Turkey: Significance, Investments, Incentives And Legislation On Biomass (Bio Gas, Bio Energy, Bio Power, Biofuel, Bio Diesel) In Renewable Energy Market Of Turkey, And Turkey's Role In The Region

Last Updated: 6 January 2012
Article by Engin Düzgün and Burcu Kırancı

We are in the beginning of a period that there is increasing risk of extinction in widespread use of common energy sources. Due to the classical energy sources are insufficient to support the rising needs and developing technology, developed countries increase and expand the energy diversity and try to alternate the energy resources by avoiding dependence on particular energy resources within this period. Bio fuels are leading these alternatives.

Biofuels are clean energy resources alternative to natural gas and consist of mixture of fuel or diesel, produced by agricultutral and animal products by using variant chemical methods which is brought in to question by fossil fuels (fuel, coal, natural gas,etc.) which arereserved in particular areas of the world and almost extinct.

There are 3 types of biomass technology nowadays:

  • Bio fuel: Converting biomass into fuel oil in order to use in transportation,
  • Bio power: Using biofuel in power generation directly by converting it into gas or annealing,
  • Bio product: Production of the products with chemical processes, which were produced using fuel previosuly.

Advantages of biofuel as follows:

  • It is a domestic and renewable energy resource,
  • Biofuel is equivalent to diesel and alternative clean energy resource which is mixed with fuel,
  • Ensures reduction in natural gas and fuel oil import as well as consumer saving,
  • Supports energy sustainability,
  • Ensures energy agriculture (oil seed agriculture) development
  • Ensures socio economic development of rural area,
  • Creates local employment,
  • Ensures manifacturing industry development,
  • Ensures environmental protection and development of natural energy resources.

Bioethanol is produced in USA, Brasil particularly as well as China, EU, India, Canada and Thailand. Bio diesel is produced in Germany, France and Italy in European Union, USA, Indonesia, Malaysia, Brasil, China, Canada, Thailand, India and Argentina.

USA and EU countries promote bio fuel production and increase the production annually.

Thus, pursuant to Eu Dırectıve 2003/30/Ec Of The European Parlıament And Of The Councıl of 8 May 2003 and Dırectıve Of The European Parlıament And Of The Councıl of 23 January 2008, EU aims to establish an overall target of a 20% for bio fuel by 2020.

Additionally, bio diesel is free of tax according to the Directive. (Austria, Norway, Sweeden, Poland, Slovakia, the Czech Republic)

USA intends to use 132 billion liters of bioethanol by 2017 which was 19 billion liters in 2006.

3500 numbers of Bio gas plants which have 1.100 MW size increased in the ratio of 2800% in 2006 whereas they were only 120 in 1991 in Federal Republic of Germany. There have been investments of which amount were approximately 1 billion Euro in 2006. These numbers point to the developments in renewable energy and bio gas technology as well as the agriculture and stock-breeding. The investments in other renewable energy resources couldn't succeed this much. On the other hand, biomass market provides employment for 10.000 people who have profession in different fields (planning, engineering, construction, etc.)

Germany supplies its energy with renewable energy resources on the ratio of 15% while biomass constitutes the 4% of total supply. (2% solar, 3% hydro and 6% wind).

Considering the energy import ( on fuel oil, petroleum products, natural gas, LPG, coal) of Turkey valued at 26,1 billion USD and supposing that this will increase on the ratio of 10% annually, Turkey should determine the vision for 50 years which is very important for national, political and economic interest.

It has been stated that in case Turkey reserves 20 percent of its agriculture product areas for energy agriculture, it can produce 75 percent of all its natural gas.

Thus, Turkey should not be away from these developments and should affiliate the biomass targets to its agricultural policies after ensuring food safety action plan, while developed countries step up the biofuel production year by year.

Along with the Biofuel production process has been expedited in 2005, action production consisted of 90.000 tones with the plants which had installed capacity of 1-1,5 million tones, but unrecorded and unlawful and production by many producers caused trouble in this market due to the incompleted legislative procedure. Nevertheless, biodiesel producers could not produce due to deficiency of oilseed which are required for bio diesel.

Capacity of biomass/ biofuel has been considered and The Bulletin Amending the Bulletin on The Technical Regulation on Types of Diesel and The Bulletin on The Bulletin Amending the Bulletin on The Technical Regulation on Types of Fuel issued by EMRA, have entered into force by promulgation in the Official Gazette no 28067 in 27 September 2011.

According to the decision taken by Energy Market Regulatory Authority (EMRA), the paragraph has been added to second article of The Bulletin Amending the Bulletin on The Technical Regulation on Types of Diesel :" from the date of 1 January 2014 at least 1 percent, as of January 1, 2015 for at least 2 percent of ethanol produced of domestic agricultural products, became mandatory addition as a fuel supply to the fuel types on the market ".

On the other hand, the paragraph has been added to second article of The Bulletin Amending the Bulletin on The Technical Regulation on Types of Fuel :" from the date of 1 January 2013 at least 2 percent, as of January 1, 2014 for at least 3 percent of ethanol produced of domestic agricultural products, became mandatory addition as a fuel supply to the fuel types on the market ".

In view of this information, bio gas will be a long term gainful investment.

Mandatory addition of agricultural products to fuel which is obligated by the decision of EMRA can be interpreted as incentive to the biofuel production.

EMRA stated that this decision would be very significant in order to increase domestic agricultural production and meet current deficit within a few years.

Taking into consideration that that this decision has been taken pursuant to the decision of government regarding incentive on domestic products, pursuant to the Prime Ministry Memorandum which was issued recently and Turkey fulfil the needs for fuel by import, bio fuel obtained from domestic agricultural products shall reduce foreign dependency.

Nevertheless, in assessment of EMRA, it is emphasized that "biomass has become a current issue in Turkey by 2000s under the influence of developments in the world, thus, there has been increase in number of investments due to the bio fuel has been exempt from Special Consumption Tax initially and it is estimated that there are biogas plants of which installed capacity are approximately 1,5 milliom tones and most of the biodiesel installations remained inactive on the ground that tax exemption has been abolished because of the unfair competitive actions in oil market and unitilised capacity shall be used with blending obligation imposed by the decision."

It is estimated that outflow of foreign currency will end up that much if local content rate increases step by step . In addition, there will be increase in demand of particular agriculture products along with the incentive on production of biomass by domestic agricultural products as well as there will be possiblity of employment and side income for agricultural sector.

Considering the investments intentions for Biomass in terms of legislations of Turkey;

All legal entities subject to private law, are required to have been established as joint stock or limited liability companies in accordance with the provisions of the Turkish Commercial Code No: 6762.

  • If established as joint stock companies, all shares of the company, except enterprises whose shares are publicly traded, must be registered shares;
  • License applicants who have ten percent or more direct or indirect shares in the legal entity and the members as well as other executives should not have been sentenced for infamous crimes stated in the 2nd paragrapf of article 7 of the Electricity Market Licensing Regulation;
  • Financial Capability (Minimum Capital Requirement) and
  • Letter of Guarantee

Pursuant to Energy Market Licensing Regulation, Energy Market Regulatory Authority conducts the activities of licensing. In this context, licensing based on biomass goes through the stages of:

  • Application for licensing,
  • Verification and Review,
  • Approval and
  • Licensing.

Within the scope of Renewable Energy Law, the rights of licensee as follows:

- Building the plants

- Setting into Operation,

- Power Generation,

- Sale of power and/or capacity to the consumers

Liabilities of licensee as follows:

  • Getting license for each plant
  • Obligation of seperate accounting and recording for each license
  • Prohibition of cross-subsidize
  • Obligation to prepare an annual activity report for the previous year in compliance with the applicable legislation and shall submit such reports to the Authority by the end of April every year.
  • Obligation of Legal entities having a license submit progress reports concerning their activities till to the facility completion date to the Authority in every January, May and September.
  • Obligation to insure their assets on the basis of their fields of activity in order to protect them against potential risks.

Legislations concerning incentives on renewable energy are

- Electricity Market Law no:4628,

- Electricity Market Licensing Regulation and

- Law on the Use of Renewable Energy Sources for Electricity Generation (Law no 5346)

The incentives which are provided by Electricity Market Regulations pursuant to Electricity Market Law no:4628 as follows:

  • The real and legal persons, building micro-cogeneration plants which generate maximum five hundred kilowatts of power based on Renewable energy sources, are exempt from obligation to have a license and set up a company.
  • Also, the Regulation enables persons who generate electricity from renewable energy sources, to sell surplus electricity to the system.
  • In case the integration of generated surplus electric to the system technical and financial procedures and principles shall be determined by a regulation issued by Energy Market Regulator Authority.
  • The legal entities applying for licenses for construction of facilities based on domestic natural resources and renewable energy resources shall only pay one percent of the total licensing fee. Generation facilities shall not pay annual license fees for the first eight years following the facility completion date inserted in their respective licenses.
  • The legal entities engaged in generation activity at facilities based on renewable energy resources may purchase electricity from private sector wholesale companies on the condition not to exceed the annual average generation amounts indicated in their licenses in a calendar year.

Purchase guarantee and price incentive are the most important regularizations made within the context of incentives which are provided by Law No. 5346

  • EMRA determines the price of the previous year's wholesale electricity price average of Turkey.
  • This Price can not be less than 5 EuroCent / kWh of Turkish Liras equivalent and can not be more than 5,5 EuroCent / kWh of Turkish Lira equivalent
  • They have the right to sell at more price in the free market.
  • Turkey average wholesale price has been determined as 12.82 kr / kWh for 2008.
  • There is guarantee of purchase for 10-years.
  • These executions include the plants put into operation before the date of 31.12.2011. The Council of Ministers may extend the expiration date of executions to 31.12.2009, for a period of up to 2 years.

The amendments in the scope of Proposal for Renewable Energy Law, which are on the agenda of the General Assembly of the Parliament as follows:

  • Biogas takes place in the scope of biomass energy. On the other hand, waste gas is defined seperately.
  • Price is recommended as from 14 to 14.5 euro cents / kWh for first ten years and 8 Euro cents / kWh for second ten years on Biomass and waste gas.

In this sense, there will be an increase of 263.6% in market conditions of guaranteed purchase regarding power generation. Thus, this will increase the mobility in the market.

Considering the bioenergy investment amount starts from approximately 1,8 million Euros and the plants sized 6 MW costs 5.5 million Euros, the investment made by using 30% equity capital will pay for itself in 1 to 1.5 years which means it is a significant return amount.

Considering the interest ratio and periods of the loans provided for renewable energy investments, it is expected to be a very profitable investment.

  • Licensee legal persons which generate power from renewable energy resources, pay with a 90% discount of system use tariffs for a period of ten years,
  • It is reuqired to get license and Res Certificate To Benefit from the incentives, to put the plants into operation before 31.12.2015 and to apply to EMRA before the date of 31th October annually.

Turkey needs energy investments amount of 10 billion € in order to meet the requirements due to its development process and increasing population. Due to the investments could not be made with domestic capital, it is very important foreign investors to invest in Turkey.

In this context, European Investment Bank (EIB), International Bank for Reconstruction and Development(IBRD), European Development Bank, French Development Agency (AFD), German Industrialization Fund (KfW), Japan Internetional Bank for Economic Cooperation (JIBC), International Finance Corporation (IFC) can fund the investments for power generations using renewable energy resources.

Turkey will be a significant country for Europe, South- North America, Middle East Asia and Arabic countries as well as North Africa. It is very significant to have the perspective and strategy for taking place in Turkey and to take Turkey's part in the region due to Turkey is in the middle of the geography that holds the 63% of the fossil fuel reserves in the world and has potential to meet the requirements of agriculture and water resources in the near future.

Yet, major world powers and corporates has developed their policies and visions on this geography by reasons of global warming and its consequences.

Turkey will be the meeting point in the coming years.

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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