Turkey doubled its elec- tricity generation capacity to 31,000MW since the early 2000s Few countries can parallel Turkey’s have acted as trusted partners of Turkish ESMAP assisted Turkey efforts to restructure its energy sector counterparts, helping in a multi-faceted through its energy reform over the past 15 years. Moving from a process that has moved Turkey from a coun- try facing structural energy challenges and process, helping to state-owned, vertically-integrated mod- supply gaps to a global model for other develop energy supply el, Turkey has entirely privatized countries. security legislation and electricity distribution; passed ground- regulation, establish regu- breaking electricity market, renewable “Over the last 15 years, the outcomes were very positive because we worked together,” latory agencies, and price energy, and energy efficiency legislation; says Budak Dilli, former General Director of reform established new regulatory bodies; and Energy Affairs at Turkey’s Ministry of Energy carried out price reform. and Natural Resources. “World Bank experts ESMAP continues to In the process, Turkey has added 31,000 MW were told what we needed, they listened, support Turkey with in electricity generation capacity without and they offered solutions.” municipal-level energy long-term power purchase agreements or ESMAP’s engagement with Turkey began in efficiency planning sovereign guarantees, more than doubling 1983, with the publication of an “Issues and its capacity since the early 2000s. The coun- Options” paper—a comprehensive assess- try has transitioned to a well-functioning ment of the current state and future poten- electricity market, with adequate supply to tial of the country’s energy sector. The focus meet the country’s growing needs. then was on building a secure energy supply During this period, the World Bank’s Energy by developing enough coal and hydropower Sector Management Assistance Program potential to replace costly imported fossil (ESMAP) has provided technical assistance fuels. Also important at the time was devel- supporting the overall reform program. oping the capacity of the country’s Along the way, the World Bank and ESMAP state-owned enterprises to manage rapidly growing energy systems. Budak Dilli Former General Director Early 2000s: Launch of Reform and Renewable Energy Law of Energy Affairs, Turkey By the turn of the millennium, Turkey had mostly moved past these challenges. However, an economic crisis in 2000-01 demonstrated the vulnerabilities of an energy sector that was centralized, run by public monopolies, and lacking a strong regulatory framework. Turkey launched its energy market reform in 2001, in response to this crisis. Laws were passed that provided for complete restructuring of the sector, including opening the electricity market to private distributors and traders, open access to the electricity grid, and the establishment of the Energy Market Regulatory Authority. In 2004, the World Bank extended a $202 million loan to Turkey to develop privately owned and oper- ated power generation from renewable sources. The loan sought to foster institutional capacity, new regulations, and financing mechanisms that would allow for this renewable energy expansion. The loan facilitated renewable investments and initiated studies for a better regulatory framework. In May 2005, Turkey passed a Renewable Energy Law that specified a minimum price and established a mechanism for priority dispatch of power from renewable sources. The aim of the law was to ensure that renewable energy sources would be developed and used in a planned, economic and regulated manner. The country now had a regulatory mechanism that would guide future renewable develop- ment. Late 2000s: Threat to Supply Security The value of ESMAP assistance would be proved two years later. Turkey’s planners extrapolated from the then-current seven percent annual growth in energy demand, and realized that very soon, the country would not be able to meet its electricity needs due to a lack of investment in generation. The government asked the World Bank to help review its electricity supply model and see what other coun- tries had done in similar situation. I MAGES Cover—©World Bank Page 3—©Namik Ugur / World In 2007, the World Bank, with ESMAP support, brought in experts from all over Europe and Brazil to Bank conduct a supply and demand analysis of Turkey’s electricity sector. They recommended a number of All other images—©iStock mechanisms to increase generation capacity, including electricity auctions and certificate schemes for generators. ESMAP also helped to organize training for TEIAŞ staff, The reform program thrived. In 2007, the private sector share of the national electricity transmission company, on auctions and the country’s electricity generation capacity stood at 19 percent. By certificates, as well as measures such as day-ahead electricity 2014, that share had grown to 55 percent and continues to markets to help stabilize the system. increase. These activities helped introduce supply security legislation and regulations, and provided the basis for the government to define Continuing Support: Hydropower, Energy Efficiency how the national electricity supply would be monitored and governed. In recent years, as Turkey’s energy sector has matured and changed, ESMAP support has changed with it. Partially as a result The looming supply shortage brought into question the entire of the success of the reform program, these activities are targeted reform process, with some parties calling for a return to a central- toward specific challenges rather than assistance to the entire ized system. However, Ministry of Energy planners remained firm sector. in their commitment to continue with liberalization. According to Mr. Dilli, the expert advice and knowledge sharing supported by Rather than a scarcity of supply, Turkey now faces an abundance of ESMAP played a key role in maintaining that commitment, particu- players in the electricity generation arena. This has led to some larly at a time when reforms could easily have been reversed. instances of uncontrolled development, particularly in hydropower. The rapid increase in privately funded small - and medium-sized “By bringing in experts and transferring their experience to us, plants has helped Turkey develop a more reliable energy base, but [ESMAP] really helped us to design the new market and design the has also had unforeseen impacts on fragile environments. Although transitional measures. It is easy to make mistakes in a reform Turkey has strong Environmental Impact Assessment regulations in process. It can ruin or delay everything if you don’t sequence things place for individual hydropower projects, it had no mechanism to correctly,” he says. gauge the overall effects of a combination of projects. These ESMAP activities also helped catalyze an increase in World In early 2013, ESMAP supported the preparation of a study on Bank energy lending to Turkey, providing the analytical underpin- Cumulative Environmental Impact Assessments of hydropower in nings for three loans totaling $1.15 billion between 2009 and 2011. Turkey. The result of an 18-month process that involved consulta- This loan program contributed to a number of critical outcomes for tions with a wide range of government authorities and non- Turkey’s continuing reform program, including establishment of a governmental organizations, the study presented guidelines for day-ahead electricity market and financial recovery for the power conducting such an assessment. Since then, the Ministry of sector. Environment and Urbanization has started to incorporate cumula- In the end, the supply shortage was avoided. New capacity was tive impact assessments for new hydropower projects. developed, and demand dropped from seven percent a year to Another targeted program of assistance has been work in the roughly four percent a year as a result of the global economic slow- southeastern city of Gaziantep—to increase the energy efficiency down. of municipal services in one of the country’s fastest growing urban centers. In 2011, ESMAP piloted its Tool for Rapid Assessment of City Energy (TRACE) in Gaziantep to help city planners chart their energy efficiency investments. The TRACE assessment concluded that Gaziantep’s water, urban transport, and public lighting sectors should be priorities for investment. For example, the study found that improving the energy performance of the public water system and implementing a leakage detection program could save the city $14 million in energy costs per year. The TRACE pilot informed the preparation of a master plan for the city, along with major energy efficiency initiatives. It also paved the way for similar assessments in other Turkish cities under a World Bank-financed sustainable cities project focused on planning long-term infrastructure investments. The success of Turkey’s energy reform program was on display in Istanbul in mid -2014, when ESMAP sponsored a South-South knowledge exchange on open access to trans- mission and distribution grids. The event gathered participants from Azerbaijan, Brazil, China, India, Indonesia, Tunisia, Turkey, and Vietnam. ESMAP’s engagement with Turkey—ongoing for more than 30 years—and its support The Energy Sector Management to energy reforms continues. A landmark will be reached in 2015, when ESMAP Assistance Program (ESMAP) is publishes Turkey’s Energy Transition: Milestones and Challenges—a comprehensive a global knowledge and technical look at the country’s reform program over the past 15 years and future challenges. assistance program administered by the World Bank. It provides analytical and advisory services to low- and middle-income countries to increase their know-how and institutional capacity to achieve environmentally sustainable ener- gy solutions for poverty reduction and economic growth. ESMAP is funded by Australia, Austria, Denmark, Finland, France, Germany, Iceland, Lithuania, the Netherlands, Norway, Sweden, and the United Kingdom, as well as the World Bank. IMPACT Issue 10 November 2015