Vast Climate-Smart Investment Potential, in Turkey and Beyond

DIMITRIS TSITSIRAGOS

As global temperatures rise, weather patterns shift and a natural disaster dominates headlines seemingly every other week, climate change has become a priority for policymakers across the globe. But businesses and investors would be wise to put it front and center as well, because related economic, regulatory and technological changes offer serious investment opportunities for the private sector.

A recent report by the World Bank estimated investment in renewable energy may need to triple by 2030, from an annual $400 billion to $1.2 trillion, in order to achieve universal energy access. Private sector involvement is not merely welcome, but critical to this effort – the U.N. estimates four out of every five dollars of climate change investment will need to come from private sources.

The good news is there is great and growing potential for profitable private sector investment. But where are these investments, and will they deliver healthy returns? IFC, a member of the World Bank Group focused on private sector development, set out to answer these questions. We commissioned a proprietary analysis of climate-smart investment opportunities in emerging Europe and Central Asia and the Middle East and North Africa (EMENA), the most energy inefficient area of the world.

EMENA’s CO2 emissions and energy use are similar to those of North America, but the region has a 35 percent lower GDP. Indeed, for every dollar of GDP, the region consumes more energy and emits more CO2 than any other area of the world. It holds more than half the world’s oil and three-quarters of its gas and is home to the four biggest oil and gas producers (Saudi Arabia, Russia, Iran, and Qatar). Low domestic energy prices lead to inefficient energy use.

These shortcomings represent an opportunity. A recent IFC report developed in collaboration with AT Kearney conservatively estimates a potential $640 billion worth of investment opportunities in EMENA. If regional governments institute many of the regulatory and legislative reforms currently under discussion, this total could top $1 trillion.

Across a region as varied as EMENA, which includes countries in Southeastern, Eastern, and Central Europe, geography matters. But opportunities exist across the region and in many sectors. Ranging from large infrastructure projects in hydro and wind power, to smaller opportunities such as LED lighting, all have the potential to attract investment and deliver attractive returns.

The greatest potential may be in Turkey. Over the last decade of political stability and economic growth, Turkey’s electricity generation has increased 80 percent and its renewable energy generation 90 percent.

But that’s just the beginning. Our study estimates Turkey has a climate-smart business investment potential of more than $89 billion. Energy generation accounts for almost $42 billion, with $22 billion in renewables. Industrial and consumer energy efficiency are estimated at over $4.5 billion and $30 billion, respectively.

Relatively high power prices provide a solid foundation for energy efficiency investments. In addition, the government has committed to reduce primary intensity 20 percent by 2023. And the financial incentives made available under Turkey’s energy efficiency law and its Energy Market Regulatory Authority (EMRA), to sanction rises in retail prices for electricity and gas by almost 10 percent in October 2012, are further positive signs.

Turkey is facing economic pressure mainly due to its large current account deficit, which is largely a result of vast oil and gas imports. This presents a key driver for officials to push for domestic energy production and energy efficiency. If ambitious government targets are met, Turkey’s energy supply will be 30 percent renewable by 2023, despite significant planned investments in coal power. This implies huge investments in clean energy, and a crucial role for the private sector.

Perhaps owing to its famed entrepreneurialism and vibrancy, Turkey is starting to embrace climate-smart growth. Our estimates have identified significant investment potential in traditional energy generation, in renewables and in industrial and consumer energy efficiency. Beyond its borders, dozens of opportunities across the region offer both environmental benefits and meaningful returns. Given the vast potential and favorable political winds, now is a good time for businesses and investors to seek out the region’s many climate-smart investments.

*Dimitris Tsitsiragos is the International Finance Corporation’s Vice President, Europe, Central Asia, Middle East and North Africa.