Solid growth with plenty more lined up -- Turkey takes off

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Installed wind power capacity in Turkey leapt from just 20.1 MW at the beginning of 2006 to 83.75 MW by year's end. Most of the growth came from just two developments: the 30 MW Bares-II plant at Bandirma on the Marmara Sea coast and a project at Mare near Izmir, on the Aegean coast, where the first 24.8 MW of a total 39.2 MW came on line.

Turkish wind pioneer Demirer Holding contributed 32.8 MW of the year's total, while Bilgin Energy Investment Holdings, a power production, transmission and distribution company previously specialising in hydro generation, broke into the market with its 30 MW Bares-II plant. Not only was Bares-II by far the largest installation in Turkey to date, but it was also the first under private ownership and the first power plant in the country to be granted a carbon emission certificate, issued by Germany's TÜV-Süd.

Among turbine manufacturers, Enercon squeaked in as the market leader, supplying 32.8 MW in 2006, just ahead of GE Energy with 30 MW, while Vestas got a look-in with a single 850 kW unit. An estimated 100 MW or more will come on stream in 2007 and there is more in the pipeline. Fully permitted projects totalling 1421 MW are waiting to be built and a further 7420 MW are under development according to the Turkish wind energy association.

The driving force behind all this new activity is the 2005 renewable energy law (Windpower Monthly, June 2005). From the start of this year, state distribution companies are obliged to buy electricity from renewable sources at a fixed price for the first seven years of operation. The price is set annually by the Energy Market Regulatory Authority (EMRA), based on the average wholesale price of electricity the previous year. It currently stands at TRY 0.0834/kWh (EUR 0.045).

Decent start

Industry insiders agree the law provides a decent starting point. It has made financing easier and also provides the all-important legal framework. There are various issues, however, that need ironing out. The industry is pushing for the timeframe of contracts to be lengthened from seven to ten years and for the introduction of a guaranteed minimum price, preferably quoted in euros, to avoid the problem of exchange rate fluctuations. The figure of EUR 0.055/kWh is being widely touted.

These measures would provide greater security for developers and the lending institutions, particularly for foreign investors, industry members argue. While there is some doubt that the government will agree to a euro price, most observers are reasonably optimistic that an amendment introducing ten year contracts and a minimum price could be passed early next year.

"Theoretically, the rate is okay because Turkey has a very good wind regime," says Mehmet Hanagasioglu of engineering consultant company and Turkish wind developer Interwind, based in Zürich. "However, the cost of borrowing in Turkey is very high," he points out, arguing that a ten-year contract -- or a balance between this and a minimum price in euros -- would give some relief to lenders. Foreign investors are interested in the Turkish market but are currently scared off by the high level of risk compared to the returns, Hanagasioglu believes, citing licensing problems, high inflation and the difficulties of securing turbines, among other things. "Projects must be very profitable to compensate for the risks."

Licensing issues

Although EMRA has issued licences for projects totalling 1421 MW, few are getting built, prompting the authority to put a halt on new applications in the summer of 2006. The ban, which runs until further notice, was imposed to see how many of the current licences are "serious" before issuing any more.

Part of the problem, says Hanagasioglu, is that the majority of Turkish developers do not have sufficient equity to bring their projects to completion, or overvalue them, and are unable to sell them on. As a result, it is likely that many licences will expire. Once a licence is issued it is valid for up to between 12 and 24 months, during which time the project must be built. Once construction has started it is possible to apply for an extension, though whether it is granted and for how long appears rather arbitrary at present. EMRA is in the process of reviewing the procedures.

The situation is made worse by the long lead times for turbine deliveries, with the big manufacturers currently unable to meet orders before the end of 2008. Developers are naturally unwilling to place firm orders until they receive the licence. As things stand, licences will run out before the turbine delivery date. The government is debating how to resolve the issue.

Lack of capacity

Turkey urgently needs new generating capacity. The country is expected to hit an electricity deficit around the end of the year. "Turkey has not been investing in new capacity fast enough to meet increased demand," says Önder Demirer of Demirer Holding. The easiest short term solution is to build natural gas plant, which will push up the cost of electricity and mean greater reliance on Russian imports. Nevertheless, this is good news for renewables in a roundabout way, points out Demirer: "As the price of supply goes up, so renewables become more competitive and there is a greater incentive to build."

Despite certain problems, "the Turkish market is starting to be attractive," asserts Tolga Bilgin of Bilgin Holdings. There are more foreign players looking around, he says, notably Spanish but also other European companies. Hanagasioglu agrees. The energy law may not be perfect, but the situation is better than before, he says. Turkey has a major potential for wind power and it is going in the right direction. "There are lots of people in the market fighting to get it right, and we will get it right."

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