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Energy efficiency: Secret ingredient that can make Turkey’s energy transition a success

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At a recent pan-European energy efficiency conference in Paris, representatives of a large energy service company shared the well-kept secret of how they source energy-efficient heating technology to install in Europe: They get it from Turkey.

Even though Turkey may not come to mind as a global leader in energy efficiency, energy efficiency has been on the country’s agenda for a long time.

Turkey’s National Energy Efficiency Action Plan aims for a 14% reduction in total primary energy demand by 2023, compared to 2017 levels. The plan covers the energy sector’s entire value chain, from improving supply-side efficiency to reducing transmission and distribution grid losses and demand-side reductions.

But we know that setting targets is only the first step – meeting them is another. To make Turkey’s energy efficiency action plan a reality, we will need a whole range of new business models and market instruments that, in turn, can provide insight into their energy-saving impacts across the entire value chain of the energy sector, allowing for even more innovation.

This process will provide keen insight to Turkey for compiling an effective plan for what happens after 2023.

Such market innovation is an important step for tapping the country’s large potential for energy efficiency investments and can build on the long history of knowledge that Turkey has developed on energy efficiency technology. Turkey is currently exporting energy efficiency technologies with a value of around 20 billion euros per annum.

Where are the savings to be found?

So how large is the energy-saving opportunity in Turkey? A recent study by the SHURA Energy Transition Center shows there is an additional 10% cost-effective electricity saving potential across the economy, compared to a baseline that follows the Turkish government’s demand projections for 2030.

The absolute savings amount to nearly 49 terawatt-hours of annual electricity demand. This equals the current electricity consumption of 90% of the country’s households – that is, the usage of 18 million families.

The estimated savings are shared across two main end-use sectors: The manufacturing industry accounts for 45% and buildings represent 32%. The remaining 23% comes from other sources, such as reducing losses in the distribution system.

Avoiding such losses is particularly important for Turkey because of the scale of inefficiency in the grid: The country-wide average for distribution system losses is 10% of all electricity distributed, which is substantially more than most European countries.

Much of the total savings potential in Turkey’s power system is centred around a few key technologies that are well proven: electrified heating and cooling, and efficient lighting (including street lighting), household and office appliances, and industrial motor systems.

There are also emerging and innovative options, such as smart homes where electricity demand and supply is efficiently managed with new automation and control systems.

SHURA’s technology assessment identifies a portfolio of around 100 options that can be deployed in the coming decade and, what’s most important is that nearly all of these options can be delivered at a cost lower than the cost of the energy they displace.

In other words, for all 100 options, saving electricity is cheaper than supplying electricity.

Overall, SHURA’s report concludes that for each U.S. dollar spent on energy efficiency, there are net benefits of €1.00-€1.24, with all of the positive economic impact this brings.

Further efficiency through decentralised renewables

In a supporting study jointly undertaken with SHURA, RAP shows what is needed to utilise Turkey’s potential of around 10 gigawatts of rooftop solar PV systems, and then to use the benefits of that potential resource to reduce distribution grid losses.

Turkey currently uses a monthly remuneration system widely known as net metering, where consumers sell the excess electricity their rooftop solar systems produce to the grid to create revenues based on the grid tariff.

This is indeed a crucial step to create an initial market for distributed energy resources. Beyond net metering, there will be the need to implement new models to increase consumer participation in the market, thereby making rooftop solar PV systems more cost effective.

Moreover, increasing market predictability will help utility and distribution system operators to develop new business models, such as flexibility services, to better utilise the benefits from these systems.

The study suggests several strategies for creating a dynamic distributed energy market that is integrated along the power system’s entire value chain.

These strategies include smart electricity tariffs, new business models for distribution system operators and prosumers on the grid, market integration of distributed energy resources, and increased cooperation between the transmission and distribution system operators.

All of these approaches are already practiced elsewhere across the globe. Distributed energy resource markets have already been active for several years in California, Australia and several countries in the European Union.

Turkey’s policymakers need to start planning today for innovative regulation to create new opportunities for the deployment and integration of distributed energy resources.

As the example of the energy service company sourcing its technology from Turkey shows, there are significant export opportunities creating jobs in the clean technology sector.

With the increasing demand for energy efficiency technologies around the world, Turkey has a unique opportunity to become a leader in energy efficiency and the integration of small-scale renewables.

A version of this article originally appeared on Euractiv.

Değer Saygın is the director of the SHURA Energy Transition Center. Dr. Jan Rosenow is the European programme director and a principal at RAP.

Photo Hans Braxmeier via Pixabay.

Extended ETS outperforms carbon border adjustment in the power sector

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The European Commission’s proposal to introduce a carbon border adjustment mechanism would not work as well as extending the EU Emissions Trading Scheme to reduce global emissions and further integrate energy exporting countries into the European power market.

Carbon leakage occurs in any carbon pricing regime that is not global, which means all of them so far. That is inherently unfair to sectors that are subject to a carbon price but compete with those that are not. The European Green Deal aims to rectify the problem in the EU Emissions Trading Scheme (ETS) by moving beyond the current second (or third) best option, which allocates emissions quotas for free for industrial sectors, and putting a price on carbon at the EU border for selected but not yet named sectors. The merits with respect to energy-intensive industries have already been questioned. What would a border carbon adjustment mean for the European power sector?

Our recent model-based analysis concludes that expanding the EU ETS is a more effective policy option because it would reduce emissions, while a carbon border adjustment would not. We compared these two options for the power sectors in the West Balkan countries as well as Ukraine, Belarus, Moldova and Turkey, and assessed the emissions, cost and policy implications.

Impact on emissions through 2030

The two policy options have markedly different impacts on carbon dioxide emissions. Counterintuitively, our analysis shows that the border carbon adjustment increases overall carbon emissions. Emissions increase in the EU as additional coal-fired and gas-fired generation comes online to substitute for the fenced-off imported generation. This increase exceeds the emissions reductions in the exporting countries, where gas power plants reduce their production to make room for coal generation that is no longer imported to the EU. A larger EU ETS, however, would reduce emissions by 52,000 kt in 2030 compared with business as usual, an amount slightly less than the annual emissions of Polish coal plants. Expanding the ETS reshuffles the merit order (i.e., the order in which power plants are called on to meet demand) by driving up the cost of dirty coal and lignite plants in the West Balkans, Turkey and Ukraine and crowding those plants out. It is worth noting — especially in the context of the current upgrading of 2030 climate targets — that emissions within the EU will increase regardless of the policy tool used.

The different logic of the two tools shows up in the resulting electricity mix, more specifically in the impact on fossil-fuelled generation. The emissions reduction due to the ETS in the exporting countries is the result of a marked reduction — 60,000 gigawatt-hours — of coal and lignite generation in 2030 compared with business as usual. This is predominantly replaced by gas-based power generation both within the EU and in the exporting countries. By contrast, the border tax results in resource shuffling in the regions well interconnected with the EU (the West Balkans and Ukraine); the same coal and lignite plants instead sell power to domestic consumers and not for export. The overall production of these coal plants remains unaffected by the border tax, but their profitability suffers as they get locked into their domestic region. Moreover, they crowd out domestic gas production.

Impact on revenues

The impact on wholesale prices in the EU is negligible in either case. Expanding the ETS increases the price in the exporting countries by approximately 10 to 15 euros per megawatt-hour. A border adjustment has a negligible impact except in the West Balkan countries, that would enjoy a price cut of similar size. Their originally high level of energy export — facilitated by their better network integration with EU countries — is reduced significantly. Instead, their coal power plants continue to generate but sell their output at a lower price to domestic consumers.

Changes in wholesale prices always translate into changes in welfare. If prices go up, producers are better off but consumers pay higher bills. And it’s the other way around in the case of price reductions. The aggregate detrimental impact of a border tax for the exporting regions roughly equals the revenue they would get if the EU decides to channel it back to each of them — for example, to assist their energy transition. Annual revenue from the border carbon adjustment is in the range of 100 to 150 million euros — well short of the 1 billion per year planned to be spent from the Just Transition Fund (7.5 billion euros for 2021-2027) for the same purposes. More importantly, the ETS would generate 1.4 billion euros in 2030 for the six West Balkan countries, significantly more than the 70 to 140 million euros generated by the border carbon adjustment. Reinvesting this revenue into low-carbon assets such as renewables or energy efficiency can multiply the decarbonisation effect of the carbon price alone.

Impact on countries exporting power to the EU

Expanding the geographical scope of the EU ETS is a more effective climate policy tool than a border adjustment mechanism. Emissions trading brings real competition: EU neighbouring regions get more integrated into the EU single market with a level playing field and lower greenhouse gas emissions. On the other hand, the border carbon adjustment would fence off the EU power sector and increase greenhouse gas emissions. Significantly lower wholesale prices in the West Balkans reduce the incentives for energy efficiency investments, increase the need for support to renewable energy sources and discourage low-carbon generation investments. Compared to a border carbon tax, expanding the ETS also yields more revenue to exporting neighbouring countries facing higher-than-average challenges to change their fossil-heavy power systems. In addition, the border carbon adjustment requires a new mechanism and the blessing of the World Trade Organization and means settling for an inferior alternative to a larger ETS across countries that already have integrated power systems and markets. And we should not forget that many of these countries would like to be EU members — a bilateral process, unlike the imposition of a border tax.

Are you thinking about the slim political reality of West Balkan countries or Ukraine joining the EU ETS? Coal-heavy Virginia just announced it will join an emissions trading program in the United States, and Montenegro and North Macedonia are setting up their national ETS. In addition, the Energy Community is there to assist the European Commission in the process. It is time to leapfrog, at least regarding where you are aiming to land.

László Szabó is the director and András Mezősi a senior associate at the Regional Center for Energy Policy Analysis.

A version of this article originally appeared in Euractiv.

The Regulatory Assistance Project (RAP)® is an independent, non-partisan, non-governmental organization dedicated to accelerating the transition to a clean, reliable, and efficient energy future.