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Energy Market in Turkey
Along with the impressive economic and population growth that the country has enjoyed over the past 20 years, Turkey has become one of the fastest-growing energy markets in the world. Turkey has demonstrated the fastest growth in the OECD, with its annual growth rate of 5.5% since 2002. Accordingly, the primary energy supply of Turkey also doubled (from 78.4 Mtoe to 155 Mtoe) within the last 18 years. Turkey’s electricity generation infrastructure is also affected by its economic growth. A significant rise in the total installed capacity from 31.8 GW to 88.5 and the power consumption from 132.6 TWh to 305.5 TWh was recorded at 2018.
Growth opportunities were created by deploying a highly competitive structure central to the privatization program implemented during this economic growth. The Energy Exchange Istanbul (EXIST) was established in 2013 to increase liberalization and competition in the market by managing and operating energy markets, including power and gas commodities. The establishment of an energy stock exchange is also one of the Turkish government's critical actions towards a more reliable, transparent, and competitive energy market.
Thanks to this effort, power distribution in Turkey is entirely under the control of the private sector, and privatization of power generation assets is well underway. Together with the success of the privatization and liberalization programs, 78% of the power generation assets have been transferred to the private sector, and 23 billion USD revenue has been generated for the Turkish Republic Treasury since 2002. Additionally, public and private investments in power generation, transmission, and distribution assets worth approximately 100 billion USD were finalized within this period. The proportion of private legal entities in power generation has dramatically increased from 40% to 85% between 2002 and 2018.
\ According to the 11th Development Plan for 2019-2023 further investments to be initiated by the private sector are expected to develop the electricity generation infrastructure in the country. It is estimated that the energy demand will increase to 110 GW by 2023 due to economic development, growing per capita income, favorable demographic trends, and the rapid pace of urbanization.
The reflection of outstanding economic performance and liberalization steps of Turkey can also be seen on the FDI volume with approximately 209 billion USD in the country between 2002 and 2018, and it is also noteworthy to mention that 18 billion USD of the FDI in this period is made in the energy sector. Renewable energy potential in Turkey is also abundant. Encouraging policies backed by favorable feed-in tariffs are expected to increase the share of hydro, wind, solar, and geothermal in the national grid in the coming years. The proportion of hydro (28.29 GW), wind (7.01 GW), and solar resources (5.07 GW) constitute a great majority of renewable energy sources of Turkey as of 2018. The Turkish government has aimed to increase the renewable energy share in the energy market to 30% by reaching 3 GW in the geothermal installed capacity and increasing installed capacity in solar and wind to 16 GW as of 2027 fto encourage localization in the energy sector. The government has initiated several investment mechanisms such as unlicensed, licensed and YEKA to provide an investment-friendly energy market for possible investors.
Turkey’s coal reserve has also reached 17.3 billion which is mostly composed of lignite and the country’s main coal reserves include those in Kangal, Orhaneli, Tufanbeyli, Soma, Tunçbilek, Seyitömer, Çan, Muğla, Çayırhan, Afşin-Elbistan, Karapınar, Tekirdağ, Alpu, and Afyonkarahisar. The Turkish government has recently established a new tender model for transferring coal reserves to the private sector. The obligation to establish and operate coal-fired power plants in the vicinity is imposed to increase localization by utilizing local coal reserves according to environmental standards. The natural gas market in Turkey has also been gradually developing. Turkey has recently established and operated two Floating Storage Regasification Unit (FSRU) terminals in 2018 and commissioned the first phase of the Tuz Gölü (Salt Lake) Natural Gas Storage Facility to increase security of supply and seasonal gas send-out capacity. It is aimed to increase the gas storage capacity of Turkey to 11 bcm from 4 bcm by 2023 with these investments.
It is also worth mentioning that significant steps in energy efficiency have been taken in Turkey, and USD 30.2 billion savings are aimed to be reached by 2033, according to the National Energy Efficiency Action Plan initiated in 2018. By 2023, thanks to the energy savings worth 23.9 Mtoe, around USD 11 billion of investments will be made. Accordingly, Turkey will be creating employment opportunities for 20.000 people and eliminating the need for power plant investments worth USD 4.2 billion within the scope of its energy efficiency plans and goals.
Strategically positioned between main energy consumers and suppliers, Turkey serves as a regional energy hub. With existing and planned oil/gas pipelines, critical Turkish straits and promising finds of hydrocarbon reserves in the country increase Turkey’s leverage over energy prices and reinforce its gateway status. Turkey’s energy sector has been profoundly shaped by the sum of these factors, transforming it into one of the most charming investment targets in the world. Along with implementing investor-friendly regulations and the high increase in demand, this ever more vibrant and competitive energy sector is attracting increasing numbers of investors for each element of the value chain in all the energy sub-sectors. It is estimated that to meet the energy demand in Turkey by 2023, the total amount of investments will have to be USD 120 billion—in other words, more than double what they were in the last decade. Turkey’s ambitious vision for 2023, the centennial foundation of the Republic, envisages grandiose targets for the energy sector in Turkey.
In its 2021 Report, International Energy Agency (IEA) notes that the renewable capacity of Turkey has grown by 50% over the last five years, and Turkey can achieve a higher growth rate, especially in solar, wind, and geothermal areas; thanks to its rich resources.
When we think of the reality that Turkey has been using only around 3% of its solar capacity and only 15% of its onshore wind potential, we immediately realize that renewable energy offers both humanity and investors a fruitful future. Solar, wind, hydro, geothermal, and biomass energy projects are on the rise throughout the world and Turkey.
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