under the strategy to increase liberalization and competition in the market, the Energy Exchange Istanbul (EXIST), which is responsible for managing and operating energy markets, including power and gas commodities, was established in 2013.
Turkey’s prominent economic performance, backed by the liberalization efforts, also allowed for attraction of around USD 209 billion of FDI between 2002 and 2018, of which about USD 18 billion flowed into the energy sector. In 2018, investors carried out M&A activities across various sectors with a total deal volume of about USD 12 billion through 256 deals, with the energy industry standing among the leading sectors in terms of M&A transaction volume with USD 400 million.
It is no doubt that Turkey is a net energy importer country, depending on such imports for 73 percent of its energy requirements. The energy import bill was USD 42.99 billion in 2018, increasing by nearly 15.6 percent compared to 2017. However, with the exception of fluctuations in certain years, the bills depict a significant downward trend given the considerable decline from USD 60.1 billion in 2012 to USD 37.2 billion in 2017. The import dependence has been the main driving force behind the formulation and implementation of new policies and investment models to commission local and renewable energy resources.
Turkey has a substantial amount of renewable energy potential, and utilization of this potential has been on the rise over the last decade. As of end-2018, hydro, wind, and solar resources constitute the vast majority of the country’s renewable energy resources, accounting respectively for 28.29 GW, 7.01 GW, and 5.07 GW of the total installed capacity. As part of the ongoing efforts to promote localization, the Turkish government has made it a priority to increase the share of renewables to 30 percent, with geothermal installed capacity to be 3 GW by 2023, as well as to have 16 GW of installed capacity in solar and wind each by 2027. In order to create a favorable investment environment to strengthen renewables’ position in the market beyond the 2020s, the government has designed various investment models such as unlicensed (small-scale), licensed (medium-scale), and YEKA (large-scale) models, which address different sorts of investors and are encouraged by lucrative incentive instruments.
Utilization of local coal reserves in line with the environmental standards for electricity generation has also been prioritized as an instrument to increase localization. The government has adopted a new tender mechanism based on transfer of coal reserves to the private sector with the obligation of building and operating coal-fired power plants in the vicinity. Turkey has a substantial amount of coal reserves, totaling 17.3 billion tons and composed of mostly lignite. The main coal reserves are located in Kangal, Orhaneli, Tufanbeyli, Soma, Tunçbilek, Seyitömer, Çan, Muğla, Çayırhan, Afşin-Elbistan, Karapınar, Tekirdağ, Alpu, and Afyonkarahisar. Among these reserves, the Afşin-Elbistan field alone has 4.8 billion tons of lignite resources, which constitutes 28 percent of Turkey’s total lignite reserves. The fields to be tendered in reverse-auctions bear 6.4 GW of installed generation capacity potential.
It is also worth mentioning that Turkey’s natural gas sector has been steadily improving. In order to increase security of supply and seasonal gas send-out capacity, Turkey has commissioned two Floating Storage Regasification Unit (FSRU) terminals in 2018 and opened up the first phase of the Tuz Golu (Salt Lake) Natural Gas Storage Facility. Another goal of these investments is to expand Turkey’s gas storage capacity to 11 bcm by 2023, up from its current capacity of 4 bcm.
As a crossroads between major energy consumers and suppliers, Turkey occupies a strategic location that serves as a regional energy hub. The existing and planned oil/gas pipelines, the critical Turkish straits, and promising finds of hydrocarbon reserves around Turkey allow for increased leverage over regional projects and reinforce the country’s gateway status.
Last but not least, Turkey has taken important steps in energy efficiency. In the National Energy Efficiency Action Plan, which was adopted in 2018, Turkey aims to achieve savings of USD 30.2 billion in total by 2033. In this regard, approximately USD 11 billion of investments will be made by 2023, resulting in energy savings equivalent to 23.9 Mtoe. This saving is equal to decreasing the primary energy consumption of Turkey by 14 percent in 2023 compared to the base usage scenario. As part of Turkey’s efficiency efforts, Turkey will eliminate the need for USD 4.2 billion worth of power plant investments while also providing additional employment for 20,000 people by 2023.