Why is Energy Efficiency important for Turkey

Why is energy efficiency important for Turkey? Energy supply security is at risk due to rapid growth in demand. Electricity demand has grown annually at about 7.0 to 8.0 percent over the last five or six years, and is expected to resume this fast-paced growth as the economy recovers from the current global financial crisis. Although forecasts show that security of supply risks are much lower in the short term due to subdued demand, they will persist in the medium- to long-term, and could even increase with potential delays in commissioning additional generation plants and/or low availability of existing plants. Therefore, it is critical for Turkey not only to increase energy supply, but also to enhance energy efficiency at the demand side in order to ensure supply stability. Energy efficiency increases are crucial for Turkey’s competitiveness and long-run sustainable economic growth. Low energy efficiency means high costs for businesses, so EE improvements are essential for Turkish industry to remain competitive in the global economy. Inefficient energy use also means higher public energy expenditures, taking a bigger bite out of the national budget. In addition, it means higher energy imports—in 2008, energy imports totaled US$48 billion—adding to Turkey‘s high current account deficit and increasing the risk of external shocks to the Turkish economy from import availability constraints and price volatility. Mitigating the impact of climate change is a policy priority and a commitment of the Government. Although greenhouse gas (GHG) emissions per capita are still low, the growth rate of overall GHG emissions in Turkey has been the highest among Annex 1 countries in the United Nations Framework Convention on Climate Change (UNFCCC). During 1990-2007, GHG emissions increased by 119 percent; with the energy sector being the single largest single contributor at 77 percent in 2007. As energy demand rises, controlling emissions growth is a major challenge for Turkish policymakers. In the first National Communication submitted to the UNFCCC, the Government has correctly identified that investing in EE is a cost-effective way to manage emissions. Turkey has taken strong initial steps in the areas of energy legislation and regulation and now has to focus on tapping the significant potential for energy efficiency. Considerable achievements have been made in setting up regulatory and institutional frameworks to promote EE. The National Energy Efficiency Strategy outlines a policy to provide institutional and financial support to identify and implement EE investments. The Energy Efficiency Law and its secondary regulation provide the legal basis and measures to promote and support energy efficiency increases, including establishing and operating energy service companies (ESCOs), such as energy auditors and Voluntary Agreement schemes to encourage energy saving investments. Cost-based pricing mechanisms for energy have been recently implemented and are an important step toward a more energy efficient economy. Turkey‘s energy pricing was not cost reflective and hence did not provide appropriate signals for energy efficiency until very recently. During 2002-07, despite significant increases in generation costs, retail electricity prices changed little. However, following an important price reform in 2008, the electricity prices in Turkey are on par with those of the Western Balkans and Central European countries. The Government recognizes that cost-reflective tariffs, coupled with regular bill collections, provide appropriate incentives to consumers for energy conservation and economically viable energy efficiency investments. The Turkish economy is energy intensive. Although total primary energy supply (TPES) per capita in Turkey is low—1.35 toe/capita in 20071, compared to the Organization for Economic Co-operation and Development (OECD) average of 4.64 toe/capita, the Turkish economy is comparatively energy intensive. In 2007, the economy required 0.272 toe for each US$1,000 of GDP (2000 US$ terms),3 above the OECD average of 0.18. Compared to other OECD countries, Turkey only started its energy efficiency initiative recently. During 2000-06, International Energy Agency (IEA) statistics show that overall energy intensity declined by 9.0 percent in the OECD, compared to 6.0 percent in Turkey. Industrial energy intensity decreased by an average of 10 percent in OECD countries, compared to 6.0 percent in Turkey. The OECD benefited from EE improvements in Bulgaria, Romania, Poland, and Hungary. Data confirm that Turkey also has substantial energy saving potential to be captured. Industrial and building sectors provide most opportunities for EE improvement The industrial and the buildings sectors offer an aggregated energy savings potential of over 15 million toe of energy consumption per year, or 14 percent of total consumption, according to analysis conducted for this report4. The industrial sector accounts for about 39 percent of total final consumption and is the largest consumer of energy in Turkey. The buildings sector accounts for about 30 percent of total final consumption (2007, public/residential/commercial buildings). These two sectors also have the highest projected energy demand growth. Therefore, they offer the largest potentials for energy savings, making them priority sectors for promoting EE investments. In the industrial Sector, Turkey has an energy savings potential of around US$3.0 billion per year, about 8.0 million toe per year in industry, or about 25 percent of 2007-level energy consumption in the sector. Industry is dominated by energy intensive industrial subsectors—energy costs comprise between 20 and 50 percent of their total production costs The iron and steel sector uses the largest share of industrial energy consumption, 22 percent; followed by the non metallic subsector, 19 percent (cement, glass, ceramics, bricks); paper, another energy intensive industry, consumes around 3.0 percent. These subsectors have also the highest energy efficiency gains potential. After the chemical subsector5, the second highest saving potential sector is iron and steel with 1.4 million toe per year, followed by cement and textiles, each with 1.1 million toe in potential saving per year. The largest companies have already implemented some EE improvements and investments to maintain their global competitiveness. However, a systematic effort to prioritize and encourage investments could provide additional EE benefits to the country. In the Buildings Sector, Turkey has an energy savings potential of about 30 percent, over 7.0 million toe per year, or 7.0 percent of total energy consumption in Turkey, according to analysis conducted for this report. Due to rising living standards linked to economic growth (including increased use of appliances and air conditioning), together with substantial increase in the national building, stocks have tripled residential energy demand since 1990. According to analysis conducted for this report, savings potential in the sector is about 30 percent, or over 7 million toe per year. Heating accounts for 80 percent of energy consumption in buildings. Therefore, most energy saving potential is associated with increased use of thermal insulation to avoid heat loss. Enforcing the 2008 building codes (which demands higher energy efficiency for buildings) is a priority for increasing EE in buildings. New construction and major renovations must now meet EU thermal insulation and energy consumption standards. New EE standards for home appliances, such as air conditioners and refrigerators, and light bulbs, now require that all products sold in Turkey meet EU labeling and EE requirements. The main challenge in this will be ensuring that the regulatory provisions are implemented through appropriate regular monitoring. However, realizing these energy saving potentials would require overcoming the various market barriers in Turkey now. Though various efforts have been made, data is lacking due to a data collection process that are still sporadic and inconsistent in many cases. Without consistent data across timeline and sectors in the economy, it would be difficult to assess and prioritize policies and investments. The lack of such comprehensive data is leading to low awareness of cost and benefit of EE investments; especially since past efforts to increase awareness was targeted towards the general public rather than industrial and corporate audiences. The transaction costs are often higher for EE investments due to scarcity of qualified companies or consultants with adequate knowledge and experience to perform energy audits and feasibility studies to help prepare and implement EE projects. In addition to lack of information dissemination described above, higher transactions cost lead to lack of financing. This is a major market barrier for EE investments in many countries, but especially true in Turkey, where the lack of medium- and long-term financing means lower priority for EE investments. The above market barriers is exacerbated by the lack of resources and support for implementation of EE investments and measures, despite government policies and regulations that are aligned with international standard already being in place. Dedicated resources for EE would allow government agencies such as EIE to boost its capacity to collect data and ensure compliance with regulations; while incentives provided to the private sector could encourage efficiency improvements beyond compliance required by Law.