Christine Eberlein and Martina Heeb

September 2011

This study by the Swiss NGO Berne Declaration assesses the World Bank Clean Technology Fund (CTF) in Turkey –

a US$100 million loan program added to a US$500 million IBRD loan to promote energy efficiency and renewable

energy projects in Turkey. The Berne Declaration’s research shows that the CTF Turkey achieved its objectives in the

energy efficiency sector and concerning small hydropower projects. However, hydropower is already marketable

and we have found no evidence that the comparatively large portion of CTF money invested in these projects has

leveraged investment in other renewable energies. In addition, there are serious concerns about the environmental

and social risks of hydropower projects. The CTF Turkey supported 26 energy efficiency and 30 hydropower

projects but only five wind power projects and one geothermal power project, while solar and biomass energy

projects were disregarded. This paper argues that persisting regulatory hurdles and the existence of long-term

binding oil and gas contracts were insufficiently factored into the CTF strategy.

As modest climate finance programs like the CTF can only be successful if they are scaled up by other international

and local finance, the CTF Turkey clearly failed to fulfil its potential. Our research shows that without the clear

political will to remove existing regulatory hurdles, such investment does not suffice to develop the market in

renewable energies. The collaboration with two local banks acting as financial intermediaries was successful in

terms of speedy disbursement of the CTF loans but failed to meet World Bank standards for transparency and

stakeholder participation. The CTF Turkey is a compelling case for more proactive disclosure of information about

projects in the CTF pipeline, especially if implemented through financial intermediaries. Based on an analysis of

objectives and results, this paper provides recommendations for the strategy, planning and implementation of

climate funding.

Who we are and what we do

The Berne Declaration, Switzerland, is a non-governmen-

tal organization founded in 1968 which now has 21,000

members. Through research, public education and

advocacy work, the Berne Declaration promotes more

equitable, sustainable and democratic North–South

relations. It monitors the role of Swiss corporations,

banks, government agencies and the World Bank and

addresses the problems of unequal international trade

and financial relations, climate finance issues and

unsustainable consumption patterns.

Berne Declaration

Dienerstrasse 12, 8026 Zürich, Switzerland

Phone +41 44 2 777 000, Fax +41 44 2 777 001

www.evb.ch, info@evb.ch

Imprint

Authors:

Christine Eberlein manages the Berne Declaration’s

international financial relations program

Martina Heeb works as an independent researcher and

consultant

Editor: Berne Declaration

Photos title page: freedigitalphotos.net

Citation

Berne Declaration (2011). Climate Finance in Turkey: The

contribution of the World Bank Clean Technology Fund to

transforming the Turkish energy sector. Zurich: Berne

Declaration.

© EvB, 2011 1

Acronyms ...................................................................................................................................... 2

Executive Summary ...................................................................................................................... 3

1 Introduction .............................................................................................................................. 5

1.1 CTF Turkey objectives .......................................................................................................................... 7

1.2 Research objectives, challenges and scope, and report structure ...................................................... 7 1.2.1 Research objectives .................................................................................................................... 7 1.2.2 Research challenges and scope .................................................................................................. 8 1.2.3 Report structure .......................................................................................................................... 9

2 Background and strategy of the Turkish CTF ........................................................................ 10

2.1 Background ......................................................................................................................................... 10 2.1.1 Turkey’s official engagement in fighting climate change ....................................................... 10 2.1.2 Potential of and barriers to the development of renewable energy and energy

efficiency ................................................................................................................................... 11

2.2 Strategy ................................................................................................................................................ 15 2.2.1 Rationale for attracting multilateral climate finance .............................................................. 15 2.2.2 World Bank CTF Turkey strategic decisions ........................................................................... 15

3 Project assessment ................................................................................................................ 17

3.1 Achievements of the CTF Turkey ...................................................................................................... 17 3.1.1 Projects funded through CTF and IBRD .................................................................................. 17 3.1.2 Greenhouse gas reduction through CTF .................................................................................. 19

3.2 Qualitative assessment ....................................................................................................................... 19 3.2.1 Thematic issue: Speed versus scale, quality and depth of impact ........................................ 19 3.2.2 The role and implications of financial intermediaries ........................................................... 21 3.2.3 Overcoming first mover hurdles .............................................................................................. 23 3.2.4 Leverage and mobilizing resources ......................................................................................... 23

4 Big flops and small achievements: The CTF’s contribution to transformational

change in the Turkish energy sector ...................................................................................... 25

4.1 Major funding achievement: Acceleration of energy efficiency projects ........................................ 25

4.2 Major funding flop: Insufficient support for renewable energies .................................................... 25

4.3 Major criticism: Support of problematic hydropower ...................................................................... 25

4.4 Major challenge: Speedy disbursement or deep impact? ................................................................. 26

4.5 Major strategic question: Cooperation with financial intermediaries ............................................. 26

4.6 Major missed potential: No leveraging of additional financial resources ....................................... 26

4.7 Moving toward transformational change........................................................................................... 26

5 Lessons learned and recommendations ............................................................................... 28

5.1 Climate funding strategy and objectives............................................................................................ 28

5.2 Climate funding planning and preparation of local set-up .............................................................. 28

5.3 Climate funding implementation ....................................................................................................... 29

2 Climate Finance in Turkey

CIFs Climate Investment Funds of the World Bank

CTF Clean Technology Fund of the World Bank

DSI Devlet Su Isleri (Government Water Works of Turkey)

EBRD European Bank for Reconstruction and Development

EIA Environmental Impact Assessment

EIB European Investment Bank

EMRA Energy Market Regulatory Authority (Turkey)

GCF Green Climate Fund

HEPP hydroelectric power plant

IBRD International Bank for Reconstruction and Development (part of the World Bank Group)

IFC International Finance Corporation (part of the World Bank Group)

KfW Kreditanstalt für Wiederaufbau (Germany)

MENR Ministry of Energy and Natural Resources (Turkey)

NGO Non-Governmental Organization

PSREEEP Private Sector Renewable Energy and Energy Efficiency Project (part of the World Bank

CIF/CTF scheme)

SCF Strategic Climate Fund of the World Bank

TKB Development Bank of Turkey

TSKB Turkish Industrial and Development Bank

UNFCCC United Nations Framework Convention on Climate Change

© EvB, 2011 3

This study by the Berne Declaration assesses the

World Bank Clean Technology Fund (CTF) in

Turkey – a US$100 million loan program added

to a US$500 million IBRD loan to promote ener-

gy efficiency and renewable energy projects in

Turkey. The Berne Declaration’s research inves-

tigated whether the World Bank’s low-interest

CTF loans were successful in increasing private-

ly operated renewable energy and energy effi-

ciency production, reducing greenhouse gas

emissions and ultimately contributing to the

transformation of the Turkish energy sector. The

World Bank Group has positioned itself as a

main player in financing the fight against cli-

mate change and provides concessional finance,

including the CTF, to help developing and

emerging countries pilot low emissions and

climate-resilient development. The Berne Decla-

ration and other NGOs are monitoring the set-up

of these funds and have voiced concern about

the World Bank pushing sustainable develop-

ment while at the same time being a top finan-

cier of fossil fuel energy projects.

In 2009 Turkey demonstrated its readiness to

fight climate change by finally signing up to the

United Nations Framework Convention on Cli-

mate Change (UNFCCC), yet without stringent

reduction targets. In order to diversify its heavi-

ly fossil fuel-based energy policy and to pro-

mote low-carbon development, Turkey was one

of the first countries to receive CTF funds in

2009 and had allocated them by mid-2011. Due

to non-disclosure policies of the financial in-

termediaries implementing the CTF loan and

limited access to project information, this re-

search is limited to analyzing the allocation of

the CTF loan and evaluating its performance in

terms of effect on the energy market and contri-

bution to greenhouse gas reduction but cannot

provide insight into the individual projects.

The Berne Declaration’s research shows that the

CTF Turkey achieved its objectives in the energy

efficiency sector and managed to overcome first

mover hurdles. According to official criteria, it

also did well concerning hydropower projects.

However, hydropower is already marketable and

we have not found evidence that the compara-

tively large portion of CTF money invested in

hydropower has had a positive spillover effect

and leveraged investment into other renewable

energies. In addition, there are serious concerns

about the environmental and social risks of hy-

dropower projects. In stark contrast to its per-

formance in energy efficiency investments, the

CTF Turkey produced far less satisfactory re-

sults in terms of accelerating development of

the renewable energy market.

Despite the highly concessional CTF incentive,

only five wind energy projects and one geo-

thermal power project were supported, com-

pared with 26 energy efficiency and 30 hydro-

power projects. Solar and biomass energy pro-

jects were completely disregarded. The strategic

decision to commit CTF funds rapidly forced

the financial intermediaries to move to sectors

which are easy to finance because they already

have favourable regulations and are profitable.

The Berne Declaration’s analysis shows that if

concessional climate finance is to be additional

and remove first mover hurdles, rapid invest-

ment cannot be an objective in itself. Regarding

the small proportion of renewable energies sup-

ported, our research shows that persistent regu-

latory hurdles were not factored into the CTF

strategy. Firstly, the amendments to the Renew-

able Energy Law in December 2010 are too

moderate to accelerate the take-off of renewable

energy production and, secondly, the Turkish

energy strategy relies heavily on fossil fuels and

there are long-term binding oil and gas con-

tracts. This paper suggests that the shortcomings

of the CTF Turkey concerning renewable energy

are mainly due to considerable political, legal

and market-related hurdles.

A major insight of this research is that the col-

laboration with two local banks acting as finan-

cial intermediaries to disburse the CTF loans

was successful in terms of the speedy disburse-

ment of the CTF loans but failed to meet ex-

pected standards in terms of transparency and

stakeholder participation. The World Bank thus

undermines its own ambitious safeguards and

transparency policies and risks losing public

confidence in the CTF program. Based on analy-

sis of the CTF investment in Turkey, this paper

suggests that collaboration with financial inter-

4 Climate Finance in Turkey

mediaries must always be subject to World Bank

safeguards and transparency regulations. The

CTF Turkey is a compelling case for more proac-

tive disclosure of information about projects in

the CTF pipeline, especially if implemented

through financial intermediaries.

The CTF Turkey also failed in its key promise to

leverage additional local finance and thus did

not manage to contribute to a fundamental

change in the development of renewable ener-

gies. As modest climate finance programs like

the CTF can only be successful if they are scaled

up by other international and local finance, the

CTF Turkey clearly failed to fulfil its potential.

Any climate financing aiming at transforma-

tional change must first ensure that sufficient

additional means are available to leverage CTF

loans. In order to fully exploit the added value

of concessional climate finance and to ensure

that supported projects contribute to building

up public confidence in the potential of invest-

ments into energy efficiency and alternative re-

newable energies, CTF programs need to work

towards shifting attitudes and building the ca-

pacity of government representatives to get cli-

mate-resilient development right.

© EvB, 2011 5

While the world grapples with the scope of the

financial and climate crises, finance mecha-

nisms are becoming more important. Stabilizing

the climate requires significant emissions reduc-

tions in both the developed and developing

worlds, for which large-scale investments in

energy infrastructure are needed – ones that will

not contribute to greenhouse gas emissions. Fi-

nance to meet the net incremental costs need to

come from a range of sources, including nation-

al governments, private sources and multilateral

development banks. The World Bank has in-

creasingly positioned itself as an important

player in providing climate finance for develop-

ing and middle-income countries.1 The main

pillars of this strategy are the World Bank Cli-

mate Investment Funds (CIFs), which received

donor pledges of US$6.4 billion. The CIFs com-

prise the Clean Technology Fund (CTF) and the

Strategic Climate Fund (SCF), which aim to

help developing countries pilot low emissions

and climate-resilient development (see Box 1).

This paper focuses on the Clean Technology

Fund which is designed to finance the particu-

lar transformational needs of middle-income

and fast-growing developing countries. These

countries undergo rapid economic growth

alongside increasing greenhouse gas emissions,

but may also want to follow a lower-carbon path

in order to help combat climate change.

1 The term ‘climate finance’ is now widely used to de-

scribe the financial resources that will be needed to

help developing countries deal adequately with climate

change, in both its mitigation and adaptation dimen-

sions.

Turkey is one of the countries that has experi-

enced rapid economic growth since the 1980s,

alongside a sharp increase in greenhouse gas

emissions. Although Turkey is rich in renewable

energy sources, it embarked on a fossil fuel en-

ergy strategy and is tied into gas, coal and oil

import contracts. In 2009 the Turkish govern-

ment announced that it is ready to play a lead-

ing role in fighting climate change and develop

its highly renewable energy potential. The only

renewable energy source Turkey has been ex-

ploiting heavily over the last 20 years is large-

scale hydropower by building dams, some of

which have attracted international media atten-

tion for causing unresolved negative ecological

and social consequences. In January 2009 the

Turkish government received concessional start-

up loans from the CTF. US$100 million is ad-

ministered by the World Bank to promote re-

newable energy and energy efficiency projects.

The World Bank CTF loan2 is topped up by a

US$500 million World Bank (IBRD) loan; to-

gether they form the Private Sector Renewable

Energy and Energy Efficiency Project

(PSREEEP), implemented by local financial in-

termediaries.3

2 The term CTF Turkey is used in this paper for the entire

Private Sector Renewable Energy and Energy Efficiency

Project.

3 An additional CTF loan of US$150 million is adminis-

tered jointly by the International Finance Corporation

(IFC) and the European Bank for Reconstruction and

Development (EBRD), promoting privatized electricity

distribution companies and electricity transmission pro-

jects.

6 Climate Finance in Turkey

Box 1: The World Bank Climate Investment Funds

Set up in 2008 with the support of the G8, the Climate Investment Funds (CIFs) are piloting transfor-

mations in clean technology, sustainable forest management, increased energy provision through renew-

able energy, and climate-resilient development.4 As of May 2011, developed country donors have

pledged US$6.4 billion to the funds, of which US$322 million has been disbursed. (Switzerland pledged

US$20 million.) The CIFs comprise the Clean Technology Fund (CTF) and the Strategic Climate Fund

(SCF).5 The CIFs promote an innovative approach to foster cooperation among multilateral development

banks to support country-driven strategies and country-coordinated programming, including partner-

ships with the private sector and civil society.

The World Bank praises the CIFs as ‘a new model for transparency, cooperation, and scaling-up climate

action’.6 NGOs, however, voice various concerns about the World Bank playing a leading role in climate

finance. For one, they argue that the World Bank is not a trustworthy player in climate finance because it

is also a top financier of fossil fuel energy projects which conflicts with its efforts to fight climate

change. NGOs also point out that in the past the World Bank has imposed controversial reforms on

countries in return for access to finance.

After civil society analysis and intervention, the CIFs developed a unique governance structure, consist-

ing of Trust Fund Committees, where decision-making is consensus-based. Developed and developing

countries are equally represented on the governing bodies. Civil society, private sector, and indigenous

stakeholders are allowed to participate as observers at CIF and CTF Trust Fund Committee meetings, but

have no voice in decision-making.

The Clean Technology Fund7

The Clean Technology Funds (CTF) received pledges of US$4.9 billion, which is the majority of the

US$6.4 billion pledged in total to the CIFs. The CTF aims to finance transformational change in 15 to 20

middle-income and fast-growing developing countries8 by promoting scaled-up financing for the

demonstration, deployment and transfer of low-carbon technologies with significant potential for long-

term greenhouse gas emissions savings. The World Bank is the Trustee of the CTF Trust Fund. The gov-

ernance structure includes a CTF Trust Fund Committee, a Multilateral Development Bank Committee,

a Partnership Forum, and an Administrative Unit. Again, NGOs are observers to the forums, but without

voice.

The Green Climate Fund

At the UNFCCC meeting in Cancún in December 2010, the World Bank was granted interim trusteeship

of the newly established Green Climate Fund (GCF).9 NGOs demand that the GCF incorporates lessons

learned from the CIFs and in particular, the CTFs.10

4 See http://www.climateinvestmentfunds.org/cif/ (accessed 11 August 2011).

5 The second fund is the Strategic Climate Fund (SCF) which consists of three programs to pilot new approaches to climate

action: the Pilot Program for Climate Resilience (PPCR), the Forest Investment Program (FIP) and the Program for Scaling Up

Renewable Energy in Low Income Countries (SREP).

6 See http://www.climateinvestmentfunds.org/cif/node/3436 (accessed 11 August 2011).

7 See http://www.climatefundsupdate.org/listing/clean-technology-fund (accessed 11 August 2011).

8 Eligible countries are: Colombia, Egypt, Indonesia, Kazakhstan, Mexico, Morocco, the Philippines, South Africa, Thailand,

Turkey, Ukraine, Vietnam, the Middle East region and North Africa.

9 United Nations Framework Convention on Climate Change (2010) ‘Report of the Conference of the Parties on its Sixteenth

Session – Addendum – Part Two: Action Taken by the Conference of the Parties at the Sixteenth Session’, Bonn: UNFCCC, p1.

10 Fry, T. (2011) A faulty model? What the Green Climate Fund can learn from the Climate Investment Funds, Bretton Woods

Project, http://www.brettonwoodsproject.org/art-568686, p6 (accessed 9 September 2011).

© EvB, 2011 7

1.1 CTF Turkey objectives

The Turkish government claims that the US$100

million CTF concessional finance administered

by the World Bank is exactly the amount of in-

centive needed to overcome first mover hurdles

and jump-start private markets for renewable

energy.11 The government hopes that embedding

the CTF in multilateral donor programs will ac-

celerate the implementation of a transformative

program to overcome risks and reduce transac-

tion costs in the entire Turkish banking and

lease finance sectors.12 The CTF determines a

project’s eligibility and the level of financing on

the basis of whether it will have a ‘transforma-

tive’ effect by supporting programs that would

not have been viable without concessional fi-

nance. One component of this approach assess-

es the potential impact of CTF financing on the

risks and costs of deploying clean technologies.

CTF programs are intended to ‘stimulate lasting

changes in the structure or function of a sub-

sector, sector or market’ and ‘demonstrate how

CTF co-financing could be used, possibly in

combination with revenues from emissions re-

ductions, to make low greenhouse gas emissions

investments financially attractive by improving

the internal rates of return on such invest-

ments’.13

In May 2009, the Turkish government and the

World Bank signed an appraisal document for

the Private Sector Renewable Energy and Energy

Efficiency Project which lists the following ob-

jectives:

Rapidly develop underutilized resources

such as solar, geothermal, biomass and wind

along with small-scale hydropower.

Support the use of emerging renewable tech-

nologies such as solar, biomass, etc.

11 Clean Technology Fund Investment Plan for Turkey,

http://www.climateinvestmentfunds.org/files/CTF_Turke

y_Investment_Plan_01_16_09_web.pdf (accessed 19

September 2011).

12 See

http://www.climateinvestmentfunds.org/cif/node/3436

(accessed 11 August 2011).

13 http://www.climatefundsupdate.org/listing/clean-

technology-fund (accessed 9 September 2011).

Develop energy efficiency investments in the

iron, steel, cement, ceramics, chemicals and

textiles sectors.

Save about 1 million tons per annum of

greenhouse gas emissions.

Have a high leverage effect.

Boost other investments in clean technology

and renewable energy development.14

The project appraisal documents further high-

light that without CTF support:

The government’s targets for greenhouse gas

emission reductions may not be achieved at

the desired speed. Renewable energy devel-

opment may remain restricted to a few exist-

ing large hydropower developers and per-

haps some wind energy sites.

It seems unlikely that smaller hydropower

and wind projects would materialize on the

expected scale, or that investors would ex-

periment with relatively newer energy tech-

nologies such as solar or biomass.

It seems unlikely that financial institutions

would consider energy efficiency invest-

ments, or that industry would be attracted

towards such investments.15

1.2 Research objectives, challenges and

scope, and report structure

1.2.1 Research objectives

The Berne Declaration, promoting equitable,

sustainable and democratic North–South rela-

tions, monitors the role of Swiss corporations,

banks and government agencies in this regard. It

also addresses incoherencies of the World Bank,

such as its double role in promoting both fi-

nance to fight climate change and finance for

extractive industries. For over 10 years, the

Berne Declaration has supported local groups in

Turkey fighting against large dams by promoting

renewable energy alternatives. When the Berne

Declaration learned in 2009 that Turkey was

14 World Bank Private Sector Renewable Energy and En-

ergy Efficiency Project (PSREEEP), Project Appraisal

Document, http://go.worldbank.org/M4TVT0XB70, pp8,

10–40 (accessed 15 September 2011).

15 op.cit., p9.

8 Climate Finance in Turkey

among the first countries to receive CTF fi-

nance, it started monitoring the implementation

of the funds together with local civil society or-

ganizations. The Berne Declaration demands

that the World Bank CIFs promote national

ownership and accountability, participation of

local stakeholders and transparency, and do not

result in bad outcomes.

Thus, the Berne Declaration started this re-

search project in December 2010 and in May

2011, when the World Bank CTF in Turkey was

almost fully committed, undertook a research

trip to meet with representatives of the World

Bank, the financial intermediaries, renewable

energy experts and NGOs. This paper reports

the results of this research and aims to draw

lessons learned from a civil society perspective.

Lessons from the World Bank CTF in Turkey

may also provide valuable input to other CTFs,

still in the process of being set up, as well as to

the current design process of the Green Climate

Fund.

The World Bank plans to evaluate all of its CTF

programs, but indicators are still being devel-

oped and no evaluation of the Turkey CTF has

so far taken place. This study cannot replace a

proper official evaluation of all aspects of the

Turkish CTF because we do not have full access

to the data. Therefore this study aims to reflect

selected thematic issues which are relevant to

all CTFs and discuss challenges from a civil so-

ciety perspective. We based the selected issues

on themes discussed in an excellent paper by

Professor James Radner, ‘Looking Ahead for

Lessons in the Climate Investment Funds – A

Report on Emerging Themes for Learning’.16

Radner pointed out challenges for the CTFs at a

global level by drawing on early lessons from

the CTFs in Turkey and Bangladesh.

1.2.2 Research challenges and scope

Desk research of the CTF Turkey proved more

challenging than World Bank transparency

16 Radner, J. (2010) ‘Looking Ahead for Lessons in the

Climate Investment Funds – A Report on Emerging

Themes for Learning’, consultative discussion paper, To-

ronto: School of Public Policy and Governance, Univer-

sity of Toronto.

standards promise. It was difficult to obtain

specific information on the projects implement-

ed by the private sector and their outcomes. The

World Bank’s website only provides information

about a fraction of the projects funded through

CTF Turkey. The situation was further compli-

cated by the fact that the CTF Turkey funds

were implemented by two Turkish financial in-

termediaries – the private Turkish development

bank TSKB in Istanbul and the public develop-

ment bank TKB in Ankara. Both banks informed

us that their policies did not allow them to pro-

vide information on the CTF-funded projects. In

a meeting in Washington, the World Bank’s team

leader for CTF Turkey officially confirmed that

despite the World Bank transparency policy,

information on private sector projects imple-

mented by financial intermediaries cannot be

published due to national privacy policies.

During a research trip in May 2011, we were

able to speak to project leaders at the World

Bank and at TKB in Ankara and TSKB in Istan-

bul. All parties were welcoming and helpful but

confirmed the privacy policy due to the reserva-

tions of private investors. In the follow-up, the

financial intermediaries provided us with charts

of CTF-funded projects giving information on

project types (e.g. energy efficiency, hydropow-

er) and locations but not disclosing project

names, implementing firms or sub-contractors.

Therefore, a detailed assessment of CTF perfor-

mance was not possible. Berne Declaration re-

searchers have traced many projects through

licensing information and media research. This

time-consuming process is ongoing and will

continue to shed light on the financed projects

and their selection criteria. For similar future

projects, it would be helpful if a creative ap-

proach could be elaborated that will yield solu-

tions to satisfy all parties.

We complemented our research in Ankara and

Istanbul by interviewing several energy experts

and representatives of civil society organiza-

tions, which helped us to obtain a good over-

view of the CTF Turkey context and its inherent

challenges. This allows us to point out delicate

issues and to draw lessons on the structure and

implementation of the funding phase.

© EvB, 2011 9

1.2.3 Report structure

In Section 2 we provide background infor-

mation on Turkey’s energy policies and analyze

the potential of and barriers to the development

of renewable energies. We also assess strategic

decisions by the Turkish government and the

World Bank regarding the design and financial

structure of the CTF. It is important to under-

stand these decisions in order to assess CTF per-

formance in Turkey.

In Section 3 we first assess what the World Bank

CTF achieved. The results are then discussed

within thematic streams, related to the CTF’s

ambitious goals as well as issues raised by civil

society organization. These involve:

(1) Speed versus scale, quality and depth of

impact

The Climate Investment Funds, of which the

CTFs are part, seek quick impact and early

applicable lessons while at the same time

aiming for deep, far-reaching results. We as-

sess if the CTF Turkey has achieved these

objectives, what the challenges were and

how the implementing agencies dealt with

them. We also assess whether the results are

in line with CTF Turkey objectives.

(2) Challenges of collaborating with financial

intermediaries

The CTF Turkey was implemented by

two local banks which, given their ex-

pertise, played an instrumental role in

committing the CTF funds. But financial

intermediaries follow strict non-

disclosure policies which conflict with

World Bank efforts to enhance transpar-

ency and accountability. We discuss the

advantages and disadvantages of collab-

oration with financial intermediaries.

We assess whether stakeholders, includ-

ing those from civil society and the pri-

vate sector, were involved during the

strategic decision-making process of the

CTF and during implementation.

A further issue often raised by NGOs is

the demand for government ownership

and accountability. We discuss whether

effective climate finance should pro-

mote country ownership at all times

during the implementation process.

Last, we discuss whether the financial

intermediaries respect World Bank safe-

guard policies designed to ensure that

the implemented projects do not have

negative consequences.

(3) Overcoming first mover problems

According to the CTF investment plans,

CTFs are to use concessional finance to pro-

vide incentives for low-carbon develop-

ment. Further CIF/CTF funding is to be ad-

ditional to existing donor country funding

flows and used in new ways. Thus we as-

sess in which sectors the CTF really made a

change from ‘business as usual’ projects and

where the concessional CTF finance was

able to spark off and scale up the develop-

ment of alternative energy projects.

(4) Leverage effect of the CTF Turkey

A major aim of the CIFs and CTFs is to act

as catalysts and mobilize financial resources

and expertise from the public and the pri-

vate sectors by scaling up financing to lev-

els considerably beyond the dollar amounts

pledged to the CTF. We therefore analyze to

what extent the World Bank CTF Turkey

managed to scale up the US$100 million.

Section 4 discusses the findings and the trans-

formative change of the CTF. A core issue of the

CIFs is to ensure that its program results are not

simply an extension of ‘business as usual’, an

‘add-on’, but rather constitute a lever for trans-

formational change. We summarize the findings

and discuss them in the light of their contribu-

tion to transformational change in the Turkish

energy sector.

In Section 5 we conclude with lessons learned

and major recommendations for other CTFs and

climate funds.

10 Climate Finance in Turkey

This section provides background information

on Turkey’s energy sector and the challenges

involved in promoting renewable energy and

energy efficiency in Turkey. It also considers the

strategic decisions of the Turkish government

and the World Bank regarding the design and

financial structure of the CTF.

2.1 Background

Since the 1960s Turkey has experienced strong

population growth, and now has a population of

78 million. Turkey has also undergone rapid

economic growth and today ranks as one of the

fastest-growing energy markets in the world.

Alongside this, Turkey’s total national installed

energy capacity tripled from 16,000MW in 1990

to about 45,000MW by the end of 2009. As Tur-

key’s industries are rather energy-intensive, en-

ergy-related greenhouse gas emissions have

more than doubled since 1990.17 The vast major-

ity of Turkey’s energy supply is from fossil fuels,

leading to high C02 emissions; domestic renew-

able energy production such as solar, wind, geo-

thermal and biofuel energy, accounts for only 3

percent of the total energy supply. Given the

rapid economic growth, Turkey fears electricity

supply-demand imbalances and the government

argues that it therefore needs to continue to de-

velop the fossil fuel strategy. According to the

latest plans from 2010, with projections until

2023, the full potential of lignite, coal and hy-

dropower for electricity production is to be ex-

ploited. The Turkish government even plans to

become an energy corridor and hub for natural

gas and oil trade.18 Today, 48 percent of the

country’s total energy production is obtained

from natural gas power plants, which heat about

90 percent of households. Turkey lacks suffi-

17 World Bank Private Sector Renewable Energy and En-

ergy Efficiency Project (PSREEEP), Project Appraisal

Document, http://go.worldbank.org/M4TVT0XB70, p5

(accessed 15 September 2011).

18 Ministry of Energy and Natural Resources (MENR),

Strategy Document 2010–2014, p42, Target 6 (also pp43–

45),

http://www.enerji.gov.tr/yayinlar_raporlar/ETKB_2010_20

14_Stratejik_Plani.pdf (accessed 22 June 2011).

cient primary energy sources such as petroleum

and natural gas and therefore currently has sev-

en gas sale and purchase agreements and de-

pends highly on Russia and Iran.19 In December

1997, based on the projections of very high de-

mand, the Turkish government signed a 19-year

contract with Russian company Blue Stream to

purchase natural gas and build natural

gas‐fired power plants. The longest gas import

constraints bind Turkey until 2029 and new

coal-fired thermal power plants are being

planned and built. In addition, Turkey signed an

agreement with Russia to build the first nuclear

power plant in southern Turkey.

2.1.1 Turkey’s official engagement in fighting

climate change

Since 2009, energy and climate politics have

been more dynamic than ever before in Turkey

as the government made efforts to play a leading

role in fighting climate change. In 2009 Turkey

ratified the Kyoto Protocol and is now in the

category of industrial countries but is exempt

from binding measures due to ‘special circum-

stances’.20 Turkey declared that, despite this, it

would contribute fairly to global efforts to tackle

climate change.21 However, as of June 2011,

there was no officially declared reduction target

for greenhouse gas emissions and the action

plan on climate change had not yet been pre-

sented.22 Turkey’s strategy to fight climate

change is to involve the private sector, and the

19 Petroleum Pipeline Corporation BOTAŞ,

http://www.botas.gov.tr/index.asp (accessed 15 Sep-

tember 2011).

20 UNFCCC Factsheet on Kyoto Protocol (February 2011),

http://unfccc.int/files/press/backgrounders/application/p

df/fact_sheet_the_kyoto_protocol.pdf (accessed 6 July

2011).

21 UNDP Developing Turkey’s National Climate Change

Action Plan Project,

http://www.undp.org.tr/Gozlem2.aspx?WebSayfaNo=20

57 (accessed 6 July 2011).

22 UNFCCC (2009) Report of the In-depth Review of the

First National Communication of Turkey,

http://maindb.unfccc.int/library/view_pdf.pl?url=http://un

fccc.int/resource/docs/2009/idr/tur01.pdf, article 24, p7,

(accessed 22 June 2011).

© EvB, 2011 11

Turkish government was one of the founding

members of the World Bank Partnership for

Market Readiness, launched by the World Bank

at the Cancún Climate Change Conference in

December 2010.23

In December 2010, the Turkish government en-

acted an amendment to the 2005 Renewable En-

ergy Law. Energy experts welcomed the long-

awaited law, including new incentives for ener-

gy projects, but expressed doubts as to whether

the suggested changes would be sufficient to

meet the targets. The new feed-in tariffs24 are

US7.3 cents for wind and water energy, 10.5

cents for geothermal energy and 13.3 cents for

solar and waste energy production.25 While the

introduction of feed-in tariffs is widely support-

ed, experts are irritated that the Turkish gov-

ernment has not lifted a cap which politically

limits the production of certain renewable ener-

gies like wind and solar power.26 Considering

the substantial investment costs and high mar-

ket barriers, the feed-in tariffs may not be

enough to make these energies marketable and

boost private investment. Despite Turkey’s ap-

parent efforts to be among the leading countries

tackling climate change, Turkish civil society

organizations argue that the Turkish government

has still not demonstrated real commitment

through implementation of binding measures in

Turkey.

23 World Bank, Announcement of Partnership for Market

Readiness December 2010, http://climate-

l.iisd.org/news/world-bank-launches-partnership-for-

market-readiness (accessed 20 September 2011).

24 A feed-in tariff is a policy mechanism designed to ac-

celerate investment in renewable energy technologies.

It achieves this by offering long-term contracts to re-

newable energy producers, typically based on the cost

of generation of each different technology. Technologies

like wind power, for instance, are awarded a lower price

per kWh, while technologies like solar PV and tidal

power are currently offered a higher price, reflecting

their higher costs. (http://en.wikipedia.org/wiki/Feed-

in_tariff (accessed 15 September 2011).

25 Law No. 6095 approved by the Turkish Parliament on 29

December 2010,

http://www.tbmm.gov.tr/kanunlar/k6094.html, see Chart

I for Feed-in Tariffs (Sayili Cetvel) (accessed 15 Septem-

ber 2011).

26 Personal notes of interview with Tanay Sidki Uyar, Pro-

fessor at Marmara University and head of the Turkish

branch of Eurosolar, 26 May 2011.

2.1.2 Potential of and barriers to the development

of renewable energy and energy efficiency

The Turkish national energy development strat-

egy includes an energy conservation priority

policy, and at the same time suggests the vigor-

ous development of renewable energy and new

energy sources. The share of electricity generat-

ed from renewable sources is to be raised from

today’s 14.5 percent to 30 percent in 2023.27 In-

struments designed to reach this goal range from

the Turkish Renewable Energy Law 2010 to po-

litical and financial support for the research and

development of renewable energy sources. Yet,

except for hydropower, which Turkey is devel-

oping heavily, the government has been com-

paratively slow in setting the political course for

developing its wind, solar and geothermal ener-

gy potential. In Turkey, solar and geothermal

technologies are still very new and carry several

exploration and development risks. Both capital

costs and transaction costs tend to be high as

renewable energy projects are located in remote

areas or need energy audits and feasibility stud-

ies. The Turkish government argues that sus-

tainable energy is more expensive than the uti-

lization of fossil fuels such as natural gas. These

assumptions are not factoring in the costs of ex-

ternal spillovers because new studies based on

the latest figures from Turkey reveal that the

cost of traditional fossil fuel-based energy is in

fact more expensive than renewable energy.28

Energy efficiency

According to the Ministry of Energy and Natural

Resources (MENR), Turkey has the potential to

cut 15–20 percent of total energy consumption

through conservation. But the implementation

of energy-efficient projects requires various is-

sues to be solved first. These projects demand

innovations in efficient loan origination, in reli-

able and cost-effective technical appraisal skills,

and in specific loan products and investments

to achieve economies of scale. While the Energy

Efficiency Law of 2007 subsidizes mainly small

27 Ministry of Energy and Natural Resources (MENR)

(2007) Energy and Natural Resources Turkey, 2007,

http://www.enerji.gov.tr (accessed 23 August 2009).

28 Oksay, S. & E. Iseri (2011) ‘A new energy paradigm for

Turkey: A political risk-inclusive cost analysis for sus-

tainable energy’, Energy Policy 39(5): 2386–95.

12 Climate Finance in Turkey

energy efficiency projects, the CTF is aimed at

projects with high CO2 reduction levels and was

expected to be used especially in sectors such as

iron and steel, cement, ceramics, chemicals and

textiles. According to the World Bank, energy

efficiency is relatively untested in Turkey and is

therefore perceived to carry significant technical

and financial risks. In addition, energy audits,

feasibility studies and the necessity to change

processes lead to higher transaction costs, mak-

ing investment more expensive. Specific train-

ing for the banks acting as financial intermediar-

ies for the CTF is supposed to overcome the lack

of experience and familiarity and bring innova-

tion in finance and specific loan products.29

Hydropower

Turkey’s third largest energy source after coal

and natural gas is hydropower. The currently

installed capacity of 13,500 MW is produced by

213 hydroelectric power plants (HEPPs) across

29 Clean Technology Fund Investment Plan for Turkey,

http://www.climateinvestmentfunds.org/files/CTF_Turke

y_Investment_Plan_01_16_09_web.pdf, p31 (accessed 19

September 2011).

the country and provides 17–20 percent of Tur-

key’s electricity production. However, summer

droughts as well as seasonal higher water flows

in spring result in a fluctuation of up to 5 per-

cent in produced electrical energy.30 Turkey has

large rivers and river basins which could pro-

vide 35,000MW of hydroelectric power. The

Turkish Ministry of Energy, supported by Turk-

ish Prime Minster Erdogan (himself a trained

water engineer), aims to fully exploit this poten-

tial by 2020 and plans to build 1500 new dams,

mostly small and medium-sized, and supposed-

ly financed by the private sector.31

The recent sale of new licences sparked a boom

in dam building. These licences can be resold

on the black market and are thus subject to

speculation. A licence officially authorizes the

private licensee to lease the river section for 49

years, or to sublet it and to purchase power at a

rate that is usually higher than the market rate.

30 Table of Turkish energy balance in 2009,

http://www.enerji.gov.tr/EKLENTI_VIEW/index.php/rapo

rlar/raporVeriGir/49100/2 (accessed 22 June, 2011).

31 CTF Investment Plan,

http://www.climateinvestmentfunds.org/files/CTF_Turke

y_Investment_Plan_01_16_09_web.pdf, Article 15, p9

(accessed 19 September 2011).

© EvB, 2011 13

Box 2: Negative consequences of hydropower in Turkey

Although hydropower counts as a ‘clean’ source of energy production, it can have severe negative envi-

ronmental and social consequences. Over the last 20 years, Turkey has built around 200 HEPPs, plus 765

large dams for irrigation and water reservoirs32, including the Ilisu and the Atatürk dams in south-east

Anatolia, which sparked international controversy by flooding ancient cultures, destroying the liveli-

hoods of over 200,000 people and causing irreversible damage to the unique flora and fauna of these re-

gions.

The World Bank is aware of these consequences and decided that the CTF Turkey would only support

dams smaller than 10MW, and the IBRD project supports only small and middle-sized dams, both of

which have to be in line with World Bank safeguards for dams. The Berne Declaration and Turkish civil

society organizations warn that even small dams may create large problems.33 In fact, the release of 1500

licences for new dams resulted in a dam-building boom, without sufficient legally enforceable safe-

guards being in place, leaving natural ecosystems and local communities unprotected. There is a lack of

proper river basin management and a lack of legislation to prevent HEPPs from being built virtually next

to each other. People in the vicinity of dams, especially in the Black Sea region, report that medium-

sized rivers are being completely destroyed by the construction of 20 or more consecutive dams on the

same river.

According to Turkish law, only HEPPs above 10MW require an Environmental Impact Assessment (EIA);

these assess and mitigate environmental, social and cultural/historical impacts. Evidence from executed

projects, however, indicates that the Energy Market Regulatory Authority grants licences to HEPPs with-

out or with only rudimentary EIAs. Some of them even were even licensed to build in a natural park.

Furthermore, the Turkish expropriation and resettlement laws are not up to international standards.

Landowners receive very little compensation which does not allow them to start a new life somewhere

else. In addition, the privatization of Turkish water resources is a highly political issue with far-reaching

consequences for the local people as well as the whole Middle East. It is questionable if market-driven

solutions are suitable for the sustainable development and use of Turkey’s water resources.

In recent months, Turkish civil society has protested against dams with increasing intensity. Dozens of

local groups have been active for many years and have run internationally supported campaigns against

dam projects such as Ilisu/Hasankeyf, Allianoi or Yusufeli, but increasingly also against the building of

smaller dams in the Black Sea region. Activists from all parts of the country united in May 2011 for the

first time in a large campaign called ‘Anadolu vermeyecegiz’ (‘We don’t give up Anatolia’).34 This shows

that Anatolia’s citizens are not prepared to give up their access to water resources and are ready to fight

against the considerable ecological and social damage caused by HEPPs.

Although the World Bank argues that dams built with CTF and IBRD loans would respect high World

Bank safeguards, civil society groups argue that this ultimately counts for little if the entire river has al-

ready been destroyed, fish are dead and fishermen were forced to move away. They accuse the World

Bank of supporting the government’s buy-out, privatization and destruction of Turkish rivers and de-

mand that CTF and IBRD loans be spent on other underdeveloped renewable energies.

32 DSI, hydraulic structures in Turkey, http://www2.dsi.gov.tr/english/topraksue.htm (information on website is from 2005 (ac-

cessed 18 September 2011).

33 Turkish Water Assembly (2011) ‘HEPP’s, Dams and the Status of Nature in Turkey’,

http://vermeyoz.net/dosyalar/hepp_report_web.pdf (accessed 11 August 2011).

34 See http://www.vermeyoz.net/ (accessed 12 August 2011).

14 Climate Finance in Turkey

Wind energy

According to the Turkish Wind Energy Potential

Atlas, Turkey has an estimated potential of

90,000MW in wind energy, of which only

1026MW had been supplied by May 2010. The

government’s plan is to reach 20,000MW capaci-

ty by 2023.35 The 2010 amendment to the Re-

newable Energy Law aims to accelerate wind

power development with a new feed-in tariff of

US7.3 cents per kilowatt hour, hoping to pro-

mote further investment in wind projects.

Greenpeace Turkey criticizes the government for

having failed to capitalize on the country’s wind

energy opportunities and not having even re-

solved licensing issues. In 2008 the Energy

Market Regulatory Authority (EMRA) invited

interested parties to buy licences and received

applications for almost 78,000MW of projects,

yet many overlapped at a handful of grid con-

nection points.36 After granting licences for

4000MW, the process was halted and EMRA

promised to resolve the issue, but by June 2011

this had not yet been done. Licences are attrac-

tive as they can be acquired with no intention of

building or investing and are thus, as with hy-

dropower concessions, often resold and are sub-

ject to black market speculation. A further hur-

dle slowing down the development of wind

power is the lack of a grid system over and

above existing networks in order to feed in wind

power. In addition, rapid development of more

efficient wind power technology makes devel-

opers and the Turkish government question

when best to enter the market. These unresolved

issues hold back the wind industry and there-

fore the market for wind energy is growing too

slowly given the existing demand and availabil-

ity.

35 Ministry of Energy and Natural Resources

http://www.enerji.gov.tr/index.php?dil=en&sf=webpage

s&b=ruzgar_EN&bn=231&hn=&nm=40717&id=40734,

accessed 22.6.2011.

36 Julia Harte, Green Prophet

http://www.greenprophet.com/2011/05/hidden-costs-of-

constructing-wind-farms-in-turkey-include-many-new-

roads, accessed 30.6.2011.

Geothermal energy

The development of geothermal energies is a

similar scenario to wind power. Turkey has

huge potential for geothermal power: 31,500MW

thermal and 2000MW electrical geothermal po-

tential.37 In fact, Turkey is the seventh richest

country in the world in geothermal potential for

both direct use and electricity generation.38 Ex-

perts estimate that 5 percent of electricity pro-

duction and 30 percent of heating could be met

with geothermal resources. Between 2000 and

2008, the total capacity was increased to

1385MW thermal power and 77MW electrical

power, which is a very low ratio of exploitation

compared to the potential. Yet again, the 2023

energy strategy does not indicate a specific tar-

get for geothermal energy. As the exploration

costs for geothermal energy are considerably

higher than for other renewable energies, pri-

vate finance is not available.

Solar power

The potential to exploit solar energy in Turkey

is very high due to the country’s climate and

geography. Yet solar energy is currently mainly

used for domestic water heating (the existing

installed solar panels cover only a third of the

total potential of 12 million m2) and hardly at

all for energy production.39 The 2023 energy

strategy does not contain any indicators for in-

creasing solar energy production apart from the

very general statement that solar energy applica-

tions for electricity production should be pro-

moted. Despite experiences in other countries

where government subsidies and incentives

have created a strong solar market, the Turkish

government has not so far invested in solar en-

ergy. On the contrary, the government set a cap

on the total production of solar energy until the

37 Ministry of Energy and Natural Resources,

http://www.enerji.gov.tr/index.php?dil=en&sf=webpage

s&b=jeotermal_EN&bn=234&hn=&nm=40717&id=40735

(accessed 22 June 2011).

38 Cicek, N., M. Ozturk and N. Ozek (2009) ‘Renewable

Energy Market Conditions and Barriers in Turkey’, Re-

newable and Sustainable Energy Reviews, Vol 13: 1428–

36.

39 Survey on solar energy in Turkey by the General Direc-

torate of Electrical Power Resources

http://www.eie.gov.tr/english/solar/solarTurkey_e.html

© EvB, 2011 15

end of 2013. The only sign for change is the new

feed-in tariff of the 2010 Renewable Energy Law,

granting a base feed-in tariff of US13.3 cents,

but experts believe it will not be enough to even

cover costs in a solar energy project.40 Due to

these uncertainties, banks and investors in Tur-

key perceive solar energy as high risk.

Biomass energy

A further source of renewable energy is the pro-

duction of biogas and biofuel, of which at least

80 percent of the content (in volume) must be

obtained from living organisms. It is used in

biodiesel, bio-ethanol, biogas, and biomass

fuels. Adequate and proper infrastructure for

biodiesel production is available in Turkey, par-

ticularly following the support provided for

canola and soybean cultivation. Biomass energy

has not been analyzed in CTF project docu-

ments although it is listed as an objective to be

promoted.

2.2 Strategy

2.2.1 Rationale for attracting multilateral climate

finance

One might wonder why Turkey, a country with

a rapidly growing economy, needs and receives

concessional multilateral climate finance such

as the World Bank CTF loans with favourable

conditions in order to support the development

of its renewable energy and energy efficiency

sector. One reason lies in the economic crisis of

2008, which hit Turkey quite hard. In December

2008 exports were down by 21 percent com-

pared to a year earlier and in March 2009 Tur-

key faced a record GDP low of -7.57 percent.41

At that time, the World Bank expected a long

and severe recession alongside a severe energy

crisis, which then only lasted a very short time.

In January 2009, when Turkey applied for CTF

finance, the Turkish government argued that the

much-needed long-term financing required for

renewable energy and energy efficiency projects

40 Personal note of meeting between Professor Tanay Sidki

Uyar and Berne Declaration, 26 May 2011.

41 See http://www.tradingeconomics.com/turkey/gdp-

growth (accessed 12 August 2011).

was in very short supply in Turkey. Hitherto,

climate finance has mostly been available from

multilateral agencies like the IBRD, IFC, EBRD,

EIB and KfW on concessional terms.42 The Turk-

ish government claimed that CTF concessional

financing, mixed with other multilateral climate

finance and Turkey’s own resources, would

make investments financially attractive, create a

highly leveraged impact in the energy sector

and support Turkey’s efforts to reduce green-

house gas emissions.43

2.2.2 World Bank CTF Turkey strategic decisions

In order to obtain the CTF funds, the Turkish

government needed to prepare a CTF Invest-

ment Plan. This process was based on the Turk-

ish government’s existing national strategy to

tackle climate change and was pushed strongly

by the Treasury. In order to generate Turkish

political support for the CTF structure and pro-

gram, the Treasury acted as a focal point and

coordinated across ministries and development

partners. The application process was support-

ed by the World Bank’s office in Ankara, which

runs four-year US$8 billion loan programs in

Turkey, providing a mix of policy dialogue, in-

vestment lending and technical assistance to the

Turkish government. Based on lessons from a

2004 five-year World Bank loan of US$202.3

million for renewable energy projects (mostly

small hydropower, wind and landfill gas),44 the

World Bank and the Treasury decided that the

CTF Turkey would support both renewable en-

ergy and energy efficiency projects and should

receive significant technical assistance to help

them take off. To scale up the rather limited

US$100 million of CTF finance, the CTF loan

was embedded into the World Bank IBRD Pri-

vate Sector Renewable Energy and Energy Effi-

ciency Project.

42 World Bank Private Sector Renewable Energy and En-

ergy Efficiency Project (PSREEEP),

http://go.worldbank.org/M4TVT0XB70 pp5–21 (accessed

15 September 2011).

43 CTF Investment Plan,

http://www.climateinvestmentfunds.org/files/CTF_Turke

y_Investment_Plan_01_16_09_web.pdf, Article 29, p14

(accessed 19 September 2011).

44 op.cit., p14.

16 Climate Finance in Turkey

The World Bank and the Turkish government

decided that the CTF and IBRD loan agreements

would not be signed with the Turkish govern-

ment, but directly between the World Bank and

two local financial intermediaries – the state-

owned Development Bank TKB and the private

Turkish Industrial and Development Bank

(TSKB) – with the loans guaranteed by the gov-

ernment. TSKB is one of the leading Turkish

investment and development banks with con-

siderable success in sustainable development.

TSKB was allocated US$70 million of the Clean

Technology Fund and US$350 million of IBRD

investment. TKB received US$30 million from

the CTF and US$150 million from IBRD. Com-

pared to the IBRD loan, the CTF loan has more

generous concessional terms (20 years with a

grace period of 10 years), higher performance

standards and a 10MW limit on the size of hy-

dropower projects. According to the World Bank

project leaders in Ankara, both banks are long-

term and well-trained partners of the World

Bank with good relations within the renewable

energy market and a good track record in im-

plementing similar energy projects. In line with

the regulations for all Clean Investment Funds,

CTF financing was limited to 20 percent of the

total project costs.

In January 2009, the CTF Trust Fund Committee

endorsed the Turkish CTF Investment Plan and

in May 2009, an appraisal document for the Pri-

vate Sector Renewable Energy and Energy Effi-

ciency Project was signed between the World

Bank’s project team leaders and representatives

of TKB and TSKB. Overall ownership of the

CTF implementation was then transferred back

to the World Bank’s country manager for Turkey

in Washington, assisted by staff from the office

in Ankara. World Bank staff regularly provide

training to TSKB and TKB, including on World

Bank safeguards. The World Bank country man-

ager in Washington regularly screens selected

projects and checks during field missions that

the World Bank safeguards are being appropri-

ately implemented, but reports on these evalua-

tions are not publicly available.

© EvB, 2011 17

3.1 Achievements of the CTF Turkey

The following section reports the Berne Declara-

tion’s research findings and assesses to what

extent the Turkish CTF achieved its objectives.

It first takes a quantitative look at the funding

strategy adopted by both financial intermediar-

ies and the CTF allocation. The results are then

discussed in the light of the CTF’s overarching

objectives, including ‘speed versus depth’, the

challenges of collaborating with financial in-

termediaries, the leverage effect, scaling up and

the additionality of CTF resources.

3.1.1 Projects funded through CTF and IBRD

Due to privacy regulations, the financial inter-

mediaries TSKB and TKB only provided data

after several inquiries by the Berne Declaration.

The data contained information on the number

of projects financed per energy type and the

level of CO2 savings but does not disclose con-

crete project information and location. Based on

this information, we provide an overview of the

different sectors and funding sources. By May

2011, TSKB had disbursed over 85 percent of

US$70 million to 19 projects. TKB had already

approved and disbursed most of US$30 million

to 10 projects. In total, 29 projects profited from

the World Bank US$100 million CTF loan and

33 projects from the US$500 million IBRD grant.

Table 1 shows the investments by energy sector.

The data displayed is aggregated from the raw

data provided by TKB and TSKB.

Table 1: Projects funded through CTF and IBRD according to energy type

Energy type Projects

CTF CTF US$

Projects IBRD

IBRD US$

Total Projects

Total US$

Energy efficiency 15 50.3 11 118.5 26 168.8

Hydropower 9 11.6 21 328.0 30 339.6

Wind 4 19.7 1 3.5 5 23.2

Geothermal 1 9.1 0 0.0 1 9.1

Solar 0 0.0 0 0.0 0 0.0

Biomass 0 0.0 0 0.0 0 0.0

Subtotal* 29 90.7 33 450.0 62 540.7

TOTAL Loan (US$ million)

100.0 500.0 600.0

Loan amounts in Euros (TSKB) calculated at a rate of US$1.43 as some projects were disbursed in Euros.

* TKB figures as of May 2011, TSKB figures as of June 2011.

18 Climate Finance in Turkey

Figure 1: Percentage of CTF projects per sector

The supported projects include nine hydropow-

er projects which account for only 13 percent of

the total CTF loan, four wind projects (22 per-

cent), one geothermal energy project (10 per-

cent), no solar energy or biomass energy pro-

jects, and 15 energy efficiency projects, com-

prising 55 percent of the CTF investment. This

shows that a mixed investment scenario was

chosen, in line with the CTF Turkey’s objectives

to support renewable energies and energy effi-

ciency and contribute to the reduction of CO2

emissions.

Figure 2: Percentage of IBRD projects financed per

sector

The IBRD loan supported a different scenario.

The IBRD funding was committed to 33 pro-

jects. The supported projects were 21 hydro-

power projects, accounting for 73 percent of the

total IBRD loan, one wind project (less than 1

percent) and 11 energy efficiency projects (26

percent).

Figure 3: Total of private sector renewable energy

and energy efficiency projects per sector

Of the total CTF and IBRD funds, 63 percent

were invested in hydropower, 31 percent in en-

ergy efficiency, 4 percent in wind energy and

less than 2 percent in geothermal energy. No

funds were granted to solar energy projects or

biomass/waste energy projects from either the

CTF or the IBRD credit lines.

© EvB, 2011 19

3.1.2 Greenhouse gas reduction through CTF

Figure 4: CO2 savings per sector achieved by CTF

(US$100 million)

The World Bank CTF aims to achieve a CO245

reduction of roughly 1 million tons per US$1

million invested. TKB and TSKB provided a

breakdown of the CO2 reduction potential of

each CTF-funded project providing the follow-

ing information:

The 19 CTF projects funded by TSKB (US$70

million) saved a total of 695,000 tons of CO2

per year.

The 10 CTF projects financed by TKB

(US$30 million) saved a total of 615,000 tons

of CO2.

The distribution between project types shows

that a rating of the CTF funding allocation natu-

rally differs with regards to the specific objec-

tives. If the objective is a high CO2 reduction,

then energy efficiency projects are the best

choice.

TKB’s single energy efficiency project ac-

counts for 50 percent of their CO2 reduction

potential through the CTF funds.

TSKB supported 14 energy efficiency pro-

jects with a CO2-saving potential of 80 per-

cent of the total amount of all projects (see

Figure 4).

45 The data provided by the banks use CO2 emission re-

ductions as an indicator, but we wonder whether these

should really be termed greenhouse gas reductions.

3.2 Qualitative assessment

3.2.1 Thematic issue: Speed versus scale, quality

and depth of impact

The Climate Investment Funds, of which the

CTFs form a part, seek quick impact and rapidly

applicable lessons while at the same time aim-

ing for deep, far-reaching results. This is an in-

herent challenge which the independent analyst

Radner calls the ‘speed versus depth spec-

trum’.46 The tension between speed and depth

involves the challenge ‘to do new, big things

quickly, at high quality’.47 This paper examines

to what extent the CTF Turkey achieved this

challenging objective, how the financial inter-

mediaries dealt with the speed and depth re-

quirement and which factors determined their

implementation strategy.

The quantitative assessment shows that CTF

Turkey succeeded in committing the loans with-

in only two years, between May 2009 and July

2011. It also reached its target for CO2 reduc-

tions, with a CO2 reduction of 1.3 million

tons/year for US$1 million. However, the in-

vestment plans also show that funds were main-

ly allocated to two sectors, namely energy effi-

ciency and hydropower where, even according

to the financial intermediaries, results were

much easier and quicker to achieve than in oth-

er renewable energy sectors.

Energy efficiency

TSKB in particular readily and quickly support-

ed 14 energy efficiency projects from the CTF

loan (69 percent of their CTF resources) as well

as nine projects from the IBRD loan (34 percent

of IBRD resources). This was rated internally as

a big success, as most Turkish entrepreneurs are

not yet ready to invest in costly new machines

with a lower CO2 output. TSKB explained that

they worked hard to convince entrepreneurs

that an investment in energy efficiency now will

pay off later and represent a saving in all re-

spects.48 TSKB’s energy portfolio manager fur-

46 Radner (2010), op.cit., p8.

47 Radner (2010), op.cit., p8.

48 Personal notes of meeting between the Berne Declara-

tion and TSKB (Hülya Kurt, Coskun Kanberoglu), Istan-

20 Climate Finance in Turkey

ther stressed that the relatively high rate of en-

ergy-efficient projects funded in a short time

was also the result of close collaboration with

the entrepreneurs, which was based on already

existing mutual connections and trust. TKB

supported one energy efficiency project (27 per-

cent) through the CTF and two (10 percent)

through IBRD loans but was not able to share

more insight on the status of the energy effi-

ciency market.49

Hydropower

Both banks reported that it was quick and easy

to provide financial support to hydropower pro-

jects because there is an existing market. The

government guarantees an attractive fixed price

of US7.3 cents/MW for the electricity produced,

which makes private investment in small and

medium-size hydropower projects popular, hav-

ing lower investment levels and higher returns

than other renewable energies.

The World Bank supports the building of small

and medium-size dams as an effective way to

increase energy supply. Representatives of the

World Bank office in Ankara added that support

given to small and medium hydropower pro-

jects may serve to pave the way for other renew-

able energies in Turkey. Also, both financial in-

termediaries support the government’s expan-

sive hydropower strategy. TKB allocated 21 per-

cent of CTF and an overwhelming 90 percent of

IBRD money to hydropower projects. TSKB was

slightly more restrictive, allocating less than 1

percent of CTF but still 65 percent of IBRD re-

sources to hydropower. Yet no civil society or

private expert we spoke to could find evidence

that small hydropower will accelerate the de-

velopment of other renewable energy sources.

Further, they reiterated that hydropower in Tur-

key has severe negative environmental and so-

cial consequences. Although the manager of the

environmental department at TKB confirmed

the importance of respecting World Bank stand-

ards within the CTF, our discussions with the

bul, 26 May 2011. All further information relating to

TSKB in this section was obtained at the same meeting.

49 Personal notes of meeting between the Berne Declara-

tion and TKB (Ender Dinçer, Sati Balci), Ankara, 24 May

2011. All further information relating to TKB in this sec-

tion refers was obtained at the same meeting.

representatives showed that there is low aware-

ness of the problematic issues associated with

hydropower.

Wind energy

The promotion of wind energy has clearly not

made the predicted huge step forward in devel-

oping the wind energy market. TKB disbursed

21 percent of CTF and no IBRD resources to

wind power, while TSKB managed to allocate

22 percent of CTF and 1 percent of IBRD re-

sources to wind energy projects. Various reasons

and problems were mentioned by TKB and

TSKB, mostly related to market barriers. TKB

pointed out that Turkey still lacks the necessary

specialized grids to feed in wind energy. Fur-

ther, it was unfortunate that the change in feed-

in tariffs of the new Renewable Energy Law

came into effect only in December 2010, when a

large proportion of the CTF Turkey loans had

already been committed.

Geothermal energy

With respect to geothermal energy projects, the

only project funded was through TKB, absorb-

ing 31 percent of CTF funds. TKB staff pointed

out that the funding of this geothermal project

can be considered a success in this sector be-

cause geothermal energy is still in the explora-

tion stage and involves substantial technical

and financial risks. TSKB considered the tech-

nical obstacles too challenging and therefore

didn’t invest in any geothermal energy projects.

Solar and biomass energy

No loan was granted to solar energy projects or

biomass/waste energy projects from either the

CTF or the IBRD credit lines. TSKB pointed out

that the fixed investment cost (machinery,

equipment) is very high for solar energy and

that the return on investment could not satisfy

any bank at present. TKB representatives added

that the solar and biomass markets are not yet

ready for investment. Solar energy is almost

twice as expensive as hydroelectric energy. It

seems that not even the most favourable condi-

tions of the CTF managed to leverage a single

solar energy project.

© EvB, 2011 21

Fossil fuel dependence may hinder renewable

energy take-off

Representatives of Turkish civil society specu-

late that another reason why the Turkish gov-

ernment may not fully embark on developing

renewable energies is that Turkey is both locked

into contracts to import natural gas from Russia,

as well as coal and oil from various other coun-

tries, and needs to distribute these electricity

capacities. Hydropower is an exception because

developers with close ties to the government

dominate the hydropower market. In contrast,

operators and builders of wind, solar, biomass

and geothermal energy projects are mostly small

and medium entrepreneurs not affiliated with

the government.

Summary: Performance of CTF considering

speed of investment and depth of impact

Assessing the performance of the CTF Turkey in

terms of speed of investment and depth of im-

pact, it becomes clear that the objective was

reached only in energy efficiency and hydro-

power projects but not at all in other renewable

energy projects.

It is fair to assume that if the financial interme-

diaries had supported wind energy, geothermal,

solar and biomass projects, the CTF funds could

not have been committed at the speed they

were. Consequently, the CTF has only achieved

its objective to disburse funds quickly by giving

up on its overarching goal to promote other re-

newable energies and has thus failed on the

‘depth of impact’ objective. Thus, it is evident

that the objective of the CIFs to quickly disburse

funds does not necessarily produce good results

if the appropriate policies are not in place and

the government is not fully behind the promo-

tion of sustainable forms of energy production.

3.2.2 The role and implications of financial

intermediaries

CTF programs in general favour collaboration

with financial intermediaries because they are

closely associated with the private sector and

are assumed to understand its needs. In addi-

tion, World Bank staff in Ankara and Washing-

ton argue that the rapid disbursement of CTF

funds in Turkey was only possible thanks to the

effective use of financial intermediaries since

neither the Turkish government nor the World

Bank have sufficient staff skilled in developing

renewable energies and energy efficiency. Yet

civil society groups, among them the Berne Dec-

laration, continuously criticize this collabora-

tion for transparency and governance reasons.

This is why this study paid particular attention

to the CTF Turkey’s implementation by two lo-

cal banks.

Lack of public disclosure and transparency

The Turkish financial intermediaries to the CTF

– TSKB and TKB – are strictly bound to respect

national bank privacy policies in the interests of

business confidentiality. This implies that the

public is not informed about the projects sup-

ported by the CTF Turkey – a clear breach of

World Bank policies on transparency and access

to information. The Berne Declaration and many

other NGOs argue that transparency is essential

to building and maintaining public dialogue

and increasing public awareness about the

World Bank’s development role and that this

mission requires full and open project infor-

mation. A mechanism is therefore needed that

allows the status and results of implemented

projects to be monitored.

Lack of stakeholder participation

In addition to the lack of transparency, there is a

notable lack of civil society stakeholder in-

volvement. From a civil society perspective,

multi-stakeholder engagement, including civil

society participation and consultation, is key to

a widely supported and successful transition to

a climate-friendly energy policy. Civil society

demands full transparency and full stakeholder

engagement as, after all, World Bank climate

finance comes from public money. Further en-

gaging with people likely to be affected by pro-

jects needs to be a priority. Although govern-

ments and certainly the World Bank are re-

quired to engage in public dialogue and offer

stakeholder information and participation at all

levels of the project, it is questionable whether

the Turkish government could and would have

been held accountable any more than TSKB and

TKB were. For the Berne Declaration it is clear,

however, that the World Bank needs to make

sure that accountability and transparency are

22 Climate Finance in Turkey

achieved. Both banks informed us that they had

conducted stakeholder meetings with people

affected by small hydropower projects. As the

Berne Declaration was denied access to project

information and only very little World Bank

evaluation material is available, we were not

able to verify this claim.

Quite contrary to the banks’ view, private and

civil society stakeholders complained during

our research that they had been left out of any

discussions regarding the strategy or implemen-

tation of the CTF in Turkey: they had not been

invited to comment on the CTF Investment Plan

and later were not informed about loans. In ad-

dition, there was no public promotion of the

CTF funds, apart from initial press releases an-

nouncing the start of the project in May 2009.

Therefore, entrepreneurs who were not custom-

ers of TKB or TSKB had very little opportunity

to learn about the availability of concessional

CTF funds. Neither TKB nor TSKB regarded this

as a problem because the available CTF money

was limited and their networks allowed them to

handpick clients.

Although stakeholder involvement is not a

mandatory CTF requirement, we believe that in

the case of Turkey, broader civil society partici-

pation would have provided better outcomes.

For example, a discussion of the different CTF

funding scenarios with civil society stakehold-

ers would have shown that there is no need for

concessional CTF finance for small and medium

hydropower projects, as both are already mar-

ketable, and would also have shown what kind

of negative consequences they imply. Discus-

sions could have demonstrated upfront that,

without the elimination of existing political

hurdles hindering the development of wind,

solar or biomass energy, it makes little sense for

the CTF to support these sectors.

Lack of government accountability and owner-

ship

Collaboration with financial intermediaries

raises the question of ownership and accounta-

bility. The World Bank CIFs stipulate that re-

sponsibility for preparing and submitting the

investment plans lies with the respective gov-

ernments, and program implementation is to

remain with the multilateral development

banks. These two parts should complement

each other, not compete with each other. Effec-

tive climate financing needs to be promoted

throughout by strong country ownership. After

the first phase of firm ownership through the

Turkish Treasury, the CTF Turkey was delegated

to the financial intermediaries through the

World Bank. This strategy left the two banks

TKB and TSKB as the only key players with in-

formation policy, capacity building and project

implementation handed over. The Turkish gov-

ernment officially takes up the cause of climate

change but at the same time avoids building up

internal capacity. Resources and knowhow are a

major prerequisite for a stable and long-term

policy on implementing renewable energy and

energy efficiency projects. Interestingly, gov-

ernment capacity is not outsourced when it

comes to implementing hydropower projects.

The Turkish Ministry of Energy even has its

own large sub-division for water power, the

Government Water Works (Devlet Su Isleri, DSI).

This observation may explain but not justify the

lack of government ownership of renewable en-

ergies.

Meeting World Bank safeguards

The World Bank CTF project documents em-

phasize that, even if collaborating with financial

intermediaries, the CTF will meet World Bank

safeguards, which were set up to mitigate the

environmental, cultural and social consequenc-

es of World Bank-financed projects. Both finan-

cial intermediaries reported that they had re-

ceived intensive World Bank training to this end

and would diligently respect the safeguards.

TSKB prides itself in being the most environ-

mental Turkish bank and indeed demonstrates a

comparatively impressive portfolio and track

record of environmental management and

standards higher than those required by law.

Concerning the CTF loans TSKB confirmed that

the approval process is strict, that they checked

criteria meticulously for all 39 projects and de-

clared that none of their projects is involved in

legal proceedings or has in fact met any prob-

lems or resistance at all. TSKB allegedly even

rejected a hydropower project that met all the

criteria but was located near a national park on

the Black Sea and was therefore judged unsuita-

ble for CTF money. TSKB made an explicit ef-

© EvB, 2011 23

fort to support renewable energy projects that

would not normally qualify for bank finance.50

TKB instead reported that although a supported

hydropower dam needed to relocate affected

people, no problems or resistance were encoun-

tered.51 We have not been able to verify this in-

formation as there are no public records.

However, the Berne Declaration research pro-

vides evidence that TSKB is co-financing the

Kozdere hydropower project on the Alakir river

in Antalya province with money from the IBRD

part of the Renewable Energy and Energy Effi-

ciency Project. Given the severe environmental

impact of six cumulative dam projects on the

same river, located near a national park, the lo-

cal population and environmental organizations

have started resistance against the development,

complaining that the projects were accepted by

the regulator despite insufficient environmental

assessments52. A lawsuit was filed against six

projects in the Alakir valley, four of which are

in the planning phase and two are in construc-

tion, among them Kozdere HEPP.

This case casts some doubt on due diligence in

the application of World Bank safeguards. It also

shows that it does not help if World Bank safe-

guards are applied to one project while consecu-

tive dams on the same river do not comply with

international best practice. It reveals rather that

World Bank loans cannot guarantee better out-

comes for neighbouring projects.

As the lack of information regarding financial

intermediary projects and private sector projects

can breed mistrust, civil society representatives

demand full disclosure of all projects financed

by the CTF Turkey. Generally, improved report-

ing and communication should be seen as an

intrinsic part of building confidence in the CTF,

50 Personal notes of meeting between the Berne Declara-

tion and TSKB (Hülya Kurt, Coskun Kanberoglu), Istan-

bul, 26 May 2011.

51 Personal notes of meeting between the Berne Declara-

tion and TKB (Ender Dinçer, Sati Balci), Ankara, 24 May

2011.

52 Website Alakir Nehri, http://www.alakirnehri.org (ac-

cessed 26 August 2011) and Facebook Group of the

Alakir River Brotherhood,

http://www.facebook.com/groups/alakirnehri/

and ensuring accountability for putting public

funds to good use.

3.2.3 Overcoming first mover hurdles

According to the CTF investment plans, CTFs

are to overcome typical ‘first mover hurdles’

within low-carbon development. Concessional

finance is to provide incentives for investors

and cover the viability gap of other sources of

financing. Therefore we assess whether the CTF

Turkey managed to support first movers with

the right incentives from CTF funding. A further

main objective of the CTF funding is to provide

additional finance and thus represent a change

from ‘business as usual’, rather than simply a

‘sweetener’ for projects that would have gone

forward anyway.

Our assessment shows that mainly in the energy

efficiency sector, CTF concessional finance

helped private ‘first movers’ to realize projects.

In particular, the geothermal energy project

would have not taken off without CTF seed

money from TKB. We can safely assume that

these projects were additional and would have

not been undertaken without CTF finance.

Yet the Berne Declaration’s research shows that

for all other renewable energy sectors, the CTF

did not contribute much to overcoming first

mover hurdles. Hydropower projects do not

need a ‘sweetener’ to take off because local

banks provide loans to investors of small and

medium-size dams. And the reason wind power

doesn’t take off is due to restrictive political and

financial problems in this sector, not because of

a lack of additional ‘sweet’ finance. The same

applies to solar and biomass projects which are

not presently marketable in Turkey, so it is not

the lack of concessional finance but the existing

political and regulatory barriers that hinder the

large-scale development of these energy sectors.

3.2.4 Leverage and mobilizing resources

CTF loans are designed to act as catalysts to

mobilize other financial resources. Given that

the highly concessional portion is rather mod-

est, CTF resources need to be leveraged with

considerably larger sums from the public and

24 Climate Finance in Turkey

private sectors to make sure they actually have

an impact. This involves the leveraging of

knowledge and the engagement of a wide range

of players in climate finance.

The CIF Turkey Investment Plan states that Tur-

key seeks US$400 million of CTF financing,

representing about 10 percent of the overall

US$3,850 million financing, which should lev-

erage US$1,900 million in multilateral support

and US$1,550 million from Turkey.53 However,

this high objective was already downgraded in

the CTF Turkey project appraisal document of

May 2009, according to which the CTF co-

financing of US$100 million is expected to lev-

erage about US$400 million from domestic fi-

nancial institutions, bilateral donors and project

sponsors.

53 Clean Technology Fund Investment Plan for Turkey,

http://www.climateinvestmentfunds.org/files/CTF_Turke

y_Investment_Plan_01_16_09_web.pdf, p22 (accessed 19

September 2011).

However, during our research we could not find

evidence of a larger scaling up of the World

Bank CTF funds over and above the US$500

million embedded in an IBRD project. The Turk-

ish government did not provide the promised

funds and we were informed that the CTF has

not managed to leverage the promised US$1,900

million. Interestingly, the Turkish government

has not even applied for a second phase of the

CTF. Thus, the CTF Turkey failed to keep its key

promise to leverage additional money and to

contribute to a scaled-up development of re-

newable energies.

© EvB, 2011 25

4.1 Major funding achievement:

Acceleration of energy efficiency

projects

The CTF Turkey’s biggest achievement is the

support of energy efficiency investments. Half

of CTF loans and a third of the entire available

project funds were invested in energy efficiency

projects. Given the lack of concessional finance

for energy efficiency in Turkey and a lack of

knowledge among entrepreneurs regarding the

benefits of investments in this field, CTF fi-

nance was both rapid and additional and man-

aged to work as an incentive. It was different

from the ‘business as usual’ approach and

helped to overcome first mover hurdles. The

projects financed in the energy efficiency sector

have achieved the CTF’s targets relating to a re-

duction in CO2 emissions. This achievement is

insufficient to call the impact ‘transformational

change’, but the concessional CTF loans did in

fact trigger some Turkish entrepreneurs to take

loans with the financial intermediaries for ener-

gy efficiency investments.

4.2 Major funding flop: Insufficient

support for renewable energies

The CTF Turkey clearly missed its objective of

accelerating the development of underfinanced

renewable energy technologies such as solar,

wind, geothermal and biomass energy. Only

3 percent of the entire project loans were allo-

cated to support one geothermal and four wind

energy projects and no money was allocated to

solar and biomass energy projects. Despite the

Turkish government’s avowed intention to be-

come a leader in fighting climate change and its

declared willingness to promote renewable en-

ergies, there are still considerable political, legal

and market-related hurdles hindering the devel-

opment of wind, geothermal, solar and biomass

energy. These include a cap on solar energy

production, a lack of grid technology and severe

licensing issues for wind and biomass energy.

Although numerous investors with potential

renewable energy projects exist in Turkey, they

are hindered by political and regulatory barri-

ers. The revised feed-in tariffs of the 2010 Turk-

ish Renewable Energy Law are still not high

enough for investors in solar, wind, geothermal

and biomass energy projects to break even and

to make the investments financially cost-

effective. The government’s legal obligations to

buy gas and coal from Russia for several more

years and to build nuclear power plants are

most certainly a reason for the slow pace in re-

moving political and legal constraints in the

renewable energy sector.

4.3 Major criticism: Support of

problematic hydropower

Both financial intermediaries invested the major

part (12 percent of CTF and 62 percent of the

total combined financing) into hydropower pro-

jects. However, hydropower is clearly the only

type of renewable energy in Turkey that is al-

ready readily marketable, and therefore not in

need of additional concessional funding. In ad-

dition, large hydroelectric power plants, but

also a cascade of small hydropower projects on

one river, result in severe negative environmen-

tal and social consequences. This is the case

especially in several areas of the Turkish Black

Sea region, most dramatically for instance in the

Loç Valley.

By promoting small hydropower projects, the

World Bank CTF Turkey supports a highly prob-

lematic development. Many of the 1500 small

dams being planned and built in Turkey cause

severe environmental and social consequences

and Turkey’s dam building regulations are not

yet in line with international best practice.

26 Climate Finance in Turkey

4.4 Major challenge: Speedy

disbursement or deep impact?

According to its strategy, the CTF needs to dis-

burse funds quickly in order to achieve rapid

impact. At the same time, it is supposed to aim

for deep, far-reaching results. In this inherent

challenge, the CTF Turkey did not manage to

bridge the gap between speed and depth. The

only two sectors where CTF finance can be

spent rapidly in Turkey are energy efficiency

and hydropower. Both sectors have received a

comparatively large amount of CTF support.

Given the requirement to disburse funds rapid-

ly, the implementing agencies sacrificed the se-

cond goal of the CTF Turkey – to invest funds in

the development of renewable energies. To ob-

tain good results (‘depth’) in this field would

have needed much more time, greater financial

resources and the clearing of regulatory barriers.

4.5 Major strategic question: Cooperation

with financial intermediaries

A fundamental question in international climate

financing is who is best suited to allocate and

distribute funds and implement climate-related

projects. We have assessed the challenges inher-

ent in reduced government accountability and

knowledge in the case of the CTF Turkey. As in

many other cases, the strategic decision of work-

ing with financial intermediaries implies certain

problems.

Lack of transparency

Non-disclosure policies of financial interme-

diaries for reasons of business confidentiality

contradict the World Bank’s policies on ac-

cess to information. In Turkey, this was a

major hindrance to accessing project infor-

mation for evaluation or monitoring purpos-

es.

Lack of civil society participation

Turkish civil society stakeholders were not

involved in CTF decision-making or imple-

mentation processes, apart from consultation

with some people directly affected by hydro-

power projects. The Berne Declaration

showed that early involvement of civil socie-

ty representatives may have provided better

strategic outcomes.

Lack of government accountability and own-

ership

Collaboration with financial intermediaries

reduces the access of government actors to

the knowledge and skills required to imple-

ment renewable energy and energy efficiency

projects. Reliance on private financial inter-

mediaries risks reducing government ac-

countability and limits public scrutiny of

implemented projects.

Lack of control of World Bank safeguards

through financial intermediaries

Although in Turkey both financial interme-

diaries agreed to apply World Bank stand-

ards, implementation is not monitored pub-

licly. The Berne Declaration has traced one

IBRD-financed hydropower project in Turkey

which is involved in a court case, accused of

violating Turkish environmental legislation.

Therefore, public access to project infor-

mation and monitoring reports is essential.

4.6 Major missed potential: No leveraging

of additional financial resources

CTF contributions are usually very modest and

can only have an impact if they are leveraged by

other financial means. The CTF Turkey failed in

its key promise to leverage additional money

and thus contribute to scaled-up development

of renewable energies. Apart from integration

into the World Bank’s own Renewable Energy

and Energy Efficiency Project, the CTF Turkey

did not manage to leverage the promised

US$1,900 million in multilateral support during

two phases, nor a further expected US$1,500

million from the Turkish government. The

US$600 million was clearly insufficient to

achieve the desired transformational impact.

4.7 Moving toward transformational

change

Considering all the points raised above and giv-

en the loan’s very modest size, we conclude that

the CTF Turkey was not able to contribute much

to transformational change in the Turkish ener-

gy sector. Real transformation needs a much

broader approach, including a national dialogue

on Turkey’s energy strategy, involving all mem-

© EvB, 2011 27

bers of society, as well as clearly demonstrated

national ownership by the Turkish government

through removing regulatory hurdles and inject-

ing massive financial investment to promote

other renewable energies besides hydropower.

We believe that well-executed and successful

projects can contribute to building the confi-

dence of government representatives and show

that investments in energy efficiency and alter-

native renewable energies have great potential.

In order to avoid CTF programs remaining a

drop in the ocean and to ensure their demon-

stration value, the programs also need to help

shift attitudes and develop the capacities of

government representatives in developing coun-

tries to get low-carbon, climate-resilient devel-

opment right.

28 Climate Finance in Turkey

The following lessons learned from the CTF

Turkey show which elements need to be taken

into account when setting up similar structured

climate funds. Although these issues are raised

in the context of the CTF Turkey, it is likely that

many of them will be increasingly relevant to

other climate funds as they move into the im-

plementation phase. We summarize them on

three levels, with regard to strategy, planning

and implementation.

5.1 Climate funding strategy and

objectives

The objective to commit CTF funds rapidly

forces implementing agencies to move to sec-

tors which are easy to finance. These sectors

(like hydropower in Turkey) are often al-

ready marketable and financing from com-

mercial banks is available. If climate finance

is to be additional and to remove first mover

hurdles, rapid investment must not be an ob-

jective in itself.

CTF funds are targeted to accelerate the de-

velopment of renewable energy projects and

have transformational impact on the energy

markets. For this to work, the implementing

country needs to provide a framework of

governmental subsidies or other supporting

schemes for the development of renewable

energies, political will to clear regulatory

hurdles and guarantees to leverage CTF fi-

nance with other funds.

5.2 Climate funding planning and

preparation of local set-up

CTF objectives need to take into account the

local energy market situation and legal

framework.

CTF programs need to be enthusiastically

initiated and firmly guided by host govern-

ment agencies and linked to the host gov-

ernment’s policies, plans and processes that

guide decisions on how to transform key sec-

tors. Governments need to take ownership

and build knowledge and capacities.

Political will needs to be demonstrated by

appropriate government policies, which

should already be in place and not merely in

the planning stage. Only a stable and sup-

portive legal and institutional framework en-

ables markets to be created for renewable en-

ergy sources and energy efficiency invest-

ments.

If regulatory hurdles persist, CTF investment

is likely to be ineffective. CTF money in Tur-

key has proven to be too little to remove the

political and regulatory barriers to renewable

energies.

It takes large-scale finance, networking and

the creation of confidence among high-level

government representatives to make invest-

ments in energy efficiency and renewable

energies cost-effective.

The decision to invest in different renewable

energies needs to be balanced carefully as the

development of one renewable energy sector

does not necessarily trigger the development

of another renewable energy sector. During

the preparation of Climate Fund investment

plans, governments need to prepare realistic

investment scenarios. In the case of the CTF

Turkey, decision-makers initially provided

several funding scenarios but ultimately fol-

lowed an investment scenario which was in

line with CTF objectives but could only par-

tially be achieved due to regulatory barriers.

Sectors which are to receive CTF finance

need to have demonstrated absorptive capac-

ity. Demand should not be calculated on a

theoretical basis, as was the case in Turkey,

but on a realistic market basis, taking all risk

factors into account. The risk analysis must

include a government’s engagement in ex-

tractive energies and long-term contracts

which may limit the government’s financial

capacity and political will to invest in re-

newable energy sectors.

Monitoring and evaluation reports must be

publicly available.

© EvB, 2011 29

5.3 Climate funding implementation

Risk analysis and funding scenarios need to

involve experts from civil society and the

private sector, to help make transparent the

potential barriers that may hinder the effec-

tive use of climate finance.

Early involvement of civil society representa-

tives in strategy discussions and research can

avoid unwise investment decisions and re-

sult in better outcomes.

Civil society participation is required to

monitor project implementation and the ap-

plication of World Bank safeguards in order

to avoid negative project consequences.