24 Mart 2012 Cumartesi

ESCO market and Business at Turkey

Views on Turkey’s impending ESCO market
"Esin Okay a, , Nesrin Okay b, Alp Er S- . Konukman c, Ug˘ur Akman d"
The Energy Efficiency Law (EEL) of Turkey was developed as a
result of Turkey’s tasks of complying with the EU directives. The
law, expected to achieve 25–30% savings in total energy
consumption, came into force on May 2, 2007 through the law
number 5627. The English translation can be found at EIE (General
Directorate of Electrical Power Resources Survey and Development
Administration) web site (www.eie.gov.tr). The law exploits
the efficient use of energy and covers administrative structuring,
energy auditing, financial instruments and incentives, awareness
raising and the establishment of an Energy Service Company
(ESCO) market for energy efficiency (EE) services.
As stated in International Energy Agency’s (IEA) 2005 review of
Turkey, Turkey’s energy policy had been highly supply-oriented,
with emphasis placed on ensuring additional supply to meet the
growing demand, while EE had been a lower priority. Legislative
framework has been upgraded to be compatible with that of the
EU countries since 2001. Lately, new legal frameworks, such as the
Electricity Market Law, Natural Gas Market Law, Petroleum
Market Law, and EEL have been put into effect to end the state
monopoly and allow private-sector participation in energy
industries, aiming at cost-effective pricing through competition
under independent regulation and supervision of the Energy
Market Regulatory Authority (www.epdk.org.tr/english). These
developments are mostly due to the ongoing harmonization
process of the Turkish legislation with the EU. More information
on Turkey’s energy profile can be found at IEA’s web site
(www.iea.org).
The organization of this paper is as follows: Section 2 briefly
reviews the ESCO-related literature and financing mechanisms,
emphasizing the experiences in the developed and developing
countries. In Section 3, we reveal the place of ESCOs in the
organizational structure of the EEL of Turkey. Finally, Section 4
presents our views on possible issues on funding-related risks of
the forthcoming Turkish ESCO market.

Views on the forthcoming Turkish ESCO market financing
and risks
ESCOs must have strong assets to take on huge liabilities of
clients that have long-term projects and the financers should have
a strong balance sheet. This is extremely a big risk that points to a
considerably significant size-based balance sheet to finance
projects. Therefore, ESCOs should be committed to risk management,
as well. ESCO activities should be managed with riskreducing
methods like hedging instruments and venture capital.
We know that companies in Turkey do not use risk management
tools. They have problems of coping with the generally accepted
accounting and financial standards that especially lead to poor
management of assets and liabilities. At the same time, ESCOs
should anticipate macroeconomic factors of the country, foreseeing
the risks. Economic stability is another critical factor for the
future of an impending ESCO market where Turkey’s uncertain
economic performance beyond sustainability affects the expectations.
After the enactment of the EEL, Turkey’s hot issue is to
establish an ESCO Market. The next is to expect a considerable
interest of international investment entering the market. Without
that foreign capital, merely the support of international financial
institutions, the market will not be able to prosper because this is
primarily a risk-based capital system that Turkey does not still
have. The EEL aims to end the state monopoly, allow privatesector
participation in large industries, create competition under
independent regulation. However, one of the most important
difficulties that local companies—small- and medium-sized
ones—face in Turkey is the capital inadequacy; therefore, they
are insufficient to act as market-makers. Moreover, international
partners do need to see some potential of a stable economy and
good indicators free from country risk to invest. After privatization,
foreign companies exhibited a keen interest in Turkey.
Foreign direct investment will need a projection of the new era of
Turkey’s future economic condition and fundamentals. According
to the expectations, there are unfortunately some economic and
political problems that lead to uncertainty increasing the country
risk. That itself is enough to put both local companies and foreign
investors in a dilemma as a bad luck for the future of the market.
Turkey’s impending ESCO market will be sponsored by
government and WB funds during its incubation stage under the
SS financing mechanism. Creating a competitive, mature ESCO
market (Hungary, as a developing country model, has more than
200 ESCOs) through the GS mechanism is not possible under
today’s Turkish economic environment. Large current account
deficit financed by foreign capital flows, uncompleted structural
reforms, unfinished privatizations make the creation of a mature,
perfectly competitive ESCO market suspicious. This is supported
by the lessons learned from the unsuccessful implementations of
the BASEL-II for the small- and medium-sized firms in Turkey.
BASEL-II is the second of the Basel Accords, which are recommendations
on banking laws and regulations issued by the Basel
Committee on Banking Supervision. The purpose of BASEL-II is to
create an international standard that banking regulators can use
when creating regulations about how much capital banks need to
put aside to guard against the types of financial and operational
risks banks face. Just like the case of BASEL-II, Turkey’s poor
assessment of risk culture and investment appetite do not allow
such a risky and big system to progress. The BASEL-II implementations
are postponed to 2009 after a struggle of 4 years. In such a
market, candidate ESCOs in Turkey will not be ready for GS
financing mechanism just like small- and medium-sized companies
in Turkey not ready for the BASEL-II implementations.
Under a stable economy, Turkish energy policy should
establish appropriate incentives for EE and development of ESCO
market. Incentives like reduction on import duties, enabling
foreign partnerships probably by joint venturing, risk-sharing
with another forfeiting institution, proposing a third-party
financing network, providing a healthy relation within private
sector and finance sector, encouraging the emergence of smalland
medium-sized firms. Beyond the difficulties of bureaucracy,
there is lack of information and knowledge. Government should
increase information about EE projects, financing opportunities,
and services offered by ESCOs and complete the awaiting
regulations. Successful model of Hungary and problematic model
of India should be influential for enacting policy in Turkey. Not
adopted to BASEL-II, Turkish banks may resist financing
such ESCO projects because of the risky nature of this business
and economical uncertainties. Between 2002 and 2007, privatesector
external-debt stock increased to $150 billion, where
the share of banks and financial institutions has increased
to $51 billion, which is about 13% of the Turkish GNP. This points
to a sound indecision or hesitation for the private sector to
become involved in the ESCO market. Therefore an immediate
reform of both financial and institutional restructuring should be
implemented.
The bottom line is that in order to create a promising
competitive ESCO market, Turkish policy must be able to sustain
5% average growth rate for the coming decade and finish the
structural reforms which will invite necessary capital inflows to
ensure an economic stability and financing. EU and other
countries’ experiences are vital to guide Turkey to speed-up the
completion process for the awaiting regulations and foster the
establishment of the Turkish ESCO market.

22 Mart 2012 Perşembe

Turkish local authorities slowly moving towards energy sustainability

In Turkey, 82% of the population lives in urban areas, where 80% of the country’s CO2 emissions are generated. If business continues as usual, greenhouse gas emissions are expected to increase twofold by 2030. In this rather unfavourable context, a two-day international Energy Efficiency conference – to which the Covenant of Mayors Office was invited - took place from 30 September to 1 October 2011 in Istanbul (Turkey) in the hope of presenting some alternative solutions to participating local governments, NGOs and private sector representatives. Illustrations | Speaking at the event, Head of the Covenant of Mayors Office Kristina Dely offered some perspectives on how the transition to integrated, sustainable energy planning can constitute a job and wealth creator for local economies. In Turkey, adopting such energy efficiency standards could indeed lead to much-needed savings, as the country’s energy consumption could be reduced by a third of its present level, which is way above the world average. As of today, 5 October 2011, four of the country’s municipalities, have already decided to take the leap by joining the Covenant of Mayors.

The international energy efficiency conference was organised in the framework of the EU-supported project dubbed “Strengthening Energy Efficiency Capacities and Networks of Civil Society Organizations and Municipalities: Bosnia Herzegovina, Czech Republic, Serbia and Turkey” and aiming at increasing collaboration among different groups with the potential to influence energy efficiency policies.

21 Mart 2012 Çarşamba

EBRD EXTENDS SUSTAINABLE ENERGY FUNDING PROGRAMME IN TURKEY

The EBRD has extended its financing facility to support Turkey’s investments in renewable energy and energy efficiency projects to increase energy savings and reduce carbon emissions.

With the extension of the Mid-size Sustainable Energy Financing Facility, or MidSEFF, originally launched in December 2010, the Bank will continue helping Turkey to reduce its dependence on fossil fuels by financing private sector energy efficiency investments in mid-size sustainable energy projects with the total investment cost of up to €50 million.

As part of this extension, the EBRD will offer a total of €225 million in loans to Turkish banks for on-lending to private sector borrowers to undertake mid-size renewable energy, waste-to-energy and industrial energy efficiency investments.

Yapi Kredi Bank (YKB) is the first local bank to join the extended MidSEFF. Through the purchase of notes issued by YKB under its established Diversified Payment Rights securitisation programme, it received a total of €75 million from the EBRD for on-lending to eligible sub-borrowers.

Yapi Kredi CEO Faik Açıkalın said: “We have issued this long term credit despite the uncertain global economic outlook, which attests to the confidence of international markets in Turkey’s economic prospects”.

Highlighting their standing as the Turkish bank with the highest DPR securitization volume in 2011, he continued: “We have issued a total of US$ 2.8 billion funding within the scope of our DPR program since its start in 2003. This last transaction has the longest maturity yet with its 12-year repayment term.”

Mr. Açıkalın also underlined the special importance the company attaches to efforts towards the protection of nature and to mitigating the negative environmental impacts of companies and added: “We will further consolidate our leadership in funding renewable energy projects thanks to this new capital. Our primary goal is to undertake investments that will improve the energy efficiency and waste management —including carbon emissions— of our medium-sized enterprises”.

“Since its launch almost a year ago, the MidSEFF has been an important component of the EBRD’s support of Turkey’s long-term energy strategy. We have so far provided around €300 million in financing to four leading banks in Turkey. Building on our success we are pleased to welcome new Turkish commercial lenders to our extended facility. Our joint cooperation brings tangible results, unlocking the potential that renewable energy resources have in Turkey,” said Michael Davey, EBRD Director for Turkey.

The Bank will provide financing to participating Turkish commercial banks through diversified payment rights securitisation programmes, established by those banks. In addition, the EBRD will undertake direct risk participations with the same banks in selected sub-projects up to a total value of €75 million.

As in previous MidSEFF investments, additional comprehensive technical assistance, funded by the European Union and other prospective donors, will be made available to support the preparation and appraisal of MidSEFF sub-projects in Turkey.

The four banks involved in the previous MidSEFF were Türkiye Garanti Bankasi A.Ş., DenizBank, Vakif Bank and Akbank.

In Turkey, the EBRD focuses on renewable and sustainable energy, small business development in the regions, agribusiness, municipal, environment and other infrastructure, and privatisation

19 Mart 2012 Pazartesi

Turkey’s opportunities at PV business

Even taking into account the slow nature of governmental support, Turkey profiles itself as one of Europe’s most promising emerging markets, one that simply cannot be neglected. There are, as in most cases, some obstacles to be overcome in Turkey. Short term problems include the current absence of a FIT and secondary legislation for grid-connection, an information gap and weak human resource base. Over the long-term, the country will struggle with the absence of a stable policy overseeing the sector and the lack of consistent rules and regulations for steady, sustainable growth.

Fortunately, there are many factors that, despite these difficulties, make Turkey a highly promising market. Turkey is a large country with a population that’s about the size of Germany and a population growth that is unrivalled in Europe. The country has one of the highest economic growth rates, the highest long-range energy demand, a strong industrial base and, not unimportantly, very good solar irradiation. Due to a hugely problematic and unstable energy supply, with unreliable sources and fluctuating prices, there is also a widespread desire for autonomy from the grid among Turkey’s population.

Furthermore, the prospect of EU-membership, combined with close relationships with Middle Eastern and Asian markets, successful business examples in different sectors (including energy), and probable grid parity within two to three years make it a PV market with large potential. The initial boom is expected to be seen in solar parks. Cleanglobe’s analysts expect medium size systems to become feasible shortly, and show good growth if the initial grid connection problems are overcome. The southern sunbelt provides plenty of opportunity for thin-film technologies, while rooftop applications in the northern part of Turkey will provide possibilities for crystalline applications.

All in all, we can conclude that Turkey is one of Europe’s most promising emerging markets, providing business and investment opportunities that can and should not be ignored. "Dr. Baha Kuban"

Turkey Energy Profile

TURKEY’S ENERGY PROFILE
With a rapidly growing economy Turkey has become one of the fastest
growing energy markets in the world. Turkey has been experiencing rapid
demand growth in all segments of the energy sector for decades. Recent
forecasts indicate that the growth trend of 6-8 % per year will prevail in the
energy sector in the following years. The primary energy consumption, which
reached around 92 million tons of oil equivalent (toe) in 2006 will rise to 126
million toe in 2010 and 222 million toe in 2020.
The limits of Turkey’s domestic energy sources in light of its growing energy
demand have resulted in dependency on energy imports, primarily of oil and
gas. At present, around 30 % of the total energy demand is being met by
domestic resources, while the rest is being satisfied from a diversified
portfolio of imports. Turkey attaches utmost priority to further diversification
of imports in both type and origin. Exploration and production activities are
also being intensified in this context.
Turkish energy policy has made impressive progress after the Helsinki
Summit of 1999 where Turkey was declared a candidate for accession to the
EU. Turkey attaches great importance to more efficient and rational
functioning of the energy sector for promoting the competitiveness of the
national economy. Substantial progress has been achieved in restructuring and
liberalizing the Turkish electricity and gas markets in pursuance with the EU
Directives for the purpose of integration with the EU Internal Energy Market,
since the enactments of the Electricity and Natural Gas Market Laws in 2001.
With the Petroleum and LPG Market Laws, competition oriented mechanisms
has been put into place.
An independent regulator, The Energy Market Regulatory Authority (EMRA)
has been established to be in charge of regulation and supervision of the
electricity, gas, petroleum and LPG markets.
Concerning renewable energy sources, the Law on the Utilization of
Renewable Energy Sources for the Purposes of Generating Electricity has
been adopted in 2005 for promoting electricity production from the renewable
energy sources in liberalized energy markets. In order to use energy
efficiently, prevent waste, mitigate the burden of energy costs on the
economy, and increase the efficieny in the use of energy resources and to
protect the environment, the Energy Efficiency Law was enacted on 2 May
2007.
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Turkey aims at fullly utilizing its indigenous hard coal and lignite reserves,
hydro and other renewable resources such as wind and solar energy to meet
the demand growth in a sustainable manner. Integration of nuclear energy
into the Turkish energy mix will also be one of the main tools in responding to
the growing electricity demand while avoiding increasing dependence on
imported fuels. Nuclear power plants corresponding to a total installed
capacity of 5000 MW are expected to be commissioned after 2012.