Turkey - Growth is expected as investors move in

TURKEY: Turkey is expecting a sizeable increase in new wind capacity this year, although market observers are divided as to whether 2013 will be the year that the wind industry really takes off.

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Turkey's installed wind capacity must rise nearly tenfold if the country is to meet its official goal of 20GW of wind capacity by 2023.

Roughly 450MW is under construction and will be connected to the grid in 2013, says Christian Johannes, general manager of Turkey-based wind consultancy Re-consult. Andi Aranitasi, a senior banker at the European Bank for Reconstruction and Development says he expects Turkey's wind capacity could rise by as much as 800-1000MW this year.

Johannes points to expectations that energy regulator EMRA may seek new applications for wind farm licenses this year, tenders for existing wind farm expansions and the development of new sites. He says that while 9.2GW of wind projects already have or are eligible for licenses, only about half of that capacity is likely to be operating in the next three or four years.

The reason is that the extremely high fees some investors agreed to pay in a grid connection tender has made those projects financially unfeasible. EMRA must therefore issue new licenses if the government is to get anywhere near to its capacity target.

turkey capacity pieAccording to figures from Turkish energy regulator EMRA, Turkey's installed wind capacity amounted to about 2.13GW at the end of 2012. This is 332MW, or 18.5% more, than the 1.8GW recorded at the end of 2011.

In the meantime, Turkey's wind sector continues to grow despite the lack of a strong incentive system, although a higher feed-in-tariff (FIT) continues to rank high on the wish list of many market participants. Turkey offers a feed-in-tariff of $0.073/kWh, although the tariff has rarely been used since market energy prices have historically been about 10-20% higher.

Electricity prices are expected to rise in 2013. "The FIT is seen as being more of a safety net than the driver for the market," says Aranitasi. "Perhaps wind has developed a little bit less quickly than the government would like, but the projects that have been developed are usually the ones with the better capacity factors that are more commercially viable."

While a FIT of up to $0.11/kWh for projects with locally manufactured content is foreseen, no producers are known to have secured the local content premium, although that could change after secondary legislation was approved last year clarifying local content requirements.

Since $0.11/kWh is the tariff if the entire turbine is manufactured in Turkey, and no company yet does that, the highest price realistically available now is $0.087/kWh, says Aranitasi. This is the FIT offered for using locally manufactured towers and blades, the two components currently manufactured in Turkey.

Merchant risk has complicated project financing, and non-recourse project financing is not yet a feature of the market, although Turkish companies have not shied away from taking on this risk. While a core group of foreign investors has gained a strong foothold in the Turkish market, this has almost always been through joint ventures with local partners.

"When we entered the market in 2006 or 2007, it was truly a greenfield market," says Gokhan Baykam, CEO of Italian renewable energy developer and operator Relight. "Now there's a decent installed capacity and a good level of know-how and it's much easier to set up a joint venture." A major reason Turkey is continuing to attract foreign investors despite low incentive prices is the country's strong wind resources, says Baykam. "All of our projects have capacity factors above 30%."

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