Tasty market with most of the right ingredients -- Take off in Turkey

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Turkey continued on a roll in 2007 with installed capacity leaping from 83.75 MW at the beginning of the year to finish at 192.25 MW. If all goes well, capacity could more than double again in both 2008 and 2009. Not that everyone is satisfied. "This is where the Turkish wind industry should have been seven or eight years ago," says Mehmet Hanagasioglu of engineering consultant company Interwind, based in Zurich.

While the country has an enormous renewable energy potential it is also facing a looming energy crisis. Electricity consumption is growing at over 8% a year, while Turkey is increasingly reliant on unpredictable supplies of natural gas from Iran and Russia. It has already set a renewables target of 12% by 2020, which translates into roughly 12,000 MW of wind.

The potential is not going unnoticed. When the Energy Market Regulatory Authority (EMRA) briefly ended a 16-month ban on applications for production licences on November 1 last year, it was deluged with submissions for 750 projects with a cumulative capacity of 78,000 MW. Proposals ranged from 1.5 MW to 3000 MW and there was a good showing of foreign investors, either applying independently or with Turkish partners. BP, Iberdrola and Germany's Westwind featured, alongside local owner-operators like Bilgin, Demirer, Sanko Holdings and Aksa Enerji. EMRA is now ploughing through the applications, but it is unlikely the successful projects will start building before 2010.

The response indicates investors have not been put off by requirements introduced last year that applications be accompanied by bank guarantees amounting to up to 3% of project value. The purpose of the guarantee is to discourage speculators and smaller weaker players and improve the chances of projects getting built.

The guarantee requirement makes it increasingly difficult for small projects to break ground in Turkey. With up-front costs of up to 10-15% of the total investment before even building work starts, says Hanagasioglu, only the bigger projects are viable and only the bigger players can afford to see them through. These are typically the large holding companies and utilities, such as new entrant Zorlu, with deep pockets and long experience in the energy sector.

Another trend which looks set to continue is the flood of foreign firms entering the market. GE Energy Financial Services recently took a 50% stake in local producer Gama Enerji, which has a development portfolio of nine wind projects totalling 490 MW. In November, veteran German wind company Plambeck Neue Energien set up a joint venture with Turkwind Enerji to develop projects totalling 450 MW for completion from 2010 onwards. Another entrant is Epuron, part of German renewables company Conergy, which counts Turkey as one of its target markets. "It has a good wind resource plus strong demand and strong growth in demand," says Epuron's Clemens Thomas. The company applied for 3000 MW at EMRA's November open day, all located in western Turkey.

Last year also saw two important amendments to the renewable energy law, both of which hit the spot with foreign investors. First, 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 0.0522/kWh) -- was extended from seven to ten years. Second, a guaranteed minimum and maximum price of EUR 0.05/kWh and EUR 0.055/kWh was introduced, thus reducing the risk of currency fluctuations.

The measures were welcomed by the industry as providing greater security for developers and lending institutions, particularly for foreign investors. As Vestas' Ranier Karan puts it, "Because of the ten year guarantee, it is possible to base business plans on this stable price. As a result, banks have become willing to provide capital for investments in the wind industry."

Pioneering carbon credits

The price is still low and to increase revenue streams from sales of wind power a growing number of owner-operators are looking to sell the "voluntary emissions reduction certificates" (VERs) associated with their wind generation. Because Turkey is not a signatory to the UN's Kyoto Protocol, companies are not eligible for the higher-priced carbon emission reduction certificates, known as CERs.

VERs are described as "very important to the profitability of projects," by Sanko Holding's Mustapha Gunbulut. Hanagasioglu agrees. "Sales of VERs can make as much as EUR 0.001/kWh if handled right, which is a very big motivator on top of the official tariff," he says.

Demirer Holding pioneered the way to VERs with its 30.4 MW facility at Anemon, which in June 2007 became the first in the world to qualify for CDM status as a "gold standard" voluntary offset project. Both Demirer's Mare and Sayalar installations have since qualified too, while Zorlu subsidiary Rotor Enerji recently signed an emission reduction sale agreement with Ireland-based EcoSecurities for its 135 MW Bahce project, near the Syrian border, where 54 of GE's new 2.5 MW turbines are due to start turning later this year.

Bahce will be Turkey's largest project to date, one of a number of major projects on the horizon (table), including Aksa Enerji's 90 MW Samli installation in Baleksir. While Vestas will supply its 3 MW turbine at Samli, elsewhere new names are getting a look in. Both Suzlon and Nordex will make their first deliveries to Turkey this year, while Conergy is negotiating for a 66.6 MW deal. "One of the biggest problems is delivery of wind turbines," laments Önder Demirer of Demirer Holding. Hanagasioglu agrees. "The lack of turbines is really slowing things down," he says.

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