Turkey’s energy policy has continuously evolved to serve a growing economy and population, mitigate rising import dependence and meet the country’s environmental goals, including at international level.

Over the past decade, the Turkish economy grew at an average rate of 5%, which in turn has been a major driver of energy demand and investment in the Turkish energy market. Over ten years (2004-14), electricity demand almost doubled to reach 207 terawatt- hours (TWh) in 2015, while gas demand grew even faster, rising from 22 billion cubic metres (bcm) to 49 bcm. Since 2013-14, economic growth has slowed down; while foreign debt, inflation and exchange rate volatility have increased. The Turkish export industry is exposed to the global economic slowdown in key emerging and industrialised markets, notably in the European Union. Foreign direct investment in the Turkish economy fell to USD 12 billion in 2014, from USD 22 billion in 2007 (OECD, 2015).

Turkey has made significant progress in reforming the energy (electricity) sector, following the liberalisation and privatisation of electricity generation and distribution, which triggered a private investment boom (generating capacity doubled during 2007-14) and secured energy access for its population. The International community welcomes Turkey’s efforts towards sustainable economic growth and meeting its energy targets for 2023, presented in 2009, as well as the new 2030 climate pledge submitted to the Paris 21st Conference of the Parties (COP21) in 2015.

The government has accelerated actions to address its growing dependence on imports by diversifying energy supplies. Turkey is progressing with its plans to deploy three nuclear power plants in the next decade, and has accelerated the deployment of renewable energy. Regional integration is advancing, as Turkey and the European Union (EU) will gain access to new gas sources from Azerbaijan by 2018-19 through the Trans- Anatolian Natural Gas Pipeline (TANAP) and from other sources in the Eastern Mediterranean and Middle East in the future. For the first time, the Turkish electricity system was interconnected with the Continental European system through the European Network of Transmission System Operators for electricity (ENTSO-E) in 2015. In this context, Turkey’s contribution is increasingly crucial for the regional energy security.

Turkey is an active international energy partner and has long-standing ambitions of becoming an energy trading hub in the region. Since 2005, Turkey is negotiating to become a full member of the European Union, having been an associated member since 1963. In 2015, Turkey chaired the Group of Twenty (G20) and made a significant contribution to deepening the G20 energy agenda on energy access (G20 Action Plan on Energy Access), renewable energy (G20 Toolkit for Renewable Energy Deployment) and energy collaboration across both emerging economies and industrialised countries.

The Turkish energy sector and energy policies need to evolve in step with the requirements to meet rising energy demand, foster sustainable economic growth for its cities and industries, and ensure the energy security needs of an emerging market located at the crossroads between Europe, Asia, and the Middle East in a period of significant geopolitical turmoil. Important energy market reforms were introduced since the last IEA in-depth review in 2009, which mark progress towards liberalising the energy market, notably the New Electricity Market Law (No. 6446) and the Turkish Petroleum Law (No. 6491) of 2013.

In the electricity sector, the distribution sector and most of generation assets have been privatised (except hydro and some coal assets). The creation of the day-ahead and balancing market (PMUM), organised by the system operator TEİAŞ, led to a boom in private investment, boosting capacity margins and supporting growing electricity demand. The Energy Market Regulatory Authority (EMRA) has continuously supported market opening (85% in 2015); however, most households are not able to choose their supplier (threshold of 4000 kWh annual electricity consumption). Under Law No. 6446, the electricity wholesale market was reorganised, TEİAŞ PMUM was moved to the new energy market operating company (EPİAŞ) which was created in March 2015 as wholesale electricity exchange. However, the pace of liberalisation and privatisation has slowed down and electricity wholesale prices have fallen in recent years.

Progress has been more difficult in the gas sector. The Gas Market Law of 2001 (No. 4646) has not been fully implemented, notably with regard to the full unbundling of gas activities (supply, trade and storage) and transmission. Despite the efforts made to liberalise gas imports (since 2013, only 20% or 10 bcm have been purchased by private companies), the system operator BOTAŞ dominates gas imports, trade and wholesale. BOTAŞ imports 78% of all the natural gas consumed in Turkey, operates the gas network and one of two liquefied natural gas (LNG) import terminals, and has investments in a gas storage facility and the first gas transit pipeline (TANAP). The reform of the natural gas market has been ongoing with an Amendment of the Natural Gas Market Law pending adoption in Parliament since 2014. Progress in the gas market reform has also an impact on the electricity market, as natural gas is the first fuel in power generation (38.6% in 2015). A transparent and cost-based pricing mechanism for electricity and gas remains to be properly implemented.

As part of the 2009 Electricity Market and Security of Supply Strategy, and the Vision 2023, the government adopted energy targets for 2023, followed up in several strategies and action plans on energy efficiency (EE), renewable energy (RE) and climate change. Progress is being made towards the targets: Turkey is building the first two nuclear power plants in its history, but creating the legal framework, including the establishment of an independent regulatory authority, and bringing them online by 2023 is ambitious. In one decade, installed RE capacity has almost doubled, thanks to the support scheme which offers generators the choice between direct marketing on the day-ahead market and a feed-in tariff with local content support. The share of RE is fluctuating depending on hydro and coal/gas use and stood at 32.3% in 2015, above the envisaged RE target of 30% for 2023. When it comes to technology specific RE targets, several deployment targets are included in different regulations and strategy documents, creating uncertainty about the future ambitions.

No doubt, Turkey has a strong renewable energy potential, including hydro, wind and solar, but grid integration rules, notably for wind power and solar PV as distributed generation, and electricity network upgrades/connections are not adequate to satisfy the strong interest in renewable energy licences by the private sector. Energy intensity increased by 7.1% during 2005-15, while the IEA countries’ average intensity was falling by 16.3%. Turkey’s target to reduce energy intensity by 20% to 2023 (from 2011) is ambitious. In 2014, carbon dioxide (CO2) emissions from fuel combustion were up by 141.6% since 1990, with local air pollution in the large cities being a concern.

Geopolitical challenges remain significant in the region. Turkey is dependent on gas pipeline imports from the Russian Federation (55.1%), Iran (16.2%) and Azerbaijan (12.8%), but also on LNG imports from Algeria (8.1%) and Nigeria (2.9%). The gas system has a low capacity margin and has difficulties to cope with demand peaks or major transports, impacting the country’s electricity security, as almost 50% of all-natural gas is consumed in the power sector. Imports and transits of oil products from the Middle East increased. While Turkey is compliant with its oil stock obligations under the IEA, security of oil transit infrastructure has become a concern amid regional instability.