Financing The Energy Sector And The Future
The energy sector, which has an indispensable place for development and social welfare, is in a critical position regarding economic independence/stability and inclusive growth. Energy is the basic need both in daily life and almost every sector,, including industry, agriculture, transportation and housing. The energy sector, which undertakes the task of meeting such a critical demand worldwide, has a strategic role in economic, political and environmental terms. In today's global conditions, this role and importance are increasing, placing energy at the centre of international politics, scientific research and economic studies. At this point, while sector financing is undoubtedly of great importance, the search for methods and models continues.
The limitation of conventional energy sources (oil, coal, natural gas, uranium, etc.) makes it necessary to turn to alternative energy sources. In addition, the environmental risk, which has now reached the level of the global climate crisis, maintains sustainable energy production to an essential point for the whole world. In this context, studies are carried out at the national/international level for a safe and sustainable energy future instead of fossil fuels, significantly increasing carbon emissions. The financial instruments required for the realisation of the projects and the transformation of clean energy are also shaped by this understanding.
THE FUTURE OF ENERGY AND TÜRKİYE
According to the International Energy Agency (IEA), the demand for renewable energy is expected to increase by about 30% until 2030, with the environmental policies pursued worldwide. International agreements and policy studies also show that green projects will position themselves in a decisive place in the future of energy. The new international trade, designed within the scope of the European Green Consensus (EGC), which was prepared primarily to combat climate change, heralds a difference on a global scale. Türkiye, whose most important trade partner is the European Union (EU), is one of the countries that will be significantly affected by this change. Türkiye, which is 74% foreign-dependent in the energy field, has to take a step toward energy independence; on the other hand, it has to work towards green energy transformation.
FINANCIAL NEED FOR ENERGY TRANSFORMATION
Within the scope of the "zero carbon" target, which is the most crucial topic in the steps taken against the climate crisis, there is a growing trend in investments in clean energy production worldwide. According to the Financing the Energy Transition in Türkiye within the Context of the Green New Deal report prepared by the SHURA Energy Transition Center, the amount of investment required until 2050 for energy transformation on a global scale is calculated as 110 trillion dollars. It is pointed out that more than 50% of the total investment should be recognised by 2030. During the same period, the amount of investment Türkiye needs for the transition to clean energy is 135 billion dollars. Considering these data, the need to expand and diversify financing opportunities for energy transformation emerges. In this sense, we can say that the energy transformation brings a financial change.
GREEN FINANCE AND PARTICIPATION BANKING
The concept of “green finance”, which is based on supporting companies that serve sustainability and invest in environmentally friendly technology, covers the activities of financial institutions integrated with
environmental, social and governance (ESG) criteria. This framework also develops banking and insurance services and products that support environmentally friendly investments. The green financing model, which supports renewable energy production projects such as hydroelectric power plants (HEPPs), solar power plants, and bio-fuels, has an important place for energy transformation. The participation banking ecosystem also stands out with its green financing products based on risk sharing.
Islamic finance, which has gained serious momentum in the direction of growth in recent years, draws a profile suitable for the green finance model in terms of its fundamental principles. “Islamic green banking”, which aims to provide financing support to the sustainability and green-themed projects of Islamic banks, takes a supportive position in the renewable energy sector.
Green sukuk is a participation banking tool that complies with Islamic finance principles and requires the funds its issuance provides to be used in green projects. Funds obtained from green sukuk, which has the largest share among global Islamic green finance products, are used in projects such as solar energy, biogas energy, wind energy,energy efficiency and electric vehicles. While the global green sukuk issuance reached 5.3 billion dollars in 2021, a strong growth trend is expected in the coming years.
It is possible to say that the weight of the green transformation in energy will be felt more and more each day, considering the development of global energy policies and sectoral trends. The demand and size of green finance will also develop in parallel with this situation. The future may be pregnant with new opportunities for participationbanking, which shows a tendency to integrate into the new order in the model.
Kadir Burak Oğuz
Associate Partner, Sustainability Services, KPMG Türkiye