Proceedings of 26th International Business Research Conference
7 - 8 April 2014, Imperial College, London, UK, ISBN: 978-1-922069-46-7
Analysis of the Energy Policies in the Light of the Energy
Economy: Case of Turkey
Yusuf Tuğrul KARAASLAN*
Being in an energy rich area does not mean that Turkey will guarantee
exploit the energy resources equally. Geographically, as one of the
important players and one of the important actors of the energy market in
her region Turkey is followed curiously by important countries in terms of
her energy demand that is endless and increasingly ascending. This
situation also brings new opportunities and possibilities on the subject of
energy consumption. Making cooperation and international energy deals
attracts top producers and mainstream countries across the borders.
Deepwater drilling deals with Brazil, the Blue Stream project with Russia,
Sah Deniz Project with Khazar Basin with Azerbaijan, natural gas contracts
with Persia and Nabucco pipeline project with Kazakhstan and
Turkmenistan are the main deals signed with energy rich countries totaling
of $500 billion in the next ten years. The negotiations that Turkey realizes in
the concept of cooperation with Central Asia and Caucasus countries
represent important contributions to the world energy supply. In our study,
in the light of the data gathered from the International Energy Agency (IEA)
and public institutions, alternative energies and fossil fuels that are
projected by energy maps including Turkey’s energy supply security and
energy demand are analyzed.
JEL Codes: Q40 Q48 and H63
Field of Research: Public Finance
1. Introduction
Today Turkey is defined as one of the emerging markets by the international institutions.
With her strongly developing economy she is also attracting the global powers throughout
its energy capabilities. For a long time the energy sector is expanding continuously with its
all segments as a whole and with its renewables in particular. Turkey is one of the most
energy importing countries in the world. Turkey imports the 75 % of its total energy and 90
% of its hydrocarbons from abroad. Turkey’s energy demand problem is solved by its
energy rich neighbours with unsatisfactory prices. Fossil fuel exporters are aware of the
ongoing energy need of Turkey. At that point energy economics and energy strategy takes
to the stage. Energy burden meets energy policy diversification strategies. In order to
meet its massive burden in energy sector consumption domestically, tremendous amounts
of energy investment is required in all energy sectors. At present the best solution to the
economy is importing the energy primarily from the nearest producer neighbors. If we look
at the main economic indicators we can easily see that Turkey is the dominant power in
terms of the economic parameters but the role of the regional powers like Russia, İsrael,
İran must be indicated in the analysis (Table 1).
*
Dr. Yusuf Tugrul Karaaslan, Department of Public Finance, Dumlupınar University, Merkez Campus, Turkey
Email: yusufkaraaslan@gmail.com
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Proceedings of 26th International Business Research Conference
7 - 8 April 2014, Imperial College, London, UK, ISBN: 978-1-922069-46-7
Table 1 Main Economic Indicators in 2013 (Billion US $)
Indicator
Turkey Russia İsrael
81
143
8
Population (million)
800
2.100
275
GDP
10.000
14.000
34.000
GDP per capita
255
350
67
Imports
100
+170
7
Foreign Trade Deficit
60
170
90
Exports/Imports (%)
155
520
60
Exports
+75
+5
Current account balance -65
8
+4
2
Current AB/GDP (%)
İran
81
410
5.000
65
5
93
60
-9
2
Source: CIA Factbook
2. Transformation Process of Turkish Energy Market
Until the 1970’s the production of the electricity with the generation and transmission were
not implemented by a unique authority. Government electricity generation plants were
partial. Mostly the electricity power stations were operated by the municipalities. Turkish
Electricity Institution was established in 1970 and accomplished the electrical operations
until 1984. In that year the state monopoly was abolished by separating the electricity
company into three different parts as generation, transmission and distribution parts. In
1997 privately held companies given the permission of Built and Operate License’s by the
law. The goal of the Build and Operate Law is to give Turkish Electricity Authority to
organize tenders and receive bids from the corporations (TEIAS, 2008). The corporation
who had the opportunity to gain permission to construct an electricity generation plant also
granted by the Turkish Treasury to market the electricity to the government at the current
market prices for a moment.
For a long time the electricity market in Turkey was dominated by the unique government
monopoly. After the decision of liberalising the market state privatized the generation and
distribution facilities and also made sure that privately owned corporations had the ability
to construct and assure the supply and demand balances. Turkey made a reform in the
electricity market after 2000’s. The aim of the electricity market regulation is to liberalize
the sector ultimately. Creating a completely privately owned and operating electricity
market requires the government to act only as a referee not as an investor. Thr
government started an overhaul process for the energy grid system with the liberalization
process to create efficient network system (Erdogdu, 2007).
In 2001 Energy Market Regulatory Authority was established. The main aim of the
authority is to realize the referee function over the sector players. In the years of 2001 and
2005 the liberalization process steps were taken by the privatization of the electricity,
petroleum, LPG and natural gas sectors. Consequently the stake of the private enterprises
has reached virtually 100 % in the electricity and petroleum industries (EMRA, 2013a). In
2011 the monopolistic rights of import contracts of distributing and marketing natural gas
owned by government enterprise called BOTAŞ has been transferred to four private
corporations. Right after the Natural Gas Market Law in 2001, Turkish natural gas sector
became liberalized. In the year of 2013 all of the 21 separated government owned energy
distribution companies were privatized. The revenue of this privatization process totaled
approximately $ 10 billion. In 2016 fully liberalization of the energy market is anticipated.
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Proceedings of 26th International Business Research Conference
7 - 8 April 2014, Imperial College, London, UK, ISBN: 978-1-922069-46-7
The process of liberalization of Turkish energy sector gives us brief description of the
sector as follows:
2001 LPG Market Law
Electricity Market Law
Natural Gas Market Law
Law on Utilization of Renewables in Electricity Generation
2003 Petroleum Market Law
2004 Electricity Market Reform & Transition 2023 Strategy Paper
2005 Energy Efficiency Law: Law on Utilization of Renewables in Electricity Generation
2007 Geothermal Law
2008 Significant Amendments to the Electricity Market Law
Nuclear Investments Law
2009 Strategy Paper on Electricity Market Reform & Security of Supply
2010 Law on Utilization of Renewables in Electricity Generation
2011 Market collateral mechanisms implemented.
2016 Fully liberalization expected
3. Energy Economy of Turkey
This section consists of the energy sector analysis by the sub sectors divisions like oil,
natural gas, coal, hydraulic and renewables. Sectoral comparisons also give the numbers
of real demand patterns. Historical perspectives of the energy market regulations
implemented by the government and results of a competitive energy era and free energy
market with the Turkish energy market regulations by liberalization and privatization
process examined in the other chapters.
First of all it can be concluded that Turkey’s sustainable energy solution is lying between
economic stability and success of supplying enough demand for the needs (CIEMAT,
2013). Geographically Turkey is centered approximately 72 percent of the world’s proven
gas and oil resources in use are located in Middle East, Caspian Region and Russia which
are around Turkey. This situation makes Turkey a vital bridge between energy rich
countries and Europe. Moreover this makes Turkey as an energy hub between the Middle
East and the Caucasian shores. Geographically Turkey is a bridge between east and west
and that makes the economy as the most desired among the other rivals competing to
attract investments into the country (MFA, 2009). But interestingly Turkey does not have
hydrocarbons based resources officially. Motivation of the study is to analyze the
problematic aspects of energy demand and to find a real ground closing the energy gap.
Provision of domestic energy in Turkey is only about 25%. Dependency of imported
energy and external resources in 2014 is about 75 % percent of the country’s total energy
demand. In 1970 Turkey was able to provide 77 % of its primary energy consumption by
domestic energy sources but the picture is just the opposite today. High dependence of
energy imports causing a huge number of current deficit. The country imports around 90
percent of its total liquid fuels consumption. In the year of 2012 the cost of energy import
was $ 60 billion. Today in the year of 2013 Turkey paid $ 55 billion for the energy import.
This result was because of the efficiency gains and relative price declines and operation of
the newly built energy power plants. In addition the government is giving incentives for the
renewable sectors (Kick, 2011). Those incentives for feed-in tariffs can be seen in Table 2.
The government gives additional $ 7 cent/kwh of additional incentives within the feed-in
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Proceedings of 26th International Business Research Conference
7 - 8 April 2014, Imperial College, London, UK, ISBN: 978-1-922069-46-7
tariffs of some pieces of wind turbines and photo voltaic cells and modules if produced
locally. With the help of those incentives in the last decade the energy market of Turkey
has a yearly average of 6 % growth. The growth of the energy sector is stable thanks to
the economic development and rising production ranges.
Table 2
Feed-in Tariffs for Electricity Generating (cent $)
2013
Per KWh
Hydroelectric
7.3
Wind
7.3
Geothermal
10.5
Biomass
13.3
Solar
13.3
Source: EMRA
The law on the Utilization of Renewable energy Resources for the Purpose of Generating
Electricity describes the main objectives for the next decade; expanding the utilization of
renewable energy resources, protecting the environment by reducing greenhouse
emissions, and evaluating waste product and diversification of energy resources (Kemal
and Kucukali, 2012). The law states the feed-in tariffs and gives guarantees for
hydroelectric and power, geothermal power, biomass and solar power for 10 years.
Table 3
Sources of Turkey’s Electricity Generation in 2013 (%)
Natural Gas
45
Hydraulic
25
Coal
25
Renewable energy
5
Source: Ministry of Energy and Natural Resources (MENRA)
The annual electrical energy consumption of Turkey is about 250 TWh or 250K GWh. To
achieve this high demand the sector needs to obtain resources but the electricity sector is
using some varieties of resources. Natural gas generates the number one production in
the year 2013. The results of the electricity generation can be seen in the Table 3. In the
electricity sector cross subsidization proceeds and off cost factor just as TRT shares
continue to be embodied in the electricity bills. In the electricity sector total distribution loss
also called loss&theft ratio is about 13 % and that result is criticized in the EU’s
commission reports. For EU liberalization of the sector by putting the eligible limits and the
loss&theft ratio down and generation of the electricity from the renewable resources are
referred pre-eminently (EMRA, 2012a). According to The World Factbook of CIA (2013),
Turkey’s electricity consumption ranked 22rd in the world. But in terms of installed capacity
th
Turkey is 19 . This level is because of the traditionally high rate of demand growth. Table
4 shows the shares of the installed power of Turkey, which is ranging from traditional
resources including hydro to renewable resources including wind.
The capacity of the solar energy does not seem to be satisfactory in Turkey’s energy
production. But Turkey has a potential in solar energy generation. Yearly average
radiation for Turkey is about 7 hours a day and 2.500 hours a year. The scientific research
shows that average total sunshine duration for Turkey is about 7 hours a day and that
equals to 2.500 hours a year (EMRA, 2012b). Like solar energy one of the other clean
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Proceedings of 26th International Business Research Conference
7 - 8 April 2014, Imperial College, London, UK, ISBN: 978-1-922069-46-7
energy source is geothermal energy and in terms of the geothermal energy which is one of
the main renewable energy resources, Turkey ranks seventh in the world and first in
Europe.
Table 4
Share of Installed Power of Turkey (%)
Resource Type Installed Power (MW)
Hydro
20.000
Natural gas
19.000
Lignite
8.000
Imported Coal
4.000
Multi-Fuel
3.000
Wind
3.000
Share(%)
35
33
15
7
5
5
Source: EMRA
In 2013 Turkey produced 2.5 million tons of crude oil extracted from its territories. This
number results in 8 % of Turkey’s national oil demand which is totalling 30 million tonnes.
Turkey’s petroleum import in 2013 is 88 % and the domestic production of the oil and its
derivatives is only about 12 %. The average price per barrel of crude oil imported in 2012
was 111 US Dollars. Those numbers show us the oil dependency of Turkey to the imports.
It seems that it’s hard to close the energy gap in the short term. But USA which is number
one in generating and consuming the electricity in the world has found the way to
decrease the country’s energy cost thanks to the shale gas. The recent shale gas
developments in the United States clearly demonstrate this concept and the role of
technologies. The enormous resources of shale gas have always been there, but it is only
since the introduction of hydraulic-fracturing technology at an economically attractive
price, that the gas market revolution has become a reality (WEC, 2013). Innovative
researches done by USA must illuminate Turkey because Turkey has a total installed
generating capacity of approximately 66,000 MW in the year of 2014 as shown in Table 5.
But more than half of this capacity can be used with the imported resources.
If the reforms in Turkey are implemented properly, the country can turn into a so called
“Eurasia Energy Corridor” as stated in the energy economist’s reports (MPRA, 2007). If we
look at the energy contracts of Turkey we see that the statement is not virtual but real. To
show the proof the contracts is the evidence. For example; estimated costs of gas pipeline
projects are $ 18 billion for South Stream $ 11 billion for Nabucco and $ 6 billion for
Samsun-Ceyhan. Natural gas is a vital source for Turkey. It is so important that Turkey's
natural gas imports in 2013 was 98 % and the domestic production of the natural gas was
only 2 %.
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Proceedings of 26th International Business Research Conference
7 - 8 April 2014, Imperial College, London, UK, ISBN: 978-1-922069-46-7
Table 5
Total Capacity of Installed Generators (2012)
Rank
Country
MW
1
China
1.200.000
2
United States
1.100.000
3
European Union
900.000
4
Japan
290.000
5
Russia
225.000
7
Germany
180.000
13
United Kingdom
100.000
19
Turkey (2014)
66.000
Source: CIA Factbook
Renewable energy sources accounts for approximately 20 % of the global energy
consumption in 2011 (REN21, 2013). To achieve the global standards, Turkey’s main aim
in fostering renewable energy is to guarantee sustainability of the reliable energy supply
by differentiating the sources using distinctive alternatives just as foreign capital with
public and private funds (Simsek & Simsek, 2013). The strong expansion of renewables in
Europe, driven by the needs of the continent is interrogated by the policymakers. It is
questionable that whether this type of expansion will be sustainable in the near future.
Just like the EU Turkey is trying to increase the installed capacity level of renewable
energy to prevent global warming as possible. The universal applications help Turkey to
achieve global standards. That’s why government does not require any license application
for the renewable energy production until the level of 1 MW. The government at the same
time extended the feed-in tariffs and supports until the year of 2020.
4. Energy Strategy of Turkey
The main strategy of Turkey is to generate its own energy mix to maintain its energy
security. To this end Turkey’ objectives can be summarized as follows; diversifying energy
supply routes and sources, augmenting the share of clean energies, stepping towards
efficiency gains from energy and contributing to European Union’s energy security
(Keskin, 2011).
Obscurity in the opening of the energy chapter represents an obstacle deepening of
accession negotiations with the European Union (Koranyi and Sartori, 2013). According to
the energy strategy document (MENRA, 2010) Turkey envisioned producing 30 % of its
energy from the renewable energies by the year 2023.
According to the International Energy Agency a very new energy source has been able to
put into the production process by the help of the improving technology and the rising oil
prices that came up to the $ 110 levels. This price made the extracting process profitable
for the industry that United States of America government started using shale gas as a
main energy source for the industry demand. After the US shale gas production jumped
the levels of gas prices declined and with the help of this price decline demand for LNG,
LPG, LNG, CNG and natural gas raised (IEA, 2013a).
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Table 6
Import Contracts of Turkey
Country
Volume
Duration
(bcm/Year)
(Year)
Russian (Blue Stream)
16
25
Russian (West)
6
25
Russian (West)
8
23
Nigeria (LNG)
1
22
Iran
10
25
Turkmenistan
16
30
Azerbaijan
7
Source: EMRA
Contract
(Billion$)
250
60
60
8
125
200
100
In the near future it seems that Turkey may face energy deficit. To prevent the energy
deficit and sustain the energy demand in stability the intensive care and attentive planning
needed in the foreseeable future (IEA, 2013b). To achieve that goal Turkey built a
strategic plan to guarantee the sustainability of the energy supply. The contemplated costs
of estimated required investment for power generation of Turkey is about $ 200 billion in
the next two decades. According to this result it has understood that some other finance
resources differentiation is needed. In order to meet such an immense growth in energy
demand, huge levels of investment is required as well in all three sectors alike. The
Turkish Government is giving priority to the private sector for financing these investments
and has taken in that respect the necessary steps to facilitate the investment environment
(EMRA, 2012).
For Turkey primarily relying on Russia may have the ability to improve the political and
economic relations. But announcement of Turkey’s building a number of nuclear plants
seems that Ankara’s energy policy has been undertaken without a strategic plan and with
little harmonisation of energy politics, foreign affairs and security policies (Shaffer, 2006).
According to the Belfer Center fellow Turkey must keep the distance between Russia
however Turkey signed an enormous budget of a nuclear contract. After long lasting
discussions the international agreement with Russia resulted in construction and operation
of a nuclear power plant at Mersin Akkuyu province in Turkey signed in the year of 2010.
According to the plan Russia will build 4 units of nuclear power plant 1200 MW each
totaling 4800 MW until by the year of 2020 at a cost of $ 20 billion. Table 6 shows the
number and the distribution of the contracts by the countries. Here the impression of
Russia can be seen. Table 7 shows another aspect of the strong cooperation between
Russia and Turkey. More than half of the natural gas procurements are realized with
Russia.
Table 7
Turkey’s Natural Gas Imports by Countries in 2013 (%)
Russia
55
Iran
20
Azerbeijan
10
Algeria
10
Nigeria
3
Spot LNG
2
Source: EMRA
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Proceedings of 26th International Business Research Conference
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In the Ministry of Energy and Natural Resources’ 2010-2014 strategy plan, the
government have 11 aims and 33 targets to meet its rising demand for energy. As it stated
in the report that Turkish Government’s main goal for the year of 2023 is to reach 500 GW
yearly consumption level. Second aim is to reach an installed capacity of 100.000 MW or
100 GW which means doubling the capacity compared with today. The other objectives
are to reach an installed capacity of 20.000 MW in Wind energy, 3.000 MW in solar
energy and 600 MW in Geothermal energy. In broader terms in 2023 the installed capacity
of the energy sector is planned to consist of 30 % of renewables, 30 % of natural gas, 30
%of hard coil and lignite and 10 % of nuclear. Another energy strategy aim of the
government in the next decade is to escalate the share of the private sector to 75 %
through privatization and liberalization (EMRA, 2013b).
European Union determined a goal of 40 % decrease in carbon emissions and generate
27 % of the energy from the renewables by 2030. Throughout the world EU is a global
leader in transition to the renewable energies. In this new millennium the world is
confronting an enormous renewable energy boom globally. Only Germany in the EU set a
target of 100 % renewable energy use until 2050 for itself. Turkey's potentially installable
wind power generating capacity is 150,000 MW (Uyar, 2013) and Turkey can set a target
just as the Germany did too. The Governments in Turkey favored fossil based energy
plants but did not consider greenhouse effects. Hydro powered energy generation facilities
separating water from the soil and force citizens to leave their agricultural land and
terminate farming activities. Hydroelectric plant’s harmful effects did not considered until
today but awareness is the first step to the solution. It is the government’s duty to solve
the problems mostly. For that purpose there are some solutions at the local level too.
Today there are more than 300 cities in the world producing energy totally clean. In the
light of these cities, each city can construct a plan for using 100 % renewable energy
(Uyar, 2012).
5. Summary and Conclusions
Turkish energy sector has a process of liberalization, restructuring, privatization,
regulation, competition and deregulation process. Like the other liberalization processes in
the world Turkey also changed the structure of the Turkish electricity market by the
government’s decisive action. The energy market of Turkey restructured and reshaped by
a quick liberalization process in the aim of forming a competitive energy market. By
analyzing the latest resources and reports of the leading global energy institutions and the
Turkish government’s official documents regarding to the latest year, it is discovered that
Turkey has the potential to develop its resources and also has the possibility to use its
bargaining power with its paramount demand for energy to reduce its energy costs
causing a record high of current account deficit in the last year. This paper mainly focused
on the ongoing energy demand of Turkey.
Turkey can reshape its energy consumption by targeting strong goals to eliminate or at
least reduce its energy imports. This aim can be done by as follows; first not taxing 100 %
electrical vehicles, second promoting rechargeable batteries and banning the others to
prevent poisonous lead leakages, third giving incentives for LED lightning especially at
homes and at the street lightening, fourth generating electricity by wind tribunes and fifth
giving incentives for PV production and solar cell usage in house. Nuclear and coal power
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Proceedings of 26th International Business Research Conference
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plants are not financed any more that’s way the future is within the renewable energies.
So Turkey can set a target of reaching 100 % renewable energy generation as soon as
possible.
Renewable energies are the savior of the world and also the countries. To get rid of the
current deficit burdens countries should think strongly about the solar and wind energies.
Because those energy sources are not directly related to the climate conditions just as the
hydraulic power plants.
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Proceedings of 26th International Business Research Conference
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