The European Bank for Reconstruction and Development (EBRD) launched a new Green Economy Financing Facility (GEFF) of 500 million euros ($539.64 million) to accelerate the green transition in Turkey's financial system and increase investments to meet climate commitments, Arthur Poghosyan, EBRD's deputy head in Turkey, told Anadolu Agency (AA) in an exclusive interview.
The EBRD's new GEFF combines EBRD finance with around 21.5 million euros of concessional financing from the Clean Technology Fund (CTF) and 7.1 million euros in grants for technical assistance from the CTF and the Turkey-EBRD Cooperation Fund, among others.
"It is the largest among our previous such energy efficiency-related facilities in Turkey. The size and the design of the new GEFF are a response to Turkey's ambitious new climate commitments after the ratification of the Paris Agreement. Meeting these commitments will require a sharp increase in green investment," he explained.
The EBRD has been relatively active in providing green investment in Turkey and according to Poghosyan, the Paris Agreement commitments Turkey made provided additional momentum to EBRD financing and financing from other multilateral organizations like the World Bank's International Finance Corporation.
Turkey ratified the Paris Agreement in October 2021 and announced its ambition to achieve net zero in greenhouse gas emissions by 2053.
Renewables play a significant role in meeting the targets and reducing the costs for imported energy that have climbed sharply due to global energy price hikes and inflation.
According to a note shared by the EBRD, Turkey is far from exhausting its domestic renewable resources, having used only an estimated 3% of its solar and 15% of its onshore wind potential.
Turkey's installed capacity reached over 8,000 megawatts by the end of March, accounting for 8% of its total installed capacity while wind power stood at 10,861 megawatts, comprising 10.8% of the total electricity capacity. The country's geothermal capacity is 1,676 megawatts.
Since 2010, the EBRD and its financing partners have made 2.5 billion euros available alongside close to 80 million euros in concessional funding from the CTF and 23 million euros in grant support from the European Union to 14 financial institutions in Turkey, including the country's largest private banks.
Renewable projects financed through the facilities represent over 10% of the country's currently installed solar PV, 8% of its biomass and waste-to-energy capacity, almost 7% of its wind power, and 5% of its geothermal energy capacity.
These renewables generate the equivalent of about 5.95 terawatt-hours of clean power per year, equivalent to around 1.8% of the national electricity production in 2021.
According to the note, the total energy produced and saved by projects financed through the facilities is equivalent to that provided by about 12% of the country's annual coal imports for thermal power plants in 2020. Purchasing this amount of coal at an average of 2021 prices would have cost the Turkish economy $265 million.
The projects have also reduced emissions equivalent to over 1.5% of Turkey’s 2020 emissions.
Demand-driven, room for expansion
Poghosyan explained that participating banks and leasing companies will use finance received through the facility in the form of loans or other capital market instruments to support individuals, businesses, and vendors and producers of green materials and products to invest in high-performing green technologies.
He said the program aims to strengthen the competitiveness of key Turkish corporates and financial institutions and accelerate changes in Turkey's financial system that will enable it to better support the country's ambitions for green growth.
"It will become a central feature of the EBRD's engagement with its financial sector clients going forward," he said.
As the facility is demand-driven, Poghosyan said there is no specific time frame set for the allocation of funds.
"The speed and volume of allocation of funds depend on the demand from banks and leasing companies and agreement on commercial terms. In turn, the banks' demand for EBRD funding will depend on the demand from their customers. Therefore, it cannot be really predicted ahead of time," he said.
TSKB is the first beneficiary from the GEFF. The bank will receive a loan of up to 53.5 million euros, the first green credit line under the newly established GEFF Turkey.
"There is preliminary interest in the facility from other financial institutions as well but it is too early at this stage to reveal any names or signing timelines," Poghosyan said, adding that as the facility is demand-driven, and that it can be expanded in the future if needed.
Financial institutions
The EBRD's annual financing to Turkey was close to 2 billion euros last year, with the financial sector generally comprising one-third of the annual volume.
Poghosyan underlined that a greener financial system is key to ensuring that Turkish businesses continue to enjoy access to international capital markets and supporting the significant investments required for the country to reach its commitment to net zero emissions by 2053.
"Turkish businesses can also benefit from a technical assistance program on corporate climate governance that has been incorporated into a GEFF for the first time," he highlighted.
Corporate climate governance refers to the rules, policies and processes organizations use to identify, assess, manage and disclose risks and opportunities resulting from climate change. Various frameworks have been developed over time and a push for global standards is now accelerating, in part, in response to the introduction of mandatory climate-related disclosures by regulators from Brazil to the United States, the European Union and China, and demands from investors.
According to the EBRD, although Turkey has advanced regulatory and institutional frameworks supporting good corporate governance in listed companies, there is work to do to apply best practices more widely in corporate climate governance, such as the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and prevent a disclosure gap opening up with other markets.
As of mid-September 2021, 82% of the 2,495 TCFD supporters came from developed markets and only 16% from emerging markets, with Turkey accounting for just over 11% of the emerging market share.
"This matters because it is already affecting companies' access to capital. Whether they choose to disclose climate-related information or not, companies' credit ratings are regularly upgraded and downgraded based on data from providers and credit ratings agencies' own assessments of their exposure to climate-related risks and opportunities," the EBRD said in the note.
By supporting Turkish institutions to disclose their responses to changing weather and policies, the new facility can help maintain their access to capital by reassuring the investment community about their management of climate-related risks and opportunities, Poghosyan noted.
"As the place where the financial system and the real economy meet, Turkey's banks and leasing companies are the sources of the finance that most people invest in their businesses and homes," he said. "By combining finance for high-performing green technologies with support to assess, manage and disclose climate-related risks and opportunities, this new GEFF will increase these financial institutions' ability to advise their customers and channel investment towards decarbonization and innovation across the economy."
Poghosyan also underlined that the bank will explore potential co-investment agreements with institutional investors who will stand by Turkey with a continued flow of green investments to help the country on its transition path towards a green and low carbon economy.