That was the verdict of Dr. Fatih Birol, Executive Director of the International Energy Agency (IEA), as he launched an IEA report into Turkey’s energy sector with Dr. Alparslan Bayraktar, Turkey’s Deputy Minister for Energy and Natural Resources, back in March 2021.
Turkey’s renewable capacity had grown by 50% over the five years prior, according to the report1.
In 2019, Turkey had the fifth-highest level of new renewable capacity additions in Europe and the 15th highest in the world.
The IEA report noted that Turkey can achieve even stronger growth in renewables – especially solar, wind and geothermal – given its considerable resource endowment. Its rich potential for expansion of renewables is not limited to electricity generation but is also relevant in the heating sector. Notably, Turkey uses only an estimated 3% of its solar and 15% of its onshore wind potential.
Perhaps the question is then, what potential exists for a Turkish hydrogen sector at the gateway between Europe and the Middle East, and what could recent funding announcements from the EBRD (European Bank for Reconstruction and Development) mean for any such aspirations?
New €500m financing facility
The EBRD announced last month (April 26) that it has agreed a first transaction under a new financing facility that will benefit thousands of businesses and homeowners, while strengthening the competitiveness of key Turkish companies and financial institutions.
The transaction is part of a €500m EBRD Green Economy Financing Facility (GEFF), which combines EBRD finance with around €21.5m of concessional financing from the Clean Technology Fund (CTF) and as much as €7m in grants for technical assistance from the CTF and the Turkey–EBRD Cooperation Fund, among others.
But what does that all mean?
Essentially, participating banks and leasing companies will use the finance received through the facility to support individuals, businesses, vendors and producers of green materials and products with investments in high-performing green technologies.
These financial institutions can also benefit from a technical assistance programme on corporate climate governance – the first time such a programme has been incorporated into a GEFF.
Turkey’s renewables growth in numbers
Turkey has experienced impressive growth in renewables in the past decade (notably solar, wind and geothermal), according to IEA analysis, driven by a favourable resource endowment, strong energy demand growth and supportive government policies.
In particular, renewable electricity generation has nearly tripled in the last decade, and its share in total power generation reached 44% in 2019 (including notable growth in distributed solar generation).
As such, Turkey has already exceeded its target of 38.8% of power generation from renewables set out under the Eleventh Development Plan (2019-2023). It aims to continue to promote the expansion of renewable energy resources and will commission 10 gigawatts (GW) each of solar and wind capacity in the period from 2017-27.
The size and design of the new facility is a response to Turkey’s ambitious new climate commitments. In autumn 2021, Turkey ratified the Paris Agreement and announced its aim to achieve net-zero greenhouse gas emissions by 2053. Meeting this target will require a sharp increase in green investment, which could have huge economic benefits.
The potential for the facility to help is there. Since 2010, the EBRD and its financing partners have made €2.5bn available alongside CTF concessional funding and EU grants to 14 financial institutions in Turkey, through a series of financing facilities.
The total energy produced and saved by renewable-energy and energy-efficiency projects financed through the facilities is equivalent to that provided by around 12% of the country’s 2020 coal imports for power plants. Purchasing this amount of coal at average 2021 prices would have cost the Turkish economy $265m.
It comes at a time when Turkey is understood to be in the midst of considerable transition in its energy sector.
The IEA policy review of March 2021 cautioned that Turkey has made solid progress in recent years in improving the security and diversity of its energy supplies, but should also pay close attention to the sustainability and longer-term carbon footprint of its energy sector1.
Since the previous IEA in-depth review of Turkey in 2016, market reform and energy security have remained the guiding principles of the government’s energy policy. Rapid economic and population growth in the past two decades have not only driven strong growth in energy demand but also an increase in import dependency, especially for oil and gas, it said.
As a result, Turkey has emphasised security of energy supply as one of the central pillars of its energy strategy. This includes efforts to expand domestic oil and gas exploration and production – which received a significant boost from the recent discovery of the giant Sakarya gas field in the Black Sea – and to diversify oil and gas supply sources and infrastructure.
Crucially, Turkey has also sought to strengthen the security of its energy supply by increasing production of renewable energy and reducing energy consumption through increased energy efficiency. Auctions, in particular, have proven successful in driving down costs and increasing investments in renewables. The planned commissioning of Turkey’s first nuclear power facility in 2023 will further diversify the country’s low-carbon fuel mix.
For Turkey to establish a modern and competitive economy, however, the IEA report of last year highlights that the government should pay close attention to the sustainability of its energy sector and its longer-term carbon footprint. It will be equally important to direct industrial policy to take into account the growing momentum behind global clean energy transitions. This can take the form of further promoting innovation in areas such as electric vehicles, energy storage and digital technologies, the IEA said.
Turkey has already made significant progress on liberalising energy markets in the last decade, successfully improving predictability and transparency in pricing, Dr. Birol noted.
“Turkey has achieved impressive results in the past decade in liberalising its energy markets, boosting the role of renewables and improving its energy security,” he said. “I hope this report will help inform Turkish policy makers’ decisions as they look to navigate the next phase of the country’s energy development in the most cost-effective, secure and sustainable way possible.”
There certainly seems to have been an awakening to hydrogen’s potential in Turkey in the last 12 months, if recent project activity is anything to go by.
H2 View reported on September 30 how Turkey is looking to decarbonise its steelmaking sector with hydrogen. Xebec Adsorption revealed it is assisting in such efforts, having secured a contract to supply two Hy.GEN® 150 units to a Turkish flat steel manufacturer.
With a capacity of approximately 600 kg of hydrogen per day at 99.999% purity, the units will create a protective atmosphere within the annealing heat-treatment process.
H2 View also reported on November 25 that Turkish-based Tüpraş had unveiled a new strategy in which the company will target carbon neutrality by 2050 by using green hydrogen, among other innovative clean technologies.
On the path to this target, Tüpraş will achieve 30% of EBITDA with the majority of this to come from hydrogen, sustainable aviation fuel (SAF) and zero-carbon electricity. To achieve a carbon neutral state, green hydrogen production will play a significant role in Turkey’s development, which foresees significant breakthroughs especially within the sphere of electrolysis.
Earlier this year, Turkey was in the hydrogen headlines again when it was announced (Feb 18) that the country would gain its first green hydrogen production plant in Bandırma, Balıkesir, with South Marmara Development Agency leading development of the promising project.
The green hydrogen project will be developed by South Marmara Development Agency, Enerjisa Üretim Santralleri A.Ş., Eti Maden Operations General Directorate, TÜBİTAK MAM and ASPİLSAN Enerji A.Ş. In developing this green hydrogen plant, it will help cater for the growing energy demands in Turkey, with the Southern Marmara Region one of the key locations in the country for its electricity demands.
With renewable energy capabilities in the area, it also proves a basis to build green hydrogen plants in order to decarbonise much of Turkey’s industries.
The announcement pointed to the aforementioned promise Turkey boasts in producing large quantities of green hydrogen and, with its geographical location, providing exports of the clean energy carrier to Europe, Asia, and the Middle East.
With such assertions, the question remains, what of a national strategy or roadmap for hydrogen?
According to The Oxford Institute for Energy Studies, Turkey has been considering the role of hydrogen in its energy future since early 2020, with a view to producing a hydrogen strategy2. Unlike many other countries considering the role of hydrogen, it says, Turkey has only recently (October 2021) ratified the Paris Agreement addressing climate change and its interest is driven more by geopolitical, strategic and energy security concerns. Specifically with concerns about the high share of imported energy, particularly gas from Russia, it sees hydrogen as part of a policy to increase indigenous energy production.
Turkey already has a relatively high share of renewable power generation, particularly hydro, and recent solar auctions have resulted in low prices, leading to a focus on potential green hydrogen production, the assessment adds. However, it still generates over half of its electricity from fossil fuel, including over 25% from coal and lignite.
Various reports in recent months suggest Turkey has now affirmed its intentions towards hydrogen, with a national strategy incorporating feedback from businesses and consumers announced by Turkey Minister of Energy and Natural Resources, Fatih Dönmez. The declaration was made during the opening ceremony for the Gazbir-Gazmer Clean Energy Technology Centre.
It has also been reported that Turkey’s strategic position on the Southern Gas Corridor could help it become an exporter of green hydrogen to Europe, particularly if its rapid embrace of its renewables sector is realised in the years ahead.
It seem a prominent role in green hydrogen production and export could lie ahead within the next decade, if Turkey is serious about investing in its renewables potential and leveraging the ultimate potential against that baseline.
Improved investment climate
Which begs the question, what could the recent funding announcement from the EBRD mean for investments in Turkey’s clean energy sector? What does this funding mechanism enable?
According to the EBRD, the new funding facility and support will lead to an improvement in corporate climate governance to help maintain access to markets and capital.
Corporate climate governance refers to the rules, policies and processes organisations use to identify, assess, manage and disclose risks and opportunities resulting from climate change. Various frameworks have been developed to support good climate governance, but there has been a recent push for global standards in response to the introduction of mandatory climate-related disclosures by regulators and demand from investors.
Although Turkey has advanced regulatory and institutional frameworks for corporate governance in listed companies, the EBRD says there is still work to do ‘to apply best. practices with regard to corporate climate governance’.
As an example, as of the end of 2021, only 16% of the 2,913 supporters of one of the most widely recognised frameworks, the Task Force on Climate-related Financial Disclosures (TCFD), were from emerging markets – with Turkish companies accounting for just over 3% of those emerging-market firms.
This matters, the EBRD explains, because the lack of climate governance is already affecting companies’ access to capital; rating agencies regularly upgrade and downgrade firms’ credit ratings based on data from providers and their own assessments.
By helping Turkish institutions to integrate climate-related information into their decision-making and to disclose their responses to changes in climate and related policies, the new facility will enable them to reassure the investment community about their management of climate-related risks and opportunities.
It will also help businesses maintain competitiveness in key export markets such as the European Union (EU).
The new facility will continue to support specific investments, but also aims to increase its impact by strengthening the competitiveness of key Turkish companies and financial institutions, and accelerating changes in Turkey’s financial system that will enable it to better support the country’s ambitions for green growth.
Support for Polish renewables too
It’s not just Turkey that has been the subject of a recent EBRD funding announcement, with Poland also in the headlines and news of the country’s largest solar PV plant on the horizon.
Just 24 hours before, the organisation revealed it would be lending PLN 212m (€46m) for the construction and operation of the solar photovoltaic plant at Zwartowo, regarded as an important step in strengthening Poland’s energy security and accelerating its move away from coal.
The Zwartowo plant will have total capacity of up to 285.6 MWp and is expected to lead to carbon dioxide emissions savings of at least 138,000 tonnes per year.
The development comes at a time when the conflict in neighbouring Ukraine heightens the need for energy security and Russian energy giant Gazprom has reportedly ‘cut-off’ its supply of natural gas to Poland and Bulgaria. The accelerated decline in the ‘era of Russian fossil fuel in Europe’ as a result of the war has been described by European Commission President Ursula von der Leyen, and the past two months of conflict and sanctions has fast-tracked many aspects of the green energy transition.
Indeed, McKinsey’s new report, Global Energy Perspective 2022, released last week (April 26) notes that while developments of the conflict in Ukraine are highly uncertain, today’s decisions could impact the long-term energy transition and path towards decarbonisation.
There are many questions related to the development of the conflict, as well as the impact on GDP and energy markets, it says.
Poland currently uses coal, the most polluting fossil fuel, for over 70% of its electricity generation. It faces one of the most significant energy transition challenges of all the EBRD’s countries of operation as it moves to align with the goals of the Paris Agreement on limiting global warming to no more than 1.5ºC.
So what impact could the fresh EBRD financing – part of a larger package co-financed by commercial banks PKO BP SA and Pekao SA – have in Poland?
The EBRD works extensively in Poland, where it has invested €11.4bn in 469 projects.
An ambitious renewable energy programme supported by policy dialogue with the EBRD allowed Poland to hold its first large-scale renewable energy auctions in late 2018 and achieve 12.2% of final energy consumption from renewables by the end of 2019.
Despite economic crosswinds in the wake of the global coronavirus pandemic, Poland aims to meet a demanding target of 23% by 2030. The addition of a new solar PV plant – the country’s largest – will be a significant contributor to these goals, while Poland has a number of budding hydrogen hub projects emerging and it is of course renewable means of electricity such as solar and wind power that are key to the green hydrogen ecosystem based on electrolyser technologies.