Turkey: Incentives For Renewable Energy

Last Updated: 28 April 2011
Article by Seda Gümüş

Energy policy is changing globally in the direction of security of supply and climate change. The global trend is towards three energy policy strategies as (i) improved energy efficiency and rational use of energy, (ii) increasing use of renewable sources and (iii) benefiting from un-sustainable resources using low-carbon technologies. Since renewable energy has become a high priority among such strategies, global investment in renewable energy sector is increasing rapidly.

Although Turkey has significant renewable energy sources for electricity production, this potential has not been used efficiently. However, progress has been made with regard to renewable energy regulations in Turkey in order to provide incentives to the renewable energy sector. This article provides an overview of the general provisions of the Law on Utilization of Renewable Energy Sources for the Purpose of Generating Electrical Energy (the "Renewable Energy Law") which, was amended on 29 December 2010, as well as other supporting legislation regarding renewable energy sources ("RES").

1. Renewable Energy Law

Important steps have been taken by the legislator in order to promote the use of RES in the production of electricity and to encourage the investments in the renewable energy market. In 2005, the government passed the Renewable Energy Law which provided feed-in tariffs and other incentives for renewable energy projects. On 29 December 2010, the Turkish Parliament passed the Law Amending the Law No. 5346 (the "New Law") and the New Law was announced on the Official Gazette dated 8 January 2011 and numbered 27809.

a. Incentives provided in the New Law

The New Law provides a Renewable Energy Support Mechanism ("Mechanism") which covers different incentives and benefits for renewable energy projects including feed-in tariffs (fixed minimum electricity sale prices). The New Law covers different feed-in tariffs depending on the type of the renewable energy projects as follows:

  • Turkish Lira equivalent of USD 0.073 per kWh for hydroelectric power plants,
  • Turkish Lira equivalent of USD 0.073 per kWh for wind power plants,
  • Turkish Lira equivalent of USD 0.105 per kWh for geothermal power plants,
  • Turkish Lira equivalent of USD 0.133 per kWh for biomass power plants, and
  • Turkish Lira equivalent of USD 0.133 per kWh for solar power plants.

The above mentioned feed-in tariffs will be applicable for the legal entities holding generation licenses which start operations during the period from 18 May 2005 to 31 December 2015 and for a period of ten years from the operation date.

The New Law also features further price incentives from 0,004 to 0,024 kWh for the license holders which use locally produced mechanical and/or electro-mechanical equipment/components in renewable energy facilities, for a five-year term provided that they start producing energy before the end of 2015.

b. Lock-up Period

A lock-up period is stipulated for the legal entities holding generation licenses which are subject to the Mechanism. In order to benefit from the Mechanism, legal entities holding renewable energy generation licenses and Renewable Energy Source Certificate (RES Certificate) should apply to the Energy Market Regulatory Authority ("EMRA") by 31 October of the year before they wish to benefit. Generators included in the Mechanism should remain in the Mechanism for the first one year (lock-up period).

c. Pooling System

According to the New Law, not only the retail license holders but all suppliers (generators, wholesalers etc.) should purchase the electricity generated under the Mechanism. The New Law also envisages a pool managed by the Market Financial Settlement Center ("MFSC") whereby the electricity suppliers will make the payment of the renewable energy and the renewable energy generators will collect their fees.1

d. Other Amendments in the Renewable Energy Law

Another incentive granted to renewable energy facilities is regarding the use of state properties. If any state property is used for the generation of electricity from renewable resources, the Ministry of Environment and Forestry or the Ministry of Finance shall permit the use of such properties with respect to the facility, access ways and energy transmission grids up to the connection point of the grid in return for a fee. Such permission may be in the forms of permits, leases, rights of easement or rights of usage. For facilities that start operation before the end of 2015, access ways and energy transmission grids up to the connection point, a discount of 85 per cent shall be applied to the fees for permission, lease, right of easement and right of usage for the first 10 years of their investment and operation periods.

The New Law included waste-to-energy among the renewable energy sources.

The New Law limits the total generation of licensed solar energy companies up to 600 MW until 31 December 2013, and authorizes the Council of Ministers to determine the future limits. According to the New Law, for the RES certified facilities which shall start operations after 31 December 2015, the fees, capacity limits and duration of the future incentives shall be determined by the Council of Ministers provided that the prices shall not be higher than the prices provided in the law. With the aforementioned two authorities, the Council of Ministers will be able to reduce the price incentives and future capacity limits in case that new technologies reduce project the costs especially for the solar power projects.

The establishment of generation facilities based on renewable energy in the national parks, natural monuments, nature reserve areas, protection forests, wildlife protection areas and specially protected environment areas is subject to the approval of the relevant Ministry while establishment of facilities in natural protected areas is subject to the approval of the related Protection Council of Cultural and Natural Properties. The aforementioned approval to be given by the Ministry also used to be given by the Protection Council of Cultural and Natural Properties in the previous version of the law. Such amendment was criticized in the parliament discussions on the ground that this authority requires a specialization which should not be effected by politics.

3. Other incentives provided in the legislation

  • Legal entities applying for a licence for the construction of facilities based on domestic natural resources and RES shall only pay 1 per cent of the total licensing fee.
  • Generation facilities based on renewable and domestic energy resources shall not pay annual licence fees for the first eight years following the facility completion date inserted in their respective licence.
  • TEIAS, the state owned transmission company, and distribution licensees shall give priority to the system connection of generation facilities based on domestic natural resources and renewable resources.
  • If the price of electricity generated at facilities based on RES is equal to or lower than the sales price of TETAS, the state owned wholesale company, and if there is no cheaper alternative, the retail licensees are obliged to purchase the electricity generated at facilities based on RES for the purposes of resale to non-eligible consumers.
  • Renewable energy plant investments up to 500kW and micro-cogeneration plant investments are exempt from license and company establishment requirements and they can be connected to the grid. Implementing regulation regarding connection to the grid of plants of up to 500kW was published on 3 December 2010. According to the implementing regulation, generators which do not have license can only generate their own consumption. They cannot sell electricity with bilateral agreements. However, they may transfer their surplus energy to the distribution system. In this case, they would benefit from the feed in tariffs of the Mechanism. Distribution companies holding retail license must purchase such surplus. Consumption surplus of micro-cogeneration plants are purchased at the national wholesale tariff.

4. Conclusion

It is obvious that there is a strong need to promote renewable energy in accordance with the global energy policy towards clean energy. Turkey signed Kyoto Protocol with the intention of promoting clean energy in Turkey. The renewable energy investments have become more important in this regard. Although some progress have been made in legislation in order to promote the renewable energy investments, the incentives provided for renewable energy investments are criticised by the investors since the feed-in tariffs are lower than expected. All the efforts made so far have to be appreciated while there are more steps to be taken.

Footnotes

1 EMRA prepared a draft implementation regulation stipulating the procedures and principles to be followed by the market participants in order to obtain a RES Certificate and to be involved in the Mechanism. The draft regulation is not finalized and published at the time of writing.

2 The eligible consumer limit for 2011 is 30.000 kWh.

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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