Two steps forward and one back -- Turkey market structure

News is mixed from Turkey. Two amendments to the 2005 Renewable Energy Law have received a positive reception from the wind industry, as has an end to the ban on new applications for wind project licences. But that good news is counterbalanced by a new requirement for bank guarantee deposits of up to 3% of a project's value.

First the good news. After much lobbying, the period during which state distribution companies are obliged to buy electricity from renewable sources at a fixed price -- currently TRY 0.0913/kWh (EUR 0.0533/kWh) -- has been extended from seven years to ten. Furthermore, a guaranteed minimum and maximum price of EUR 0.05/kWh and EUR 0.055/kWh respectively, has now been introduced. The measures are welcomed by the industry as providing greater security for developers and lending institutions, particularly for foreign investors.

The other good news is that the Energy Market Regulatory Authority (EMRA) was once again prepared to accept applications for production licences, the first stage in the permitting process, albeit for just one day. Developers were able to submit applications on November 1. This ends a moratorium imposed in 2006 to give officials breathing space to ascertain how many of the existing licences -- currently totalling over 1900 MW -- were "serious." EMRA said last month that it would wait to see what happened on November 1 before deciding if the process would be repeated.

Big hurdle

Not so welcomed by many market participants is the introduction of a "will secure" requirement for all production licence applicants and licence holders for projects not yet built. They must deposit two bank guarantees. The first is a guarantee of TRY 10,000 (EUR 6000) per installed megawatt, up to a limit of TRY 1 million (EUR 600,000), to be submitted when applying for a production licence. Once a licence is granted, the developer must deposit a further guarantee calculated as a percentage of a typical project cost which EMRA has determined to be TRY 2 million (EUR 1.2 million) for each installed megawatt. The rate is 3% for the first 10 MW, 2% for the next 10-100 MW and 1% for anything above 100 MW.

For a 25 MW project, a bank guarantee of TRY 1.2 million (EUR 700,000) would be required, minus the amount of the initial guarantee submitted at the time of application. If the developer decides not to proceed, EMRA cashes the guarantee. The idea is to root out speculators and smaller investors unable to complete and instead to attract larger, more reputable companies.

There is a problem with so many construction licences granted and so few plant getting built, acknowledges Mehmet Hanagasioglu of engineering consultant company and Turkish wind developer Interwind, based in Zurich. Once a production licence is issued, the grid connection is then blocked to other developers, which "is detrimental to the business and to the production of energy" says Hanagasioglu.

But he argues the new guarantees being demanded are too big a hurdle. Instead, EMRA could find other ways of achieving the same end, such as asking for evidence of a developer's track record in combination with a lower guarantee. Tolga Bilgin of owner-operator Bilgin Energy Investment Holdings agrees. He suggests a guarantee of 1% of project value would be sufficient to ensure only bona fide applications.

Suzlon contract

Meantime, business continues. Bilgin Energy has got the go ahead for a 142.5 MW development at Kapsut in the Balikesir province of western Turkey, 90 MW at Soma in nearby Manisa province and a 90 MW at Aliaga, north of Izmir. Completion is scheduled for 2009 and 2010. Furthermore, Ayen Enerji, a medium-size local utility entering the wind market for the first time, has given Indian wind turbine maker Suzlon its first order in the Turkish market.

The contract is for 15 Suzlon 2.1 MW machines to be installed at Didim on the Aegean coast to the south of Izmir. Ayen says it chose Suzlon for its winning combination of price, technology and availability. Construction will start in March for completion by the end of the year. Ayen also has an application pending for another 30 MW near Izmir.

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