Turkey has embarked on an ambitious power market reform aiming to privatize and liberalize the sector and exploit domestic energy resources – particularly lignite, but also renewables – to reduce the country’s dependence on imported fuels. The government has set capacity targets for 2023 and 2030 to keep up with the projected demand growth.

The dominant resource for electricity generation in Turkey was natural gas until 2015. In 2016, coal and lignite accounted for 34% of power generation, surpassing the 32% share of natural gas. Hydro contributed 25%, with the remaining 9% coming from wind power, other renewable technologies and liquid fuels.

By 2023, the country aims to have 20GW of wind energy, 5GW of solar and 1GW of geothermal power. The target for power from large hydro plants, which are also considered as renewable energy by Turkey, is 34GW. Meeting these targets would ensure that at least 30% of the generation will be from renewable sources. In order to reduce its reliance on energy imports, Turkey also has a target to utilize all of its local coal resources for energy production by 2023 and reach 30GW of installed capacity.

In a bid to encourage manufacturing units in the country, Turkey offers additional incentives if domestically procured equipment is used, which could be as much as 70% of the basic subsidy payment. Local content requirements also featured heavily in Turkey’s first GW-sized Renewable Energy Resource Area (RERA) auction that was launched in 2016 and finalized in March 2017. The winning price was $69.9/MWh which will be fixed for 15 years from the date that the contract is awarded. Such large centralized auctions will be a major source of new capacity additions for solar and wind projects.

Hefty licensing fees have stopped the utility-scale licensed PV sector from taking off despite abundant resources. Out of the 600MW solar projects tendered in 2013, only 13MW are commissioned so far. As feed-in tariffs are dollar denominated, recent depreciation of the lira against the dollar, and the reduction in panel costs, may make the projects feasible again and more may come online. Due to challenges with the licensed projects, almost all of the build-out has happened in the unlicensed sector where developers have found loopholes in regulations to implement utility-scale projects. In response, the government tightened the regulations in 2016. The activity in this segment is likely to slow down after 2018, leaving it for only sub-1MW self-consumption projects - its intended purpose.

Turkey should build 2GW of wind projects each year to hit its 2023 target. This is looking challenging. License applications for 2GW of projects have been postponed twice from April 2016 to April 2018. There is a shortage of opportunities to develop projects apart from the 1GW RERA wind auction planned for the summer of 2017.that was held in August 2017 and featured local content requirements. The auction saw interest from all major wind turbine manufacturers and had a winning price of $34.8/MWh fixed for 15 years.

Turkey imports most of its natural gas from Russia, Iran and Azerbaijan through pipelines, and from Nigeria and Algeria as LNG. It also secures some supplies in the LNG spot market. The Trans-Anatolian Pipeline or TANAP – which will transport gas from Azerbaijan to Turkey – is slated to make the first gas delivery in 2018. Construction began in 2015.

The country also plans to build as much as 12.5GW of nuclear power capacity by 2023, but the concepts for the three proposed plants have been battered with setbacks. Only the 4.8GW Russian-backed plant is close to start of construction, but it has also seen delays and is unlikely to be commissioned before 2025.

Turkey is also completing trials for integrating its electricity network with that of continental Europe and should soon become a full member of the European Network of Transmission System Operators for Electricity. In the drive for liberalization, the government has privatized all 21 distribution companies. A fully competitive retail market was expected to be in place this year, although progress on this front has been slow.

Turkey’s Intended Nationally Determined Contribution (INDC) states a 21% reduction target in greenhouse gas emissions by 2030, compared to a business-as-usual scenario from a base year of 2012. Energy makes up 70% of Turkey’s emissions and hence emphasis on coal plants in future years might make it challenging to reach this target.

Score summary

Turkey’s score of 1.58 on Climatescope 2017 placed it 15th among the 71 nations assessed. The country’s power sector has undergone major reform over the last decade, including unbundling of all market segments and partial liberalisation of generation and distribution. This is the first time Turkey has been included in the project. It was strongest on Low-Carbon Business & Clean Energy Value Chains Parameter III.

On Enabling Framework Parameter I, the country scored 1.30 and was ranked 33rd. The score was supported by the presence of a clean energy target, energy auctions and feed-in tariffs. It was also boosted by recent market reforms and the system’s relative openness to independent power producers. Installed clean energy generation capacity jumped by about 2GW in 2016 to 14.5GW.

Turkey took 20th spot worldwide on Clean Energy Investment and Climate Financing Parameter II. This reflected the recent influx of funds into the sector – almost $1.6bn was invested in 2016, mainly in wind and geothermal, increasing the total since 2012 by 17% to $10.8bn.

On Parameter III the country performed well, taking 9th place globally thanks to its well-developed clean energy sector. It boasts some 36 different value chains, from wind blade manufacturing to biofuel blending and distribution, and 20 types of service provider. In contrast, banks are the only type of financial institution serving the sector.

Turkey was placed 29th on Greenhouse Gas Management Activities Parameter IV. Its score was supported by the relatively ambitious Nationally Determined Contribution to reduce emissions by 21% by 2030 compared with ‘business as usual’. The absence of domestic climate change policy dragged the score down.