Turkish law offers surprise incentive for local build

TURKEY: The Turkish wind power industry breathed a sigh of relief in December as parliament finally ratified the amended renewable energy law, under discussion since 2008. As expected, the law specifies differentiated tariffs for each renewable energy source.

Turkish parliament finally rules on renewable energy, with benefits for wind (EGE Eksen)

While there is no increase in the guaranteed price for wind power, in a surprise move the government introduced further support for locally made technology. The overall increase in incentives will attract as much as EUR22.5 billion of investment, says energy minister Taner Yildiz. This will help the country meet its target of 20GW of installed wind capacity by 2023, up from around 1.3GW today.

The new law sets the tariff for wind power at $0.073/kWh (EUR0.055), expressed in dollars rather than euros. This applies for the first ten years of operation for plant built from 13 May 2005 to 31 December 2015. For facilities commissioned from 2016, or operating for more than ten years, the cabinet will set the tariff, but will not exceed this rate.

Previously, all renewable generation was eligible for EUR0.050-0.055/kWh, also guaranteed for ten years. So, producers opted to sell through bilateral agreements or on the open market, where the average wholesale price is around EUR0.07/kWh.

"It remains to be seen what the impact will be of payments determined in dollars, and what will happen after ten years when the incentive period expires," says Adil Tekin, head of power at France-based energy multinational Alstom. He adds that the most important thing is that the law is finalised. "Investors can now make decisions with visibility until the end of 2015."

Local technology

The further support for locally made technology may affect producers' decisions to sell on the open market. There is an extra $0.006/kWh (EUR0.0045) for locally made towers; $0.008 for blades; $0.01 for generators; and $0.013 for other components in the nacelle. The incentives are payable for five years for plant operating by the end of 2015.

"No one should say these prices are not convincing for the industry and that we should have given a few more cents," Yildiz said when presenting the law. "I am sure our investors will do business at these prices."

As only towers and blades are currently available locally, the total price an operator can achieve today in Turkey is $0.087/kWh (EUR0.066). This is still below the average wholesale price, says Zeki Eris, CEO of local wind power producer Polat Enerji. Even if the manufacturer makes generators locally in future, it is likely the wholesale price will stay ahead as electricity costs rise, he adds.

Despite this, Eris believes the new law will stimulate local manufacturing as long-term lenders financing wind power investments will want to play safe and lend money to investors using locally manufactured turbines. "They will prefer to lend money to investors using locally manufactured turbines as they can therefore use a constant price in their feasibility studies."

"Turkey will be able to become a hub for wind power equipment producers and export products to North Africa, the Middle East and the Balkans," he believes.

Alstom's Tekin agrees. "We think the law provides incentives that could possibly change the Turkish energy market drastically," he says.

The industry is now waiting to hear exactly what constitutes local content. The minister must issue the regulation within three months of the law entering into effect.

Production licence

In a separate move, in early December the Energy Market Regulator (EMRA) issued the first production licence from applications for 78GW of wind power projects submitted in November 2007. It is one of the projects EMRA deemed eligible to receive a licence as it does not compete for grid access and has received a positive technical assessment (Windpower Monthly, November 2010).

Tektug Elektrik Uretim, one of Turkey's leading providers of clean energy and carbon offsets, has the go-ahead for a 25MW plant at Sincik in Adiyaman province, south eastern Turkey. The firm now has 40 months in which to complete the permitting process and build the facility, though commissioning could take place in late 2012 or early 2013 if all goes to plan, says Tektug executive committee member Elvan Guven.

EMRA expects to issue licences for 27 more projects with a total capacity of 1.34GW soon. Those that are competing for grid access, totalling around 30GW, will be asked to bid for connection rights in a series of auctions due to start in the coming months.