Turkey: TSKB Sustainable Energy and Infrastructure Facility, Phase 3

approved

A 15-year sovereign-backed multi-sector facility to Turkey Sınai Kalkınma Bankası A.Ş. (TSKB) (the Phase 3 Facility) has been proposed to support Turkey's climate mitigation and adaptation commitments under the Paris Climate Agreement (ratified in October 2021) while advancing the integration of climate and digital agendas as a strategic pathway for sustainable and resilient development. The approach highlights Turkey's drive to achieve green growth and digital innovation, establishing a model for emerging economies. Aligned with its updated Nationally Determined Contributions (NDCs), Turkey has set ambitious goals to reduce greenhouse gas emissions and embrace digital transformation across sectors. The digital transition plays a critical role in enhancing energy supply and demand through smart technology applications in industries, energy systems, and processes while also fostering innovation in green finance and sustainable practices. Investments in advanced technologies, such as artificial intelligence (AI), data acquisition, storage, and analytics, strengthen climate resilience by optimizing resource management and improving demand forecasting. Turkey's robust digital infrastructure initiatives, such as 5G deployment and smart energy solutions, serve to accelerate decarbonization and bolster the country's global economic competitiveness. Proceeds from the Phase 3 Facility will be on-lent as sub-loans to continue supporting eligible private sector entities (Sub-borrowers) to finance investments in climate mitigation, adaptation, and climate-related industries. In addition, the Phase 3 Facility also aims to contribute to the initiation of TSKB's lending to digital infrastructure space within Turkey's energy, infrastructure, and other productive sectors (Sub-projects). The Facility is thus designed to provide critical support in several key areas: 1) Climate Mitigation (CM): Investments will target renewable energy generation, such as wind and solar projects, as well as demand-side solutions that reduce energy consumption or waste in buildings, equipment, systems, and industrial processes. Additional emphasis will be placed on decarbonizing energy-intensive industries and productive sectors potentially affected by the EU's Carbon Border Adjustment Mechanism (CBAM). 2) Climate Adaptation (CA): Funding will enhance the resilience of industrial processes, equipment, buildings, and infrastructure to climate impacts. The Facility will also explore nature-based solutions (NBS) like drought management, water storage, and afforestation, where feasible, as well as circular economy solutions. 3) Climate-related Industries (CI): Support will extend to manufacturing activities that contribute to CM and CA goals, including renewable energy equipment production, e-mobility solutions, and battery storage technologies. 4) Digital Infrastructure (DI): Focus areas include 5G deployment, digitalizing industrial processes, improving internet access, and integrating smart technologies into energy efficiency and renewable energy projects. Direct and indirect beneficiaries include: (i) Electricity consumers gaining cleaner energy access; (ii) Electricity producers benefiting from long-term capital and liquidity; (iii) Private industrial enterprises improving energy efficiency and competitiveness; (iv) Enterprises enhancing climate resilience and reducing operational risks through adaptation projects; (v) Manufacturers and service providers in the CI sector expanding operations to meet growing demand for climate-related products and services; (vi) Businesses leveraging DI projects to accelerate digital transformation and innovation. This Facility builds on two previous projects—P000132 TSKB Sustainable Energy and Infrastructure On-lending Facility (Phase 1, closed April 2022) and P000546 TSKB Sustainable Energy and Infrastructure On-lending Facility (Phase 2). Through the first project, AIIB provided USD 200 million of financing in support of 8 sub-projects, representing USD 1.2 billion of total investment and USD 228 million of indirect mobilization in the form of project equity. It also contributed to the construction of 480 MW of renewable energy installed capacity (primarily solar and wind) during the implementation period. The second project is currently under implementation and has supported multiple sub-projects, including renewable energy (wind), energy efficiency, and climate adaptation.