Recent trends in the Turkish renewable energy sector
Lale Deliveli
GSI Meridian
Istanbul
Lale Deliveli (Bio)
Located at the crossroads between Europe, Asia and North Africa, Turkey enjoys a unique location and climate. This has also, fortunately, resulted in Turkey having a variety of energy resources, which range from hydro, wind, solar, and geothermal to biomass.
As the population and hence the demand for energy grows, Turkey has been adopting legislation to meet the increasing demand. Accordingly, on December 29 2010, the Law on Amendments to the Law Regarding the Usage of Renewable Energy Resources for the Purpose of Generating Electricity (Law 6094) (Amending Law) was passed, coming into effect on January 8 2011. The Amending Law introduced several new incentives to encourage and further increase renewable energy generation.
Recently introduced incentives
The Amending Law has brought several changes to the Law Regarding the Usage of Renewable Energy Resources for the Purpose of Generating Electricity (Law 5346) (Renewable Energy Law), which was initially enacted in 2005 and has been amended several times since. The major changes are with regard to the (i) pricing incentives through fixed prices, (ii) role of the Market Financial Reconciliation Center (MFRC), (iii) broadening of the scope of the MFRC guarantee, (iv) incentives for use of local components, (v) installation of additional capacity, and (vi) construction in reserved areas.
Pricing incentives through fixed prices
Under the Renewable Energy Law, legal entities holding a retail sale license were required to buy a certain portion of their electrical energy from an electricity generation plant with a renewable energy source (RES) certificate having commenced operations before December 31 2011 (This period was subsequently extended to December 31 2013 by a decision of the Council of Ministers) and which has operated for less than ten years. The applicable price for this electrical energy was, in Turkish Lira, between the equivalent of €5 cent/kWh (kilowatt hours) and €5.5 cent/kWh. The Amending Law has diversified and increased this range.
Now, the prices, depending on the source of renewable energy, are as follows:
(i) hydroelectric plants - $7.3 cent/kWh;
(ii) wind energy plants - $7.3 cent/kWh;
(iii) geothermal energy plants - $10.5 cent/kWh;
(iv) biomass plants (including waste gas plants) - $13.3 cent/kWh; and
(v) solar energy plants - $13.3 cent/kWh. Electricity generation plants that have started or will start operating between May 18 2005 and December 31 2015 can benefit from these fixed prices for a period of up to ten years.
Role of the MFRC
Another major change introduced under the Amending Law is the MFRC. The MFRC, a division of TEIAS (Turkish Electricity Transmission Company), the MFRC will determine the total generation amount of each plant generating electrical energy using an RES, as well as the purchase liability for each supplier that supplies electrical energy to consumers. In addition, the MFRC will invoice the relevant supplier and pay the amount duly collected from the supplier to the relevant generation plant. This system will work as a guarantee ensuring that the generated electricity produced in accordance with the limits set by the MFRC will be sold.
Broadening of the scope of the MFRC guarantee
In addition, the Amending Law has broadened the pricing incentive further by using the term supplier instead of retail sale license holder, which was previously used under the Renewable Energy Law. Supplier includes retail license holders as well as wholesalers and generators. With this amendment, the guarantee provided by the MFRC will cover a broader range of generation plants.
Incentives for use of local components
The Amending Law provides further incentives to RES electricity generation facilities if they use mechanic and/or electro-mechanic parts that are manufactured with local content and in Turkey. The local content incentive addition varies from $0.4 to 3.5 cent/kWh, depending on the type of RES the generation facility uses and the type of local content used.
Installation of additional capacity
The Amending Law also enables an electricity generation plant using an RES to install additional capacity subject to some conditions. However, a specific limitation has been introduced for those generation plants using solar as an RES and that connect to the transmission system before December 31 2013. In these cases, the installed capacity cannot exceed 600 MW.
Establishment in reserved areas
In addition, the Amending Law also permits an electricity generation plant using an RES to be established in some previously reserved areas such as natural or national parks, natural landmarks, protected natural reserves, forest preserves, wildlife preservation areas and protected environmental areas, provided that official permission is also obtained from the relevant authorities.
What lies ahead
Some electricity generation companies have found the incentives a good start but are of the firm opinion that they are insufficient. They strongly believe that the fixed price incentives should have been higher. They also claim that the needs of the market have not been fully satisfied. There has also been some severe criticism of the specific provisions on the use of solar energy as an RES. The 600 MW limitation on such generation plants especially has raised specific concerns and divided opinion. Given the recent criticism and negative attention these changes have brought, there may be further amendments to renewable energy legislation in the near future. Investors, both domestic and foreign, hope that one day the legislation will meet their exact needs and support the enormous growth the renewable energy sector in Turkey requires.