Zorlu Enerji spearheads geothermal development, now targets solar

How effective has Turkey been in managing its own energy security, and what can other countries learn from Turkey’s approach?

It’s a very deep issue, and also very fragmented. You can’t just talk about the economy and production, it also involves political and social and historical points of view. It’s a tough question to answer, because every country has its own path for growth, and its own style of making business, so maybe Turkey is unique in the world because of its location and culture and people coming together in the region.

Turkey has very few natural resources. I think this is lucky, because if you don’t have natural resources, you have to work harder to manage your life, to make money. On the other hand, if you have natural resources, after a certain point you relax and you lose your abilities to produce and basically become a consumer. When I see the CIS countries, they’re losing their production capabilities. The Zorlu group tried to go there and produce white goods and brown goods, but we had difficulties in these markets because the cost of production is too high. They cannot compete with growing market prices. So it’s not a good idea to produce for local consumption in those countries, because the products are produced very cheaply, and imposing customs or border taxes doesn’t solve anything.

If you don’t have natural resources it’s not a bad thing, but you have to be open to innovation. Turkey is a lucky country because it’s in the middle of all the resources in the Middle East and Europe, where the consumption is, and where the production is, so it’s a secure hub. There are problems everywhere and the most secure place is Turkey. Everything can come through Turkey to Europe.

There’s local consumption as well. The market is growing. Turkey is the fastest-growing market in Europe, so it’s a lot easier for Turkey to use its consumption power to become a hub as well. Turkey is in a very unique situation right now, but if you look at other developing countries, they don’t have such a unique advantage. They have to find other ways to promote their growth, and energy cannot be their growth.

From my point of view, energy-production technology is developing very quickly right now. Today, energy companies cannot see more than three years ahead. Technology is changing too rapidly, and you might not make the right decision. The people running the country have to choose the right path, so that investment can sustain itself. Otherwise, the investors might lose money. You might end up over capacity or under-sustaining investments. It happened in Europe, over the last 10 years. Not because they took the wrong path, but because they made other major mistakes. Their path was right but the way they followed it was wrong. In Turkey, there’s gas, there’s coal, and also renewable energy – especially wind and solar – so you have to select the right path. Maybe you have to update your targets every year. Because three years ago, coal was more expensive than gas, but now it’s vice versa.

In Turkey we have to find a way to reduce the gas prices, and maybe select the right technology. Technology selection is critical for the country, especially when you’re growing, which is good for us, but we have to select the right technologies, and cheap ones. Because if you’re not able to compete with your energy prices in the coming 10 or 15 years, you may lose your industries. Most of the energy-consuming industries are shifting to the U.S. because the U.S. has low electricity prices right now. It’s the same in Turkey. So Turkey, and developing countries, have to find a way to lower their energy prices in order to compete with other countries. Turkey is not doing poorly right now. We’re using our advantage; we’re trying to reduce our gas price and increase renewable production capacity, and keep electricity prices as low as possible.

How does Zorlu Enerji intend to consolidate and grow your position in the Turkish market to meet increasing domestic energy demand, which is estimated to grow an average of 4.5% annually up to 2030?

Turkey is going to practically double in capacity, so we have to consider where those capacities will come from. Nuclear is a very good alternative production strategy, but of course it’s very costly. You have to pay maybe 12 or 13 cents per kilowatt-hour for 15 to 20 years in order to repay the cost of the plant. But on the other hand, electricity production went down to less than 6 or 7 cents right now in major countries. You have to pay a lot of premiums in order to support nuclear, but this is one item on the table for Turkey right now.

On the other side, it’s gas versus coal. As gas prices went down globally, especially in the U.S., all the major equipment manufacturers, like Siemens and Mitsubishi, put a significant amount of R&D into gas turbine technologies and steam turbine technologies, together with the steam turbine manufacturers. As a result, the efficiency of the equipment increased 63% and that development is continuing. So on the one hand, people are investing in high-efficiency gas. On the other hand, in terms of renewable energy, people are investing in solar. So Turkey has to understand gas versus coal. Now we’re trying to invest in coal, but maybe gas is a better choice for us if we’re able to reduce our gas prices and become a hub between Europe and the CIS countries.

Looking at the renewable side, we haven’t used our wind and solar potential yet. We have a couple of thousand megawatts of wind farms, but if you look at European countries you see 10,000 megawatts of wind and solar. So we have to set targets, high targets, because the cost of production technologies is getting lower and lower, so I believe in the next few years these technologies will be profitable again.

We’re trying to bring solar technology to Turkey. At Zorlu, we’re not sure where to invest when it comes to gas versus coal, because we can’t identify which is best for the country right now. So right now we’re only investing in renewable energy, geothermal, wind and solar. Actually, we haven’t invested in solar, but we plan to invest in solar. Also, as a niche production skill, we are the only major company investing in geothermal. We try to use the country’s potential as much as possible in our investments. When you look at our portfolio, we can reach up to 300 megawatts, but if we are able to do more and more, we want to do it, as much as possible.

As Zorlu Group, we especially want to invest in solar panel production, because we believe we’ll be ahead of everybody. Zorlu, as a group, comes from the production industry. We started with textiles, and later on we invested in white goods and brown goods, so we know how to produce goods. We can easily use our group’s sales channels to deliver panels and battery systems to households. So we’ll be focusing on this technology and this market.

You’re very much at the forefront of the shift towards renewables here in Turkey, and your CSR strategy is very much focused on environmental education and your carbon footprint. Is this an attempt to positively differentiate yourself from the other players here in the market in Turkey?

To be honest, in the past, the energy business was a side business for our group. We started investing in energy to cover our energy needs for our own factories. But in the past seven to eight years, we’ve changed it from a side business to the main business, so we are now investing heavily in the energy business, especially in renewable energy. Once you invest in the renewable business, you have to identify yourself differently. This is what we believe.

Also, even if you’re investing in renewables, you’re not safe, because whenever you invest, you change the environment. If you build a wind farm, it changes the landscape. We have a wind farm that can look nice or ugly, depending on your perspective. This is how we started. We worked with many IFIs (international financial institutions); we got a Gold Standard for our wind farm as well, so we started learning how to approach people with the matter of the IFIs. That’s how we educated ourselves.

Today we’re building on that, not only looking at the landscape but also communicating with the people, trying to understand their needs and trying to improve their standard of living. As a group, we love to produce, and we produce for the people. We have to live for our country, our job, and our families. So with this idea, we have to work together with the public, to look at what they need.

In Osmaniye, they wanted us to invest in sporting facilities. Now they’ve advanced to another league, and now everybody in the city goes to see the games. We helped change the social makeup of the city, because before there were fewer activities. We are trying to do the same thing in other locations where we invest. Some of them are eager to have similar facilities. It’s not a big issue, but it helps to communicate with the people. Once you have good communication with them, then sometimes they can help to solve problems that might arise for you with your investments.

I believe, in developing countries and in other regions as well, communication with local people is critical. This should be the most important topic of in G20 energy discussions: public communication skills, together with renewable energy, especially solar.

You operate in Pakistan, in Russia, and in Israel. Are you considering entering other markets?

What we are doing is wind, geothermal, and solar. We want to improve our existence in these fields. When we look at geothermal, apart from Turkey, there is some potential in Africa and Indonesia. We might be willing to use our expertise in those regions, but they are not easy markets. We have to analyze the country’s dynamics, and also understand how to do business there.

Apart from that, for wind we want to invest in Turkey and Pakistan. We don’t want to enter into a new country because our investment capacity is limited and those markets are enough for us to grow. For solar, first we want to start with Turkey, as soon as possible, but I believe there will be huge potential in the Middle East, in the CIS countries, and also in North Africa.

I cannot define right now in which country we’ll invest, but I see potential. Of course, we’re working in Israel, and we’ll continue to work there. We want to enter into the wind business there, but it’s a very limited market, and the locals have already invested. There’s a very limited market for wind in Israel. Apart from these three regions, we don’t want to invest in other countries.

You received approval to issue sukuk this year to raise 100 million liras. Why did this Islamic finance tool appeal to Zorlu for raising funds at this time, and is sukuk something you envisage using more often in the future?

It’s not easy to reach funds in the Middle East. It’s not easy to bring them to Turkey. In the past, maybe 10 years ago, some international banks were a bridge between Middle Eastern funds and Turkey. But today, the relationship between Turkey and the Middle East is improving. Some banks from the Middle East, from Qatar, Kuwait, or Abu Dhabi, are investing in Turkey. They’re buying banks and trying to understand the Turkish market. They also invest in real estate and try to understand the economy. So now I believe it’s time to bring Middle Eastern funds to Turkey, because they feel safer right now, without an international bank.

What happened in the past is an Islamic bank would give funds to London, and the money would come to Turkey from London. They were sort of guaranteeing their funds, while they transferred. But today the banks and the funds in those regions know the companies and the projects and the risks, so it’s easier for them to partner with us.

As for European funds, I believe only Germany has the sufficient funds to support the businesses in Turkey, but they are also very conservative right now. They only give supply funding for their own equipment. If you buy their equipment or products, then they give funding. They don’t care about the project, they don’t care about Turkish issues.

Now the Islamic funds are in the lead; they have money, they have sources, and they need to find a new market to sell their products. That’s how it started, and I think it’s going to grow, and we’ll be looking at more and more funding from the Middle East.

We are even looking for financial partners. They’ll get some shares, and invest, and get a good return, we’ll make sure of that. So I believe in the coming years we’ll see small renewable energy funds coming from the Middle East. It’s going to be very interesting. Because in Turkey, there is potential, but there’s not enough equity to fund all the projects. Equity funding is also very critical, and those markets are very important for us.

I’m sure G20 delegates, potential financial partners, and fund managers would like to know more about the man driving Zorlu Enerji forward.  Could you sum up your vision for Zorlu Enerji and the energy sector here in Turkey?

The vision is clear for us. We know what we want to do. I became general manager almost three and a half years ago, and at that time there were some ongoing projects, so the target was to complete those ongoing projects. While we were doing that, I tried to understand the market and plot a new route of what we can do in the coming years. We made significant decisions in the company, to invest in geothermal, in wind, and now, solar. This was a very critical decision. So this is our focus. We will be moving into these markets, and we have only just started. Wind, geothermal, it started with us, and it’s growing with us; solar will as well now. We spearheaded geothermal. No other major companies exist in the field, and we want to do the same thing with solar. We want to invest heavily, and capture the market, and become number one.

When I look at our sector, we are the only company with production capabilities, because of our other group companies. That’s the advantage we have, so we’ll use that advantage as much as possible in the coming years, to install as many panels as we can. This is our vision.

Two years ago, I thought solar couldn’t be a leading technology. But now I’ve met with many solar companies, and many battery producers, and I understand that in the coming 10 years energy investment strategies of companies will change significantly because once battery and solar come together they’ll be able to produce electricity in a stable manner. Let’s say you have a five-megawatt solar farm. You’ll be able to provide one megawatt, or one and half megawatts, for 24 hours. So if houses and factories place solar panels together with battery systems, they’ll be able to be off-grid, and that will reduce the cost of investments. All the distribution channels would change. Maybe there will be electric cars, maybe there will be no more gas stations in 10 years. I don’t know. Technology is developing so quickly, so we can’t predict beyond three years from now.

The target of the G20 and B20 is to understand, provide directions, and make decisions. If you don’t make the right decisions, you could lose a few decades, that’s what they say. But if solar battery systems become cheaper and cheaper, then it might help leaders make better decisions. So I believe the people who go to conferences and summits should understand the future solar technologies very well, and make their decisions accordingly, because technology is moving very rapidly, and not all of the solar companies can make a plan for more than three years in the future, because they don’t know what will happen after three years. New solar technology might be developed as well. There are so many new technologies being developed in the U.S., secret ones which we don’t know about, and it might change.

But the best technology is not always the best solution. You have to know what fits your needs. So solar and battery systems could be a solution for environmental problems. That’s what I believe right now. Countries have to address this issue and make their decisions. Because when I looked at Germany, I thought, they must be fools to invest in solar without sun in their country, but today I understand they made a very good choice. Maybe they spent a lot of money up front, but at the end of the day, now they are the technology producers and everybody has to go to Germany to get those technologies. So we will see, but this is my belief and I hope everyone can understand it.