European Incentives to Energy project

1310 7.1. Economic Incentives Economic incentives fall into two broad categories: investment subsidies and soft loans. In most of the European countries, the economic incentives are related to energy or environment funds with financing mechanisms that tend to depend increasingly upon the banking system rather than coming from the public budget. The main objective of subsidies is to reduce the investment cost for investor and -consumers. Subsidies can be defined as a fixed amount, as a percentage of the investment, or as a sum proportional to the amount of energy saved. Subsidies may also be given to equipment producers to encourage the development and marketing of energy efficient equipment. Subsidies schemes often attracted consumers who would have carried out the investments even without the incentive, the so-called free riders .Consumers who could use the subsidies and were targets of the scheme did not take advantage of them because they were unaware of their existence. This demonstrates the challenges of informing a multitude of consumers adequately about the existence of the incentives. Finally, subsidy schemes may have a negative impact on the market by leading to an increase in the cost of equipment and to the deployment of equipment with a poor quality. They are also restricted to certain types of investments, with a long payback time but high efficiency gains or to innovative technologies. Soft loans are offered at subsidized interest rates to consumers who invest in energy efficient technologies and equipment. Soft loans have the advantage of being easily implemented by banking institutions. Nevertheless, due to the current low level of interest rates, such measures are often not attractive to industrial companies. In some cases they are given directly to installers, which seem to be a promising approach in others, if well managed. This removes one important barrier, which is the access of consumers to information as the installers may have a commercial approach to promote energy efficiency. 7.2. Fiscal Incentives Fiscal incentives include measures to reduce the tax paid by consumers who invest in energy efficiency. They comprise accelerated depreciation, tax credits and tax deductions. Recently, tax reductions on energy efficient equipment or on energy efficiency investments reduction in VAT rate have been introduced in many countries. Tax credits and accelerated depreciation are considered better than subsidies, as they are less costly. They can work well if the tax collection rate is sufficiently high. They usually have a poor performance in an economy in recession or in transition. In European countries, tax reduction also exits for clean and efficient cars. Tax concessions for companies that make concrete commitments to energy efficiency gains CO 2 reduction and meet their target are also another innovative way to promote investment in energy efficiency and CO2 reduction. A total of 2.3 billion Euros worth of EU grant funds have been allocated to Turkey to support the country‘s harmonization process until β010 within the framework of the Instrument for Pre- Accession Assistance. The EU wants to facilitate Turkey‘s preparation for EU membership by funding projects. The EU has allocated approximately 1 billion euros of grant funds to Turkey since β004. All projects and grant funds had a single objective ―preparation for EU membership. This is important for two reasons: The first is to help Turkey, as a whole, to reach the economic standards of the EU. And the second is also to try to decrease gaps within Turkey.‖ Power demand in Turkey is growing faster than anywhere else in the world but China, according to Hilmi Güler, the country‘s energy minister. He estimates that the electricity sector alone will 1311 need 100 billion in new investment by 2020. As the government is still struggling to reduce its debt, much, if not most, of this money will have to come from the private sector. Despite liberalization progress, energy prices are still under control of government. 227 The regulated part of the Turkish electricity market is under the control of government companies, but this will change drastically with the privatisation of the generation and distribution assets starting in early 2008, and is wide open to foreign investment. Turkey aims at full utilisation of indigenous coal and lignite reserves along with hydro and renewable resources. Integration of nuclear energy into the Turkish energy mix will also be one of the main tools in responding to the growing electricity demand while avoiding increasing dependence on imported fossil fuels. Privately owned nuclear power plants corresponding to a total installed capacity of 5,000 MW will be commissioned by 2020. New laws and regulations are also being adapted one by one, recently including the attractive Renewables and Energy Efficiency laws. 228 The electricity regulation in Turkey aims to provide competitive, transparent market for the players and establish long term bilateral agreements. Accordingly there will be a power exchange market which will operate real time and day-ahead markets. Hourly prices will be established in day-ahead markets based on demand and supply. There will be a balancing market for reserve capacity and a future market that provides hedging for the market participant. Eventually integration with the European markets will be maintained. Privatization Board of Turkey is working actively to transfer utilities to private sector in order to maintain an efficient, liberal market as in the EU. The privatizations of two electricity distribution companies and a portfolio of 9 power plants including hydroelectric and geothermal took place in 2008 with total revenue of 2, 3 billion. The rest of the electricity distribution network and other government owned power plants including thermal is on privatization schedule. The financing operations of The European Investment Bank in Turkish energy sector has been increased in 2007and 2008. According to Turkish incentive data; the amount of incentives and the distribution according to sectors are given below. Considering the lack of energy supply and government funds for investment the incentives on energy sector has an important role for Turkish economy. 227 Katinka Barysch ;Turkey‘s role in European energy security; Center for European Reform;p.β. 228 Turkey Trade and Investment ; UK Trade and Investment . 2007 Investm ent 379,470,175 668,206,137 13,118,144,128 4,106,228,018 8,925,166,111 Agriculture Mining Manufacturing Energy Services 1312 Although there is an increase in the energy investment of Turkey, the lack of supply will carry energy prices upward and the trend investment is expected to increase further in the following years. Energy market in Turkey is being liberalized, which is mainly motivated by the lack of energy supply and twinning with EU legislation. According to the new energy market law, private sector investment incentives are brought in practice. For renewable energy the government has purchase guarantee which makes financing projects easier. According to the legislation in order to avoid monopolies, a company may not produce more then β0 of Turkey‘s installed capacity. Energy companies that will start operation before 2012 are exempt from payments related with line lease, and taxes related with all the equipment for the power plant. Also customs are exempt as an incentive measure for energy institutions. Turkey has a strong potential for solar- and wind energy. The wind energy in Turkey has become important, although it is in construction phase yet. But an emphasis should be given on the development of solar hot water heating. Turkey has considerable geothermal resources that are used primarily for heat supply. Total installed capacity of thermal systems is ca. 25 MWth. The interest to the thermal water utilization is increasing in the last years. There are prospects for binary geothermal plants using existing wells at abandoned oil and gas fields.

8. An Appraisal regional energy resources from the standpoint of Turkish membership to

the EU The potential for strategic realignment in the Eurasia revolves around Turkey and its future. There are different possible scenarios, the most important of which is the full position in the EU membership. The second case is that Turkey is left outside the EU. Another possible alternative is that, Turkey whose patience is exhausted over Europes incessant demands and decides to go its own way. There are sufficient energy sources for renewable energy consumption inside Turkey. Moreover oil and gas production of surrounding countries will be transferred to the European centre via Investm ent TRY 5,000,000,000 10,000,000,000 15,000,000,000 20,000,000,000 25,000,000,000 30,000,000,000 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Total Investment Energy Sector 1313 Turkey. Yet Russia would prefer to upgrade the existing Central Asia-Centre gas pipeline with outlets to Ukraine and further to Western Europe. 229 The pipeline goes around the Caspian Sea via Turkmenistan, Kazakhstan and Russia. The three countries are ready to discuss a gas transportation consortium. Statements to this effect were made by Nazarbayev and other high- ranking officials. This project provides for the construction of a pipeline across the bottom of the Caspian Sea with an annual capacity of 30 billion cubic meters of gas, which could be transported to Europe through the Baku-Tbilisi-Erzurum and Nabucco pipelines. The United States suggested the Trans-Caspian project in 1996, but Gazprom objected to it because the pipeline bypasses Russia. Kazakhstan is the second largest oil producer after who is trying to change towards a free market in energy and encouraging foreign investment to flow its oil and gas resources. Kazakhstan is shifting its trade and energy patterns away from the former Soviet Union and toward its neighbours in Central Asia, the Caucasus, and Turkey. 230 The United States has stepped in to prevent the collapse of the first project to construct a natural gas pipeline that will bypass Russia. It is pressuring the EU and Central Asian countries to complete plans for the construction of the Nabucco pipeline, which is intended to link up with the Baku-Tbilisi-Erzurum and planned Tran Caspian networks. It will bring gas 3,300 kilometres from Central Asia under the Caspian Sea to Turkey, through Romania, Bulgaria and Hungary to Austria. The 10 billion South Stream pipeline is designed to run from Russia under the Black Sea to Bulgaria, where it divides into a southern branch via Greece to Italy and a northern branch via Serbia and Hungary to Austria. The primary target of pipeline is to supply Turkey and Georgia. As a transit country, Georgia has rights to take 5 of the annual gas flow through the pipeline in lieu of tariff and can purchase a further 0.5 billion cubic metres of gas a year at a discounted price. In longer perspective South Caucasus Pipeline will supply Europe with Caspian natural gas through the planned Nabucco, Turkey-Greece and Greece-Italy pipelines. The new Russian route would use Turkey as a transit point for exports to the European Union, in effect creating a direct competitor to Turkish- controlled ventures. Given Ankara‘s interests in joining the EU, however, Turkish officials are reluctant to be seen as creating hurdles for the project. Turkey clearly favours two other gas export ventures in which it is a direct participant, not merely a transit country. The first, the Nabucco Pipeline, would link Turkey and Austria, via Bulgaria, Romania and Hungary, and expand EU access to Persian Gulf and Caspian Basin supplies. Construction of Nabucco line will be completed in 2011. An associated link – the Baku- Tbilisi-Erzurum pipeline – will connect Turkey to Azerbaijan‘s Shah Deniz gas field. The Blue Stream project appears to clash with the European Union‘s stated goal of diversifying its sources of energy. EU officials expressed a desire to reduce their dependency on Russian exports after a pricing dispute between Russia and Ukraine led to disruptions in EU supplies in early β006. Turkey supports and tries to contribute to the European Union‘s efforts to diversify its routes and sources of energy, for such a diversification, there exists the Shah Deniz pipeline, not only the Blue Stream project. The new way would parallel an existing pipeline under the Black Sea, Blue Stream 1, to Turkey, and then connect with the EU via Greece. The projected construction cost is about 5 billion. Blue Stream 1, which is designed to serve the Turkish market, has been plagued by 229 Muzhdat HASANOV, EU’s Nabucco Project, Which is “Definitely Not A Dream”, Monday , 30 April 2007, USAKs Energy Review Newsletter, http:www.turkishweekly.netenergy. 230 Vildan SERİN -Elif YÜKSEδ Foreign Direct Investment Flows in Kazakhstan: The Role of Energy Sector