Environmental Technologies and Renewable Energy: Industry Report

Domestic Sector

1. Pollution Control, Waste Management and Recycling

Economic growth in Turkey has caused an increase in energy demand, industrialization and urbanization, raising concerns about environmental issues. These environmental concerns are forcing Turkey to establish effective water, waste and air pollution control management.
Total environmental expenditure in Turkey was US$7.5billion in 2007. The majority of environmental expenditure was municipality expenditures corresponding to 81.5% of the total, whereas the environmental expenditures of private companies were 8% of the total amounting to US$ 602million.
Turkey's attempt to become a full-fledged European Union member is creating a positive environment for foreign investment. Regulations in the sector are becoming more favourable for foreign investment, resulting in foreign investors partnering with local businesses in waste management solutions.
The environmental technologies market also benefits from new arrangements in local regulations. Since the change in the article of Environmental Law numbered 2872 in 2006, municipalities have been further enforced to build and establish waste management centres and protocols. The last five-year period has experienced a steep incline in waste management and recycling efforts. As an incentive to reduce and prevent industrial pollution, the government offers industrial plants a reduction up to 59% of their electricity bills if they set up their own waste treatment facilities, in accordance with the above-mentioned Environmental Law article.
Furthermore, the Ministry of Environment and Forestry proposed a “Solid Waste Action Plan” in order to organize waste management policies and aid in sustaining the sector's growth in 2008. In this report, the Ministry aimed at drawing out a clear plan for the 2008-2012 periods. With the action plan, the number of waste management centres, the number of municipalities participated and the number of people that these centres cover reached 108, 1,128 and 50 million, respectively. And the number of people that these centres cover is expected to reach 57 million by 2012.
In order for Turkey to reach the regulatory compliance of EU environmental requirements, the EHCIP (Environmental Heavy Cost Investment Planning) Project funded by the EU was established in January 2004. This project aims to provide funds to the Ministry of Environment and Forestry to increase capacity for a high level of environmental protection.
As seen elsewhere in the world, industrialisation and urbanization, reinforced by the economic growth, have increased the need for environmental goods and services in Turkey. As a result, waste management, water supply and air pollution control have become areas with an ever growing demand and opportunities for investment.

Waste Management

Currently Turkey's waste management infrastructure is not sufficient to cover the country's needs where an annual amount of 30 million tonnes of waste is produced. The majority of this waste is stored in municipal waste storage facilities and landfills. Existing landfills are insufficient in number and there is only one waste energy plant, Izaydas, in the country. Therefore, expertise for managing and constructing landfills and waste energy plants is needed in order to manage the current levels of waste production. Supply of waste handling equipment, technologies for treatment of waste, collection, separation and handling are also areas with extensive development opportunities and therefore offer investment options in the country.
According to environmental expenditures of Governmental Organizations in 2007, water management and wastewater management expenditures consist of 70% of total environmental expenditure. Comparison of environmental expenditure by sectors yields that wastewater management expenditure in the manufacturing industry incurs 96.7% of total wastewater management expenditure and 79% of total solid waste management in 2007.

Water Supply and Management

Population growth in Turkey from 2000 to 2009 from an estimated 65.7 million people to 72.6 million (CAGR of 1.1%) resulted in an increasing demand for drinking and irrigation water supply. As of 2008, usable water supply per capita is approximately 1,600m3, which classifies Turkey as a country facing water scarcity.15 Irrigation is the primary need for water consumption, accounting for 74% of the total in 2008, followed by drinking water at 15% and industrial use at 11%.
Current water supply and management facilities in Turkey are insufficient to meet the demand of the population, and this imbalance is likely to increase further in the future as freshwater reserves are expected to decline. Only a 34% of the population is served by water treatment plants as of 2005. The necessary construction of new plants and renewal of existing ones are open to significant investment opportunities in the country.

Air Pollution Control

Industrial CO2 emissions, household heating and carbon emissions from vehicles are the two main sources of air pollution in Turkey. Air pollution was monitored by 116 stations between 2005 and 2007. The measurement results obtained from the stations are evaluated in the environmental laboratories and hourly averages are published on the air quality monitoring network web site. Main obstacles in sustaining an acceptable level of air pollution are highlighted as follows.
• Low cost - low quality coal usage in household heating
• Inefficient use of energy in industrial production
• Lack of emission control in thermal power plants
As Turkey's air quality needs to develop, there will be long term opportunities for providers of air quality control testing stations, with resulting requirements for emission control devices, electronic displays, and monitoring devices.

2. Renewable Energy

Alternative energy sources are becoming more and more desirable in the world as pollution has become a global threat and the primary energy sources such as oil, natural gas and coal are decreasing in supply. The renewable market in Turkey is still at its infant stage with the majority of its capacity coming from thermal plants (66% of total installed capacity as of 2008). Hydro power plants contribute 33%, and the remaining 1% is from geothermal (0.1%) and wind (0.9%) sources as of end 2008.
Recent developments in Turkey such as liberalization of the electricity market and improvements in renewable legislations have opened the door for the growth and investment opportunities in renewable energy sources. These developments coupled with the country's naturally endowed potential for solar, geothermal and wind energy resources create a vast potential in this market.
In May 2005, the Law on Utilization of Renewable Energy Resources for Electricity Production No. 5346 was enacted for decentralization of renewable energy sector in Turkey. The law aims to increase renewable energy resources utilization and generate economic, secure, and high quality electricity. Large HEPPs in terms of installed capacity are excluded from the law. The law enacts feed-in tariffs determined by EMRA for power plants in operation for less than 10 years. However, same tariffs for every energy resource are to be determined whereas diversification may be necessary and there is also a need for efficient tax and investment incentives. Ministry of Energy and Natural Resources prepares to give a draft report which is expected to be presented to Parliament in the first half of 2010. Despite the delay in the incentives, there is a considerable interest of investors to the renewable energy sector.
As of 2008, total electricity installed capacity is 41,802.6 MW in Turkey. 33% of total installed capacity corresponds to hydroelectricity, 32% to natural gas, 24% to coal, and the remaining 1% to other resources.

Hydroelectric Energy

The installed hydroelectricity capacity of the 150 HEPPs (13.8 GW) corresponds to approximately 38% of the country's technical hydroelectricity potential of 36 GW. The electricity generated from the hydroelectricity plants amounted to 33 TWh as of 2008.
66% of the total number of new licences granted to the private sector in 2008 was for construction of new HEPPs. The majority of the HEPPs are owned and operated by the state. The rest is divided among BOT and TORs and the private sector players. In practice, licences are usually granted for 49 years.

Wind

Turkey represents an attractive geography for wind energy investments. The Aegean and Marmara regions are the most attractive regions for wind energy power generation. The installed capacity of wind energy is 363.7 MW in 200819 and the total wind energy potential is estimated at 131,756 MW.
TEIAS projections for 2009-2018 include 4 different scenarios; with higher-lower capacity and higher-lower demand. According to the high capacity scenario of TEIAS, installed capacity of wind energy is expected to reach 1,012 MW by 2011 with a project electricity generation of 3,176 GWh continuing to increase to 3,663 GWh in 2012.
There has been a significant amount of interest in wind-based generation which has resulted in 1,118 licence applications for a total of 86GW capacity since 2002. This high level of enthusiasm has further caused multiple applications for overlapping locations and capacities exceeding the supported limits. In November 1st 2007 alone, there have been 725 such licence applications amounting to a total capacity of 71.4 GW. Given the supported grid capacity of 7 GW according to TEIAS, the licence applications need to go under a technical review to decide on the feasibility of non-overlapping applications and for the overlapping licence applications which have passed the technical reviews, TEIAS will make its decision through a tender bidding where the highest bidder will be granted the licence for a WPP.
As of September 2009, there are a total of 105 WPP given and approved licences, with a capacity of 4,237 MW. There are 727 licences awaiting review, corresponding to 31,957 MW.

Geothermal

Turkey takes 5th place for geothermal resources and 7th for the utilization of these resources in the world. However, only 3% of the total potential (31,500 MW) is in use23. Two-thirds of the country's geothermal resources are located in the Aegean region.
Out of the licenses granted by EMRA in 2008, only one was for a geothermal plant of 15 MW. Lack of technical expertise can be one of the main reasons for the low exploitation of the geothermal resources in Turkey.
The exploration, development, ownership rights and economic use of geothermal resources are regulated by the Geothermal Resources and Mineral Waters Law No. 5686, enacted in 2007. Licensing and feed-in tariff issues, on the other hand, fall within the scope of the Electricity Market Law and Renewables Law.

Solar

Solar energy is mainly utilized as flat plate solar collectors for domestic hot water production despite the huge potential for electricity generation in Turkey. The photovoltaic generation application is insignificant and currently, the total photovoltaic generation capacity in Turkey is 3 MWp25. Photovoltaic energy is used for signalling purposes and in rural areas such as the watch towers of the Ministry of Environment and Forestry, light houses and lighting of highways.
Turkey's annual average insolation duration is estimated as 2,640 hours (7.2 hours/day) and the average annual solar radiation is 1,311 kWh/m2-year (3.6 kWh/m2 per day) by EIE. The total solar energy production equals 420 thousand TOE in 2007.

3. Energy Efficiency

Turkey is projected to reach an energy-saving potential of 15% in the transportation sector, 20% in the manufacturing sector and 30% in the building industry. The Ministry of Energy and Natural Resources aims to reduce imported energy sources, using energy effectively, protecting wastage, relieving the burden of energy costs on economy, and to improve efficiency in the use of energy sources.
In April 2007, the Law on Energy Efficiency No. 5627 was enacted with an aim to use energy efficiently, to prevent waste energy, to reduce the weight of energy costs on Turkish economy and to increase energy resources. With this law, 20% of total energy costs will be covered with the contract signed between industrial companies and EIE. The industrial companies are to guarantee reducing their energy usage by minimum 10% within three years (Renewable energy is not included).

4. Foreign Trade
Turkey exports environmental technologies abroad to countries such as Germany, France, Italy and UK. Germany is the leading country for Turkish exports of environmental technologies with US$ 875 million in 2008.

Sector Outlook

1. Pollution Control, Waste Management and Recycling

The high demand for waste treatment facilities have led to creation of 5 hazardous waste zones which will have own central storage facility and incinerator. This strategy is expected to treat one million tonnes of hazardous waste per year. The investment required for waste management treatment expected to be made between 2010 and 2012 is approximately 1,201 million29. The following figure presents the storage and incineration facilities planned to be built in the five regions between 2008-2012 by the Ministry of Environment and Forestry by taking into consideration the growth of industrialization. It is observed that the Aegean, Thrace and Marmara regions have the greater potential for planned facilities.
Various companies producing waste are also trying to find solutions for waste treatment. For example Petkim, which is the largest petrochemical company in Turkey, is planning to build a new facility to manage its own waste and environmental companies engaged in hazardous/medical waste treatment are also expected to be very active in Turkey.
One of the reasons for low level of waste treatment in Turkey is the lack of landfills, storage for solid waste and solid waste handling equipment. The construction of landfills and storages are expected to start in the coming years.
Municipal water and wastewater treatment is the most emphasized area among others. Proper wastewater treatment is still low in Turkey and there still are small cities without any treatment facility. Although current public spending is low, there is a large potential for development due to scarce treatment facilities.
Air policy is another improvement area which Turkey is working towards. Public spending is low for air pollution as well as other environmental areas.

2. Renewable Energy

According to IEA, the ratio of global renewable energy power to the total energy consumption is expected to increase by 53% in 2020. This indicates a massive potential in the hydroelectric and other renewable energy market.
Turkey has significant wind, geothermal, and solar power potential. The high growth in electricity demand coupled with constraints on the supply side also signals high potential in the renewable energy market in Turkey.
Electricity generation in Turkey is currently largely based on coal, gas, oil and hydro. Gas provides about 49% of generated electricity, with coal accounting for some 29%30. Hydroelectric power generation is expected to significantly increase its market share by 2013 whereas the share of oil has been declining31.
Turkey's hydroelectric plants reached 150 HEPPs with a installed capacity of 13.8GW32. According to the BMI forecasts and BP Statistical Review of World Energy Report, hydro-electric generation is expected to grow with a CAGR of 7% and renewable energy generation with a CAGR of 52% between 2009 and 2013 which are both above the CAGR seen in electricity generation with a CAGR of 5%.
According to TEIAS forecasts, the total installed capacity is expected to grow from 48,817 MW to 71,273 MW between 2010 and 2015 with a CAGR of 6.5%. Renewable energies are expected to form 37% of the total installed capacity and to stay stable in the future years whereas currently the renewable energies correspond to 34% of total.

SWOT Analysis

Strengths
- Geographical position of Turkey for having various natural resources
- Turkey is among the first five leading countries in terms of geothermal resources
- The solar energy potential of Turkey is higher than the combined potential of several European countries
- According to ETKB information dated May 2009, Turkey’s hydroelectric plants reached 150 HEPPs with a installed capacity of 13.8 GW
- The Turkish electricity market represents one of the most promising markets in Europe with respect to growth potential in the next years

Weaknesses
- Significant need for foreign environmental expertise in Turkey as most Turkish firms within the environmental technologies lack the capabilities to handle large environmental projects
- Lower efficiency in energy utilization compared to Europe
- Lack of financial resources of local entrepreneurs and proper lending facilities

Opportunities
- High potential of resources for the use of new renewable energy technologies (particularly boron an thorium resources)
- As a result of economic growth, industrialization and urbanisation, the demand for EGS in Turkey is increasing, particularly in the waste management, water supply and management, and air pollution control sub-sectors.
- Turkey has started to focus on renewable energy, in an effort to decrease energy imports.
- Tremendous investment opportunity in renewable market

Threats
- Being import dependent on HEPP and WPP equipments
- Renewable energy resources are mainly state owned both in Turkey and globally
- Delay in the liberalization process and the private sector investments

Investment Opportunities

There is an encouraging investment environment for Environmental technologies and renewable energy sector in Turkey. There exists significant investment opportunities in hazardous waste and solid waste management, water and waste water treatment and in renewable energy. Current opportunities in waste management and water supply concerns a relatively large market with a broad range of activities whereas the opportunities in environmental consultancy concerns a smaller market. There are also other opportunities in air pollution and control, marine pollution, carbon capture and storage, and carbon finance. These segments form nearly none or very minimal sized market where there are limited regulations and restrictive trade and investment policies. These segments are expected to expand and offer attractive investment opportunities to investors in the future.
The Turkish renewable energy sector has been one of the most attractive sectors in terms of M&A activity in the last couple of years. Many utility industry giants have entered Turkey and there are numerous local entrepreneurs who have obtained renewable policies.
The Turkish Privatization Authority has announced the opening of the privatization tenders of 52 river plants currently belonging to EÜAS. According to the Privatization Authority statements, the closing date of the tender is February 19, 2010.
The following major transactions demonstrate the increasing interest from international investors in the Turkish market over the last four years.