Turkey: Further Incentives On The Utilisation Of Renewable Energy

Last Updated: 7 September 2011
Article by Emre Atayilmaz

Unlike some of its neighbours, Turkey is not rich in terms of oil and gas resources. Therefore, Turkey has to import much of the oil and gas it needs. However, importing oil and gas creates a number of difficulties for Turkey. Firstly, it is a significant burden on economy. Secondly, it may create dependency on foreign energy resources. Thirdly, the specifics of the supplier country (e.g. a drastic increase in its own energy needs of the supplier country) or the political tensions may affect the supply. To overcome or at least to minimize these difficulties, Turkey can better use its own energy resources and therefore diversify supply resources.

Despite its limited oil and gas resources, Turkey is extremely rich in terms of diverse renewable energy resources including wind, hydro, solar, geothermal and biomass. However, Turkey has not been able to maximize its use of these natural resources so far. Turkey's total installed electricity capacity is around 45,000MW1 whereas renewable energy capacity constitutes about 16,000MW of this figure. Further, 16,000MW also includes large hydro electricity power plants that fall out of the scope of "renewable energy resources" under the Renewable Energy Law.

In connection with the above, as the demand for electrical energy is growing in Turkey in line with the rapidly growing economy, the Turkish government introduced Law No. 5346 on the Use of Renewable Energy Resources for the Purpose of Electrical Power Generation (the Renewable Energy Law) in 2005. However, the proposed incentives, particularly the fixed price range between 5.0 Euro cents and 5.5 Euro cents for electricity generated from renewable energy sources (regardless of the type of renewable energy source used), have never been attractive to potential investors in the Turkish energy market. Since 2005, the free market has been offering more favourable prices than the fixed price range under the Renewable Energy Law.

Subsequent to long political and financial debates, Law No. 6094 (the Amending Law) came into effect on 8 January 2011. The Amending Law introduced further incentives to encourage investments. Below, please find a summary of the significant incentives introduced under the Amending Law:

I. Pricing incentives

Under the initial version of the Renewable Energy Law, a fixed and global price range between 5.0 Euro cents and 5.5 Euro cents was introduced, regardless of the type of the renewable energy source. However, the Amending Law introduces a number of fixed prices varying according to the type of renewable energy resource used.

Furthermore, unlike the "Euro cents" in the Renewable Energy Law, under the Amending Law "US Dollar cents" are used in the fixed prices. The fixed prices, according to the type of renewable energy resource used, are as follows:

  • hydro power - 7.3 US Dollar cents/kWh;
  • wind power - 7.3 US Dollar cents/kWh;
  • geothermal power - 10.5 US Dollar cents/kWh;
  • biomass - 13.3 US Dollar cents/kWh; and
  • solar power - 13.3 US Dollar cents/kWh.

The generation facilities which have started or will start operating between 18 May 2005 and 31 December 2015 may benefit from the above fixed prices for a period of ten years. The Council of Ministers will determine the pricing incentives and time periods for the generators which will start operating after 31 December 2015. However, these pricing incentives will not be higher than the above.

Energy generators wishing to benefit from the above-mentioned prices must obtain renewable energy resource certificate and apply to EMRA2 by 31 October in any year to benefit from the prices in the following calendar year. Generators that participate in the system must stay within it for a minimum of one year.

II. Pooling of payments

Under the Amending Law, all electricity "suppliers" will make their payments into a pool. PMUM3 will be in charge of this pool. Accordingly, the relevant generators will receive their revenues from this pool.

In practice, this system will provide a guarantee to a renewable energy generator which participates in the system that its electricity will be purchased. Further, the system will provide comfort to the investors as it offers guaranteed purchase for a "fixed term and price".

On the parties that are liable to pay to the pool, the Amending Law refers to "suppliers" which replaces the reference to "retailers" in the Renewable Energy Law. The definition of "suppliers" includes not only retailers but also wholesalers, generators etc. Due to this broadening in the scope of the parties that are liable to pay to the pool, eligible consumers4 may no longer be able to dilute the effectiveness of the purchase guarantee even if they purchase electricity from sources (e.g. generators) other than retailers.

III. Incentives for use of Turkish-made components

According to the Amending Law, if a generator uses Turkish-made mechanical and/or electromechanical components in the generation plant utilising renewable energy, such generator will benefit from additional pricing incentives for each component used in the generation plant.

Depending on the Turkish-made components used, the incentives vary between 0.4 to 3.5 US Dollar cents/kWh per unit. The incentives will be applicable to the power generators which start operating before 31 December 2015 and last for 5 years from the start date of operation of the relevant plant. The incentives for power generators that start operation after 31 December 2015 will be announced by the Council of Ministers on a later date.

IV. Other incentives

The licence holder generators utilising renewable energy may install additional capacity provided that they remain within the area specified in their licences and that the amount of energy transferred to the system during the operation does not exceed the amount specified in their licence.

Generation facilities utilising renewable energy may be established in certain sensitive areas such as natural parks provided that the relevant ministry, or the protection board in charge of the relevant area, permits such establishment.

The total installed capacity of generation facilities which utilize solar energy and connect to the transmission system before 31 December 2013 may not exceed 600MW. The Council of Ministers will determine the threshold for the generators which will connect to the transmission system after 31 December 2013.

Overview

The incentives, particularly the pricing incentives, introduced by the Amending Law could have been more generous given that the intention is to draw more investment, especially foreign investment, into the renewable energy sector where Turkey has such large potential. Nonetheless, the incentives have considerably clarified the long-lasting ambiguity, and investor concern, on the utilisation of renewable energy.

Footnotes

1. These figures are based on the statistics on Turkey's installed capacity in 2009 disclosed in the web site of TEIAS (Turkish Electricity Transmission Company).

2. Energy Market Regulatory Authority in Turkey.

3. Market Financial Reconciliation Centre- a division of TEIAS.

4. Eligible consumers are the consumers whose consumption exceeds a certain threshold (i.e. amount of consumption in the previous year) announced by EMRA or who are directly connected to the transmission system. The threshold is updated annually and amounts to 30.000 kWh for 2011.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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