Frustrated industry seeks comfort abroad

Beril Pinar Tandogan does not mince words. The lawyer and board member of the Turkish Wind Energy Association (Tureb) told the organisation's annual conference in Istanbul that two of the main problems plaguing the country's wind industry are "deficient feed-in tariffs and clueless authorities". While not all 150 delegates were quite so forthright, there was an overwhelming sense of frustration at the lack of progress on key issues in this key emerging market.

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Over and over, speakers at the November event called on the government for clarity on the renewable energy law, feed-in tariffs and the licensing process. Grid capacity remains a major barrier, although the industry is encouraged by the fact that Turkey is now connected to the European network. That puts new markets for power within reach. And the country's potential opportunities continue to attract foreign companies.

Among the latest foreign firms to enter the Turkish market are Dutch turbine maker Lagerwey, which opened an Istanbul office in October, and Spanish car and automation component firm Gestamp, which is building a wind tower factory in a joint venture with local industrial supplier Faik Celik Holding (Windpower Monthly, October 2010). In late September, French energy giant Alstom signed its first order in Turkey for eight of its ECO100 3MW machines. They will be delivered to a 24MW project at Hatay, near the Syrian border, owned by Guris Construction and Engineering Co, for completion in late 2011 or early 2012. Meantime, other equipment suppliers are watching the market closely.

In his opening address, Tureb president Murat Durak told delegates that Turkey's installed wind power capacity reached 1.2GW on September 30, with 486MW under construction and a further 731MW due for completion in the next two to three years. Nevertheless, with electricity demand growing at 7-8% a year, urgent action is needed to avoid a supply deficit by 2016. To help plug the gap, the government is targeting 30% of electricity to come from renewable sources by 2023, requiring an estimated 20GW of wind. But Turkey has a long way to go: energy ministry figures show natural gas, coal and large-scale hydro met 95% of overall power generation in 2009, while wind, geothermal and biogas together accounted for just 0.6%.

Legislative logjam

There was one bit of good news, though: in September, Turkey's energy market regulator Emra announced that it would soon issue the first 16 production licences, totalling 917MW, resulting from applications lodged back in November 2007 (Windpower Monthly, November 2010). At least another 616 projects with combined capacity of 29.2GW will have to compete for connection rights. While the industry is hoping these auctions will start soon, the Turkish Electricity Transmission Corporation (Teias) has not issued a firm date. Many details about how the auctions will be run remain unclear.

Equally uncertain was the timing of the government debate over the long-promised revision to the renewable energy law and its contours. "There are many draft regulations, but nothing definite," noted Tandogan. "This is the worst thing for investors."

Zeki Eris, chief executive of local power producer and distributer Polat Enerji, also lamented the lack of co-ordination at state level, exacerbated by sometimes contradictory laws. Regulations covering environmental impact studies, for example, can be interpreted differently at different levels, even within the same ministry, Eris said.

Another concern was the feed-in tariff. This currently stands at EUR0.050-0.055/kWh for all renewable generation, well below the average of around EUR0.07/kWh producers earn on the open market. Eris was not alone in calling for a hefty increase for wind energy to between EUR0.07/kWh and EUR0.09/kWh. "The feed-in tariff must comply with the target," he said. Mehmet Ali Susam, a member of Turkey's single-chamber parliament for the centre-left opposition Republican People's Party, agreed. "With the current tariff, it is not possible to create a climate for investment," he said.

For now, all producers either sell onto the open market or agree power prices directly with buyers. But Eris complained that the new balancing and settlement regulations introduced in December 2009 - which require producers selling on the open market to bid into the day-ahead market - generally act as a penalty. Due to their volatility, day-ahead prices can vary significantly from prices producers can earn on the day of delivery. This makes it hard to secure financing since it is impossible to predict what the returns will be, Eris explained. A solution is in the works, however: an intra-day mechanism with gate closure only one to two hours ahead of delivery, as is common in Europe, is expected by mid-2012.

Insufficient grid capacity continues to pose a major threat to the future deployment of wind energy, with Teias allowing a maximum 8.5GW of wind on the system. But Dimitrios Chaniotis, senior adviser for system development at the European Network of Transmission System Operators for Electricity (Entso-e), explained how the Turkish grid is now linked with the continental European network via Greece and Bulgaria. On September 18, Teias and Entso-e began a joint one-year trial to test the interconnection. Commercial operation will begin once the trial is successfully completed, perhaps in late 2011 if all goes to plan.

Connecting the two systems should eventually increase the quality and security of the electricity supply in Turkey and allow Teias to trade power in the European market. It should also strengthen the reliability and availability of European grids thanks to Turkey's massive renewable energy sources, Entso-e said. Entso-e secretary general Konstantin Staschus has noted another driver: the EU Renewables Directive, which allows member countries to meet some of their targets with imports from outside the EU.

International interest

Several speakers observed how the Turkish market is becoming increasingly reliant on international sources of finance. Sarah Murfitt, principal consultant at Environmental Resources Management, which advises governments and businesses on environmental risk, noted that many international finance institutions now have Turkey in their investment plans.

Among them, the European Bank for Reconstruction and Development (EBRD) recently announced plans for more than EUR1 billion in finance for a spectrum of renewable-energy and energy-efficiency projects in Turkey over the next two years. Project sizes range from 5MW to 50MW. Of the EUR1 billion, EBRD will provide EUR400 million. Another - unidentified - multilateral institution will put up EUR300 million, and the rest will come in the form of debt from local partner banks and equity from sponsors.

The package will also cover technical assistance to help develop the market for voluntary emissions reduction (VER) credits. This will include helping the government create a carbon-project registry and increase the reliability of carbon certificates issued locally. "EBRD intends to expand the VER market in Turkey, develop the local capacity for these transactions and prepare the commercial ground for the post-Kyoto agreements on carbon markets," Adonai Herrera-Martinez, energy-efficiency business development manager at EBRD Turkey, said after the conference. It proved that, despite some cloudy days ahead, at least some quarters of the financial community see promise on the horizon.

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