Indeed, benefitting from its mountainous landscape and position between three seas, Turkey has a significant hydropower capacity, estimated at some 433 TWh a year in total, of which some 140 TWh a year is thought economically viable. To put this in context, according to Turkish Electricity Transmission Corporation figures electricity demand is expected to reach around 420 TWh annually by 2020.

At an average elevation of 1,100 meters above sea level, with the Euphrates and Tigris River basins sitting at around 1,300 meters, there is ample head available for development in a number of regions, including the area around the Black Sea, the Mediterranean, and Eastern Anatolia.

Given that the geography provides considerable opportunity for hydropower development, it was only following measures to privatize the national electricity system, which began in 2003, that the exploitation of this huge resource began to accelerate. Today, though some 60 percent of the country’s hydropower potential remains undeveloped, Turkey has more than 500 hydropower plants operating with a combined capacity of more than 15 GW. Further the country has more than 15 GW of hydropower capacity currently under construction.

Turkish Energy Policy Landscape

Despite the considerable development of Turkey’s abundant hydropower and other renewable resources, the country’s energy mix is still dominated by fossil fuels. Currently, gas supplies around a third of the country’s total primary energy demand, while coal and oil products provide 27 percent and 29 percent, respectively. Much of the country’s oil and gas comes by way of imports from Iran and Russia. Hydropower, wind, and other renewables produce around 17 percent of Turkey’s electricity supply.

However, in a bid to bring down the share of natural gas to less than 30 percent of total energy supply, the government has introduced policies aimed at diversifying the energy supply by supporting domestic sources in particular. As part of this policy, renewables, including hydropower, have been the beneficiaries of feed-in tariffs to encourage their development. In the case of hydropower projects beginning operations before the end of 2015, the feed-in tariff is US $0.073/kWh (€0.056/kWh) with an additional “local-content” bonus of US $0.01-0.023/kWh (€0.007-0.018/kWh) which is payable for 10 years. The local content bonus is available for five years.

Other reforms centered on the liberalized electricity market, accelerated private investment in Turkey’s energy sector and by 2012, independent power producers were supplying some 26 TWh of energy annually. In addition, the government established a target to deliver 30 percent of its primary energy demand from renewables by 2023.

In other examples of supportive policy measures, the Energy Market Regulatory Agency (EMRA) has instituted a license fee exemption for renewable energy investors and the Turkish Electricity Trading Company, TETAS, can provide buying guarantees to renewable energy, further supporting inward investment.

Didier Mallieu, Vice President of Hydropower and Renewable Energy at engineering consultancy firm Poyry, explained that Turkish companies spearheaded the post-liberalization development drive. He said that there is significant engineering capability in Turkey and that those engineering firms teamed up with mainly Western European companies to jointly develop and finance hydropower projects. “Many players in the European market, many European utilities, were interested in acquiring projects or assets in Turkey two, three, four years ago,” he said.

However, he added that given the scale of this development — he estimated that around 70 GW of new power generating capacity was under construction in Turkey — “we see a little bit of slowdown for the moment in new projects and some are being put on hold.” 

This is partly a result of a more challenging finance market, he explained, adding that the classic buyers or developers of those assets, the European utilities, are experiencing difficulties themselves. Mallieu also noted that the easiest projects have been developed already. “What remains is a bit more difficult to develop and probably requires a higher market price to be economical, this could be why we see a slowdown of the Turkish market for new hydropower plant.”

Mallieu said that the slowdown is “typical of the transition to deregulated electricity market, where investors’ most important risk is the building of overcapacity. Therefore, investors might have the tendency to postpone investments until they are certain that the capacity additions are in line with demand growth.”

Further, he said that, “such a phenomenon is partly mitigated in Turkey by the cancellation of power plant licenses which are now not going forward. The high volatility between various electricity generation scenarios might represent risks, but for sure also potential opportunities, maybe huge opportunities.”

Mallieu highlighted other factors that are influencing new Turkish hydropower development. For example, along with setting ambitious renewable energy targets the government is also looking to develop other low-carbon resources, such as nuclear, with plans for nuclear power to supply some 5 percent of the country’s electricity supply, some 5 GW.

Within the renewables sector, hydropower is also competing for investment with technologies such as wind and solar, which inevitably require far less up-front capital investment and typically have a far shorter development and ROI period too.