Turkey seeks to reassure investors with new feed-in tariffs and benefits for hybrids with storage

Turkey’s government has approved a decree issuing new feed-in tariffs (FIT) for wind and other renewable energy sources, in a move that is expected to help alleviate problems with financing.

Hybrid wind and solar projects incorporating storage in Turkey will attract even higher feed-in tariffs (Image credit: temizyurek, via Getty Images)

The new mechanism has been welcomed by market participants. Banks had become increasingly reluctant to fund new projects amid rampant inflation and the steep depreciation of the Turkish lira, which in turn had slowed the rollout of wind capacity. 

The decree, published on 1 May, sets a floor price for onshore wind in US dollars of $0.0495/kWh and a ceiling price of $0.0605/kWh.  Under what is known as the Yekdem mechanism, adjustments to the price are calculated using a formula based largely on Turkish lira exchange rates against the dollar and the euro, while also taking into account producer and consumer prices. 

The starting tariff stands at $0.055/kWh and will be updated monthly.  

Floor and ceiling prices are 10% below and above this price, respectively. 

“The government wants to protect itself from large increases (in the tariff) while giving more comfort to lenders,” explains Ibrahim Erden, chairman of Turkish wind energy association Tureb. 

The new FIT applies to projects commissioned between 1 July 2021 and the end of 2030.  

It replaces an interim mechanism, approved at the start of 2021, that was barely used because banks were not comfortable with it given its weaker coupling with dollar and euro exchange rates.  

Financing banks liked an earlier mechanism setting the tariff at the equivalent of $0.073/kWh, but the new system is seen as an acceptable compromise.  

Offshore tariffs 

For the first time, the decree provides details of support for offshore wind farms, and establishes a floor price of $0.0675/kWh, a ceiling of $0.0825/kWh and a starting price of $0.075/kWh.   

In its recently published national energy plan, Turkey set a target for nearly 30GW of wind capacity by 2035, of which 24.6GW will be onshore wind and 5GW offshore.  As of the end 2022, Turkey had 12GW onshore capacity and no offshore capacity. 

Tureb chairman Murat Durak said he sees 2030 as a realistic date for the country to begin the construction of the first wind farms off the Turkish coast and 2032 as a likely date for the commissioning of the first facilities. Durak noted that metocean buoy measurements are expected to begin in 2024, with the first round of seabed auctions anticipated for 2025. 

According to the new Yekdem decree, FITs will be awarded to renewable energy facilities for ten years, while a five-year bonus payment will be offered for the use of locally produced components. The local content bonus can amount to as much as $0.015/kWh for onshore wind and $0.02/kWh for offshore projects. Details of how the local content bonus will work are yet to be finalised. 

Hybrid projects with storage 

One clear beneficiary of the new legislation is storage, with a higher FIT envisioned for wind and photovoltaic (PV) projects which incorporate battery storage. Hybrid wind-storage and PV-storage facilities will receive a floor price of $0.0585/kWh and ceiling of $0.0715, with a starting FIT of $0.065. These projects also receive a local content bonus of $0.02/kWh for ten years rather than the standard five. 

The more generous tariffs for projects which incorporate storage come as energy regulator Emra began granting pre-licences for hybrid projects, which enjoy a preferential authorisation system. Erden expects the process to yield a minimum of 10GW in preliminary licences for hybrid wind-storage projects and 10GW in PV-storage. 

The new FIT is not expected to replace an auction system known as Yeka – the Turkish acronym for “renewable energy designated area” – which will most likely continue for large-scale projects. After it was unveiled in 2017, the last major Yeka auction was held in 2022, with 850MW awarded to eight Turkish companies.  

Erden said he expected to see new licences for integrated wind and storage facilities feed into new capacity figures starting in 2025. Given the advancement of projects assigned capacity under the Yeka tender system and the expansion of already operating wind farms, Erden estimated that an additional 1GW of new capacity could come online over the next two years. 

Results from upcoming Turkish elections are not expected to alter the prospects for wind, because the current government and the political opposition are both in favour of boosting the use of renewable power.