Transition a generation portfolio to low-carbon energy

Submitted through the COP31 Sustainable Transformation Awards · SKD Türkiye (WBCSD Global Network Partner)

The company is a diversified industrial holding whose energy business spans electricity generation, distribution, retail supply and, most recently, energy storage and battery manufacturing, with approximately 6,000 people employed across the group.

In the 2023 base year the energy portfolio rested mainly on thermal, hydroelectric and solar generation. The company placed generation, the electricity network, energy storage, technology development and domestic industrial capacity inside one transition programme aligned to a 2050 net zero objective, so that emissions reduction, security of supply, network flexibility, technology transfer, a research and development centre for battery cell and energy storage technologies, domestic manufacturing and qualified employment are pursued together.

Performance is reported in the company's sustainability reporting, which is subject to independent third-party external assurance (1).

Location of the initiative: Türkiye, including a distribution region covering the provinces of Konya, Aksaray, Niğde, Nevşehir, Karaman and Kırşehir

The programme has four parts that are managed as one.

The first is portfolio transformation. By ending operations at the natural gas combined-cycle power plant and fully phasing out coal-based electricity generation, the company fundamentally reshaped its energy portfolio.

The second is renewable growth. Existing hydroelectric plants are being supported with hybrid solar investments that use connection capacity already in place, and new wind and solar projects are under development. Against an existing renewable installed capacity of approximately 140 MW, an additional 500 MW of wind and solar investment is targeted over the next five years, with the objective of generating more than 1 billion kWh of electricity a year from renewable sources alone. Both figures are targets rather than delivered capacity.

The third is the network and the customer. The company increased its shareholding in its electricity distribution and retail supply businesses to 100 per cent. The distribution business operates one of the largest distribution regions in Türkiye, covering the provinces of Konya, Aksaray, Niğde, Nevşehir, Karaman and Kırşehir, where the integration of 2,891 MW of installed capacity has been enabled and approximately 38 per cent of the electricity distributed is supplied from renewable sources. A total of 1,700 supervisory control and data acquisition stations have brought interruption durations below 3 minutes and the loss and theft ratio down to 5 per cent, among the lowest in the sector. The retail supply business serves approximately 2.5 million customers with high customer satisfaction scores.

The fourth is grid-scale energy storage systems and lithium-ion cell manufacturing. A joint venture established with an international cell and battery technology group, structured as a 60-40 partnership, plans annual production capacity of 3 GWh of battery energy storage systems and 5 GWh of lithium iron phosphate cells with an initial budget of approximately USD 485 million, together with a research and development centre and a domestic supply chain.

Alongside these, the company decarbonises its own operations. All the electricity used in production at its air conditioning factory and at its agricultural fertiliser plant is supplied from solar energy, the group's modern greenhouses are heated with geothermal energy, and the carbon footprint of the head office campus, a resort hotel and the group offices is balanced with I-REC certificates and carbon credits.

Figure 1: The four workstreams of the transition programme, aligned to the 2050 net zero objective: portfolio exit, renewable growth, network and customer, and storage and manufacturing

Figure 2: Estimated change in consolidated Scope 1 and 2 emissions against the 2023 base year, alongside the modelled reduction potential of the planned storage and cell capacity

Sustainability Impact

Climate

The programme acts on Scope 1 and Scope 2 emissions directly and on system emissions indirectly.

The direct effect comes from the portfolio change. Ending operations at the natural gas combined cycle plant and exiting from the coal fired thermal power plant are estimated to produce a downward change of approximately 3 million tCO² in the holding company's consolidated Scope 1 and Scope 2 emissions, on the assumption that all other conditions remain the same, measured against the 2023 base year.

The renewable build-out is the replacement side of that change. Additional wind and solar capacity of 500 MW on top of approximately 140 MW already installed is targeted over five years, with more than 1 billion kWh a year of renewable generation as the objective.

The enabling effect sits in storage and in the network. Scenario calculations for the planned 3 GWh of battery energy storage and 5 GWh of cell capacity indicate an additional emissions reduction (avoided emissions) potential of 394,000 to 657,000 tCO²e a year, and over a 15-year project life a total potential of 5.9 to 9.8 million tCO²e. These are modelled scenarios for capacity that is planned rather than commissioned.

In the distribution region, enabling the integration of 2,891 MW of installed capacity and reducing the loss and theft ratio to 5 per cent both cut the generation required to serve the same demand, and approximately 38 per cent of distributed electricity now comes from renewable sources.

In its own operations the company supplies production electricity at two factories entirely from solar energy, heats its modern greenhouses with geothermal energy, and balances the residual footprint of the head office campus, a resort hotel and the group offices with I-REC certificates and carbon credits.

Nature

Hybrid solar investments are placed at existing hydroelectric sites, which uses land and grid connection capacity that has already been developed rather than opening new sites, and lowers the land take per unit of new renewable capacity.

Reducing the loss and theft ratio to 5 per cent means that less generation, and therefore less associated land, water and fuel use, is required to deliver the same electricity to customers.

The battery investment brings circular economy considerations into the group's value chain, since domestic cell manufacturing creates a route for materials handling and end of life management that would otherwise sit outside the country.

Social

The retail supply business serves approximately 2.5 million customers with high customer satisfaction scores, and in the distribution region interruption durations have been brought below 3 minutes, which is the most direct customer-facing outcome of the network investment.

The battery investment is intended to develop battery energy storage and lithium-ion cell manufacturing capability, which is limited in Türkiye, and with it qualified employment, a research and development centre and a domestic supplier ecosystem. Universities and research organisations will contribute to battery technology, testing, quality and human resource development through that centre.

Local communities benefit directly from the investment, employment and economic activity associated with the new plant and the renewable projects.

Security of supply is itself a social outcome: storage capacity and network investment reduce the risk of interruption for households and businesses as the share of variable generation rises.

Business Impact

Benefits

The transition converts exposure into position. Removing coal and gas generation reduces the portfolio's sensitivity to carbon pricing and to fuel price volatility, while full ownership of the distribution and retail supply businesses concentrates the group in regulated and customer-facing revenue that grows with electrification.

The distribution business is already efficient: a loss and theft ratio of 5 per cent is among the lowest in the sector, and 1,700 supervisory control and data acquisition stations support interruption durations below 3 minutes. Both protect regulated revenue and reduce operating cost.

Storage creates a new revenue line. The first commercial sales contract in energy storage has been signed with a large contracting and infrastructure group, which demonstrates market demand ahead of the manufacturing capacity being commissioned.

The joint venture also builds an export capability. Planned annual capacity of 3 GWh of battery energy storage systems and 5 GWh of lithium iron phosphate cells, with a research and development centre and a domestic supply chain, is intended to move the group from importing battery technology towards producing and eventually exporting it.

Hybrid solar at existing hydroelectric sites raises output from assets whose connection capacity, land and civil works are already paid for, which is the lowest cost renewable capacity available to the group.

Costs

The investment requirement is large and front-loaded. The storage joint venture carries an initial budget of approximately USD 485 million; approximately USD 2 billion of additional investment is planned in the distribution and retail supply businesses over the next five years; and the 500 MW of new wind and solar capacity is a further capital programme on top of the approximately 140 MW already installed.

As part of its portfolio transformation, the company exited coal-based power generation through the divestment of its 50 per cent stake and ended operations at its natural gas combined-cycle power plant. This transition was accompanied by a shift from 50 per cent joint ownership to full ownership in its electricity distribution and retail businesses, helping to maintain a balanced and resilient revenue model. The programme depends on conditions outside the company's control: grid connection capacity for new renewable projects, permitting and energy, environmental and investment regulation, and the regulatory framework for storage revenue, which is still developing.

Manufacturing adds a different risk profile to an energy group. Cell production requires technology transfer, a supplier ecosystem that does not yet exist domestically, and skills that have to be built through a research and development centre and university collaboration.

Costs are contained by using existing hydroelectric connection capacity for hybrid solar, by structuring the manufacturing investment as a 60-40 partnership so that technology and capital risk are shared with a partner that already holds the production know-how, and by developing a domestic supply chain that reduces import exposure over time.

Impact Beyond Sustainability And Business

Co-benefits

The manufacturing investment develops a capability that is currently limited in Türkiye, and the research and development centre, the domestic supplier ecosystem and the university collaborations extend the benefit beyond the company.

Energy storage capacity supports clean transport and critical infrastructure as well as grid balancing, since battery energy storage systems are applicable in industry, in distribution companies, at critical facilities and in electric mobility.

The distribution business supports the wider system as renewable capacity grows: enabling the integration of 2,891 MW of installed capacity in one region is a service to every generator connecting there, not only to the company's own plants.

Hybrid solar on existing hydroelectric assets is a template that any operator with spare connection capacity at a renewable site can copy without new grid investment.

Potential side-effects

Battery manufacturing carries raw material supply chain and end of life obligations. Lithium iron phosphate chemistry avoids some of the material concerns associated with other cell types, but cell production still creates responsibilities for material sourcing, factory energy use and recycling that the company did not previously have.

Concentrating manufacturing capability in one joint venture creates dependence on a single technology partner, which the research and development centre and the domestic supply chain are intended to reduce but do not remove.

New wind and solar capacity has a land and landscape footprint even where connection capacity already exists, and the hybrid approach reduces but does not eliminate it.

Exiting dispatchable generation before storage capacity is commissioned leaves a period in which the portfolio is more exposed to variability, which is part of why storage and network investment are sequenced inside the same programme rather than pursued separately.

Typical Business Profile

The model suits diversified energy groups present in more than one part of the value chain — generation, distribution, retail supply or industrial manufacturing — because the value comes from sequencing decisions that would otherwise be taken in isolation by separate companies.

It is most relevant for operators holding both thermal assets they intend to exit and renewable assets with spare grid connection capacity, and for groups in markets where storage and battery manufacturing capability is limited and industrial policy supports domestic production.

Delivery engages strategy and business development, investment, finance, technical operations, research and development, supply chain and sustainability functions at holding and energy group level, with separate operating companies accountable for renewable generation, distribution, retail supply and storage.

Approach

1. Set a portfolio position, not a project list: Define the transition against a dated net zero objective, in this case 2050, and a fixed base year, in this case 2023, so that generation, network, storage and manufacturing decisions are assessed against one target rather than separately.

2. Exit the highest emitting assets deliberately: End operations at the plants that no longer fit the position and divest the shareholdings in the rest, and state the estimated effect on consolidated Scope 1 and Scope 2 emissions on an all-else-equal basis so that the nature of the change is transparent.

3. Add renewable capacity where connection capacity already exists first: Hybridise existing hydroelectric sites with solar before developing new sites, because the connection, land and civil works are already in place and the marginal cost of the added capacity is lowest.

4. Take control of the network and retail interface: Increase shareholdings in distribution and retail supply towards full ownership where possible, since the integration of rising renewable capacity and the efficiency of consumption are both decided at that interface.

5. Instrument the distribution network for renewable integration: Deploy supervisory control and data acquisition stations across the region, drive interruption durations and the loss and theft ratio down, and report the installed capacity integrated and the renewable share of distributed electricity as programme indicators.

6. Secure storage capability through a partnership with technology transfer attached: Structure the joint venture so that a research and development centre, domestic supplier development and skills transfer are obligations of the arrangement rather than aspirations, and set the initial budget and capacity targets explicitly at the outset.

7. Prove demand before capacity is commissioned: Sign commercial supply agreements for storage with industrial customers early, so that the manufacturing investment is validated by an order book rather than by a market forecast.

8. Decarbonise the group's own operations in parallel: Supply factory electricity from solar, heat other operations with geothermal energy where available, and balance the residual footprint of offices and service sites with renewable energy certificates and carbon credits, so that the corporate footprint moves at the same time as the generation portfolio.

Stakeholders Involved

• Project leads: The programme is run under the direct ownership of the holding company's board of directors and senior management, with sustainability objectives managed as an integral part of investment decisions and long-term growth strategy rather than as a parallel reporting exercise. Long-term continuity is supported by stated investment budgets, the partnership structures, the technology transfer and domestic supply chain commitments, and the 2050 net zero vision itself.

• Company functions: Strategy and business development, investment, finance, technical operations, research and development, supply chain and sustainability functions work in a coordinated structure at holding and energy group level. The renewable generation company is accountable for portfolio operation, hybrid capacity integration and generation performance; the distribution company for network development and renewable integration; the retail supply company for customer-focused digital energy services; and the joint venture for delivering the energy storage and lithium ion cell manufacturing investment. Solar use at the production facilities, geothermal heating in the greenhouses and group-wide carbon balancing are managed inside the same operational sustainability structure.

• Main providers: An international battery technology group is the technology partner in the storage joint venture, holding the minority share in a 60-40 structure and supporting the development of manufacturing capability. Suppliers and the domestic industrial ecosystem are critical stakeholders for the localisation objectives, and universities and research organisations will contribute to battery technology, testing, quality and human resource development through the planned research and development centre.

• Other: Public institutions take a role in policy alignment and permitting under energy, environmental and investment regulation, and local administrations contribute to the regional coordination of investment processes. Non-governmental organisations, academic institutions, private sector counterparties and regulatory bodies are engaged across the programme, and local communities benefit directly from investment, employment and economic activity. Feedback is collected through project meetings, stakeholder communication, sustainability reporting, supplier assessments and regulatory reporting processes.

Key Parameters To Consider

The base year is 2023. The estimated 3 million tCO² change in consolidated Scope 1 and Scope 2 emissions is stated on the assumption that all other conditions remain the same, and reflects portfolio composition rather than operational efficiency.

Renewable figures are five-year targets: 500 MW of additional wind and solar on top of approximately 140 MW installed, and more than 1 billion kWh a year of renewable generation. Approximately USD 2 billion of additional investment is planned in distribution and retail supply over the same period.

Storage figures are planned capacity: 3 GWh of battery energy storage systems and 5 GWh of lithium iron phosphate cells, with an initial budget of approximately USD 485 million and a modelled reduction potential (avoided emissions) of 394,000 to 657,000 tCO²e a year over a 15-year project life.

Sequencing is deliberate. In the short term the production facilities are commissioned and the supplier ecosystem is formed; in the medium term storage solutions are extended into grid balancing and renewable integration; and in the long term battery technology is localised and export capacity is developed.

Implementation And Operations Tips

Sequencing is what makes the programme work. Exiting thermal generation, adding renewable capacity, strengthening the network and building storage each solve part of the problem, and running them in one structure prevents the gap between them from becoming a security of supply issue.

State divestment effects honestly. Describing the 3 million tCO² figure as an estimated change under an all-else-equal assumption, rather than as an achieved reduction, is what makes the disclosure credible to an assurance provider.

Look for spare connection capacity before looking for new sites. Hybridising existing hydroelectric plants with solar delivers renewable output faster and more cheaply than greenfield development in most connection-constrained markets.

Attach technology transfer to the partnership at the point of negotiation. A research and development centre, a domestic supplier ecosystem and skills development are far harder to add to a manufacturing joint venture once the structure has been agreed.

Use the distribution and retail supply businesses as transition instruments rather than as legacy assets. The renewable share of distributed electricity, the loss and theft ratio and the installed capacity integrated are the indicators that show whether the wider system is actually decarbonising.

Source List

(1) Alarko Holding 2024 sustainability report