Current snapshot of the Turkish ESCO market
Introduction
The Energy Efficiency Law (EEL) of Turkey was developed partly as a result of Turkey's tasks of complying with the European Union (EU) directives. Due to the ongoing harmonization process of Turkey with EU, legislative framework has been upgraded to be compatible with that of the EU countries since 2001. As a candidate country, the EEL and the related regulations of Turkey are consistent with the EU Directive 2006/32 on energy end-use efficiency and energy services (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32006L0032:EN:NOT). The EEL came into force in May 2007 and was expected to help achieve 25–30% savings in total energy consumption of the country. The law exploited efficient use of energy and covered administrative structuring, energy auditing, incentives, awareness raising, and the establishment of an ESCO market for energy-efficiency (EE) services. In the EEL of Turkey, “ESCO” was referred to as “EVDS” in Turkish; a direct translation for Energy (E) Efficiency (V) Consulting (D) Companies (S). This Turkish acronym echoes as if Turkish ESCOs have been conceived primarily as state-licensed energy auditing firms. However, broadly speaking, one may assume equivalence between ESCO and EVDS with respect to EEL. That is, any company delivering EE services/consulting can become ESCO if and only that company fulfills the requirements of the EEL and its communiqué. In Turkey, ESCOs are to be state-authorized and are to operate under the state regulations. In other words, a Turkish ESCO is also an EE service/consulting company, with additional benefits of being state-approved as ESCO.
Following the enactment of EEL, Okay et al. (2008) had presented their views with regard to funding and related risks that were likely to be associated with, then-impending, Turkish ESCO market. Later, Okay and Akman (2010), in analyzing the worldwide ESCO activities (Vine, 2005) using country indicators (GDP, energy consumption, CO2 emission, innovation index), projected a set of ESCO market indicators (age of ESCO market, number of ESCOs, total value of ESCO projects) as a hint for the size and orientation of, then-upcoming, Turkish ESCO market. More recently, in a latest book titled World ESCO Outlook, Okay et al. (2012) provided an account for Turkey.
In Turkey, official delivery of ESCO licenses to candidate companies had been ceased in May 2011 due to ongoing changes in the “Regulation on Increasing Efficiency in the Use of Energy Resources and Energy” issued by the MENR (Ministry of Energy and Natural Resources). It had been officially stated that ESCO licensing would resume right after the approval of modifications in early 2012. However, the communiqué of the EEL, particularly related to ESCOs, was released only recently, in July 2012.
In this work, we review the current status of the ESCO market in Turkey and provide an outlook through the recent legal communiqué, supported by financial and economic developments in Turkey. The organization of the article is as follows: Section 2 briefly overviews Turkey's economic and energy profiles and related opportunities for ESCOs in the Turkish energy market. Section 3 gives a brief background on ESCOs in general and a recent literature survey. Section 4 summarizes the history of EE services and other ESCO-like activities in Turkey. Section 5 presents the current situation in Turkey in terms of number of ESCOs and sectors targeted. The principles and procedures to be enforced on universities, chambers of engineers, and ESCOs, as outlined in the communiqué of the EEL, are summarized in Section 6. The financial mechanism prevailing in the country and the sources of financing are mentioned in Section 7. Section 8 points out to barriers and enabling factors in the Turkish ESCO market. Section 9 mentions technical opportunities for ESCOs as engineering/consulting companies. Section 10 is for conclusions and suggestions.
Section snippets
Country profile
Turkey stands at the meeting point of Europe, Asia and the Middle East as a strategic bridge between the world's largest oil and natural gas routes. The country's population is young at about 75 million. Turkey has the 17th largest economy in the world and has the highest economic growth rate among the European countries. The country exhibits very flexible economic and financial dynamics and high resiliency to crises. Turkey has recovered fast from the global financial crises. For example,
Background on ESCOs
ESCOs, as private-sector instruments, guarantee and deliver energy improvements to their clients. Remuneration of an ESCO is tied to the energy improvement achieved. ESCOs may finance, or assist in financing, an energy project (including renewable- and sustainable-energy projects) by providing an energy-improvement (saving, efficiency, conservation) guarantee. Recently, interest in ESCOs has increased due to increasing energy costs and economic penalties attached to excessive energy usage and
History of the Turkish ESCO market
Officially, Turkish ESCOs emerged together with the country's EEL in 2007. However, Turkey was not foreign to ESCO-like activities. In the 1980s, under the guidance of the Turkish Electricity Authority, an assessment of the country's RE potential for power generation and energy audits for several important energy-intensive industrial establishments were accomplished with a US-based company. Consequently, an Energy Conservation Measures division under the General Directorate of Electrical Power
Current situation
As mentioned, one of the objectives of the EEL of Turkey was the establishment of an ESCO market for EE services. The place of ESCOs in the organizational structure of Turkey's EEL is depicted in Fig. 1. The main organizations responsible for EE policies and activities are MENR, EIE (the name has been recently changed to the GDRE: General Directorate of Renewable Energy, www.yegm.gov.tr) and NECC. The MENR is responsible for formulation of policies and supervision of their implementation within
Recent communiqué related to ESCOs
As mentioned above, the awaiting modifications were released only recently in July 2012 as ESCOs-related Communiqué of the EEL (CELL). The CELL, which also follows the by-law “Increasing Efficiency in the Use of Energy Resources and Energy” issued in October 2011, adheres to the organizational structure of Turkey's EEL summarized in Fig. 1 and covers the principles and procedures to be enforced on the universities, chambers of mechanical and electrical engineers, and ESCOs in order to ensure a
Financing
Okay et al. (2008) had presented views on funding and related risks that were likely to be associated with, then-forthcoming, Turkish ESCO market. These views had been backed up with Turkish credit- and banking-market performances and lessons learned from the implementation of some EU-related projects involving banking sector and SMEs. In 2008, private conversations with few energy companies had revealed that they were willing to form joint ventures with established foreign ESCOs and were
Barriers and enabling factors
After the EEL and related subsequent regulations, one of Turkey's hot issues in the energy sector was – and still is – to establish an ESCO market. The next step will be to draw interest for international investment in the market. Without foreign capital, with 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 is trying to master. One of the most important difficulties that local
Opportunities
National or international private companies, or small-scale industrial sites as auto-producers, can take part in the Turkish energy market for electricity generation. Electricity auto-production for small-scale manufacturing sites offers good opportunities for investors in power generation as well as for ESCOs as engineering/consulting companies.
Turkey's policy for emissions reduction does not yet involve such tools as setting targets on emissions reductions, carbon taxation or emissions
Conclusions and recommendations
In this work, we looked at the current status of the ESCO market in Turkey and provided a view through country's financial and economic facts. We also discussed the recent communiqué of the EEL related to ESCOs.
Power generation, EE improvement, RE utilization, emissions reduction and related areas offer good opportunities for national and international investors and for ESCOs as engineering/consulting companies. Technical issues are not a problem since the required know-how and expertise are
Acknowledgments
Financial supports provided by the Bogazici University Research Fund (Project nos: 5687 and 5688) are gratefully acknowledged. The authors thank the anonymous reviewers for their comments to improve the manuscript.
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