Energy Efficiency Financing – Turkey

This project taps the industrial and commercial energy efficiency market in Turkey. Through partnering with key Turkish financial institutions, this activity cracked the code of energy efficiency financing by offering leasing opportunities in energy-intensive sectors to sustainably help energy efficiency investment grow. Financing leveraged by the program has helped some of Turkey’s large energy users reduce their energy consumption, lowering emissions of greenhouse gases and other harmful pollutants while increasing the companies’ competitiveness. The activity has contributed to reducing energy dependence and helped green Turkey’s energy mix.

Fast facts:

More than $115 million provided to leading Turkish companies for energy efficiency leases;
Under the program, Turkish company YKL increased its energy efficiency finance portfolio from less than $20 million to more than $200 million in two years;
Turkish firm Toskar integrated energy efficiency upgrades that increased output by 50% and cut energy costs by 20%;
The whole program is on track to mitigate more than 200,000 tonnes of carbon dioxide equivalent per year.

The problem

Energy efficiency measures are highly cost-effective greenhouse gas mitigation strategies. This is especially true for developing countries, where economic growth can be robust and where improvements in productivity could cut energy demand in half.

For example, Turkey’s fast-growing economy is largely powered by imported fossil fuels, and its energy use is projected to continue increasing. Facilitating broad-scope, country-wide energy efficiency measures could reduce Turkey’s greenhouse gas emissions reductions and energy-related costs for businesses, thus sustainably boosting the country’s economic growth. However, barriers to large-scale energy efficiency investment – including high upfront costs, long payback periods, and limited availability of capital – hinder such development in Turkey.

The solution

International Finance Corporation (IFC), the private-sector lending arm of the World Bank Group, took up this challenge in Turkey by implementing a series of strategic, targeted investments. In the absence of bank lending, IFC identified leasing of energy-efficient equipment as bringing advantages to small- and medium-sized enterprises, as leasing involves lower down payments, fewer collateral requirements, and off-balance sheet financing features. In developing a Commercializing Sustainable Energy Finance program for Turkey, IFC partnered with three leading Turkish financial institutions with leasing expertise to clients in their communities.

Uniquely focusing on the energy-intensive industrial and commercial segments of the Turkish economy – including textiles, printing, machinery manufacturing, and metal production – local leasing companies were supported in identifying and financing profitable, cost-saving sustainable energy investments. These energy efficiency leases have included a production line upgrade for an automotive company, yarn machines for a textile company, and a laser cutting machine for an iron pipe manufacturer.

Helping the planet

Every kilowatt-hour of energy saved by an energy-efficiency project translates into one less kilowatt-hour of energy that will be required from Turkey’s fossil-fuel dependent power plants. This improves both the local as well as the global environment through reduced emissions of greenhouse gases and other pollutants.

Helping people

This project has helped strengthen key financial institutions in Turkey while benefitting local businesses, in particular small- and medium-sized enterprises run by Turkish people. As local businesses are able to improve their efficiency and lower operating costs, their competitiveness increases. Furthermore, investment in energy efficiency will help improve Turkey’s energy security.

Scaling up

The energy efficiency leasing business model creates self-sustaining momentum among financial institutions and attracts commercial financiers and industry leaders to a country’s equipment sector – representing a model that can grow and be copied. The success of the leasing model in Turkey has provided a comprehensive template to catalyze energy efficiency lending for commercial and industrial customers in other developing countries’ markets – indeed, IFC has already taken these lessons to countries including Pakistan and Lebanon. Within Turkey, other Turkish leasing companies are also shifting their business strategies to follow demonstrated successes by growing their energy efficiency portfolios.