Since the motivation of being energy hub between Middle East and
Europe , energy resources diversification is adopted by Turkish
policymakers. Herein, Turkish government commenced to regulate
renewable energy sector with new legislations and incentives. Thus,
new investment opportunities are under the spotlight along with
various financing options. License exemption under 1MW renewable
projects are foreseen to trigger these type of alternative
financial models for small business purposes especially in wind and
Energy Performance Contracting (EPC), which is the fundamental
implementation of ESCO (Energy Service Company) financial
modelling, prominently developing in emerging countries. The main
purpose of these contracts are dispatching operational risk to
ESCO's such as energy saving, energy auditing, technical
support, monitoring and maintenance. Besides these, ESCO may became
a loan provider for renewable energy projects that will also
conduct all negotiations with banks for credit approvals. Albeit,
ESCO financial modelling do not reach the high volumes across the
world. Small scaled projects are selected as the baseline.
According to enacted Energy Efficiency Law No: 5627 which was
enacted in 2007, Guaranteed Savings Contracts are anticipated to be
applied as a renewable energy financial modelling tool. Other
contract models such as Shared Savings Contracts shall be
highlighted in potential legal framework for deepening ESCO
financing in Turkey.
There are two main types of ESCO financial modelling will be
analyzed since these models are mainly used in Europe.
Guaranteed Savings EPC Contracts
In a conceptual base, Guaranteed Saving EPC Contracts
concentrate on increasing energy savings instead of loan
application for a project. Typically, project owner applies for
loan and makes periodical repayments to the financial institution.
ESCO is only responsible for operational risk related to technical
support, maintenance, engineering facilities. In accordance with
feed in tariffs (FITs), this type of investment model will be
highly demandable in renewable energy market in Turkey.
Shared Savings EPC Contracts
ESCO directly takes the credit risk and provides loan to the
clients. In return for this comprehensive service, client is
obliged to pay a service fee to ESCO that obtained from achieved
energy savings. At the project start-up stage, clients are allowed
to undertake a renewable project without any project finance or
maintenance and verification (M&V) cost. This type of contract
is expected to come into light after stabilized electricity market
in line with new energy stock exchange "EPİAŞ"
establishment in Turkey.
Potential Energy Service companies' approach for project
finance may be prudent. There are significant indicators which
drive long term investments in the fields of renewables such as
solar, wind and hydro. Apparently, energy prices' risk is one
of the most substantial issue regarding electricity market. In this
regard, an independent stock exchange is a compulsory mechanism for
the purpose of reliable prices. Furthermore, currency risk is
another problematic drawback particularly in emerging economies
which are dependent to develop economies' key data. From the
much more macro perspective, inflation rate may be also a vital
determinant for prospective investment decisions. As a consequence
of these potential financing models, It can be stated that more
steps need to be taken in a coordinated manner for development in
renewable energy market. Commercial banks are most likely to be
cautious on loan approvals whether an ESCO or project owner request
new fund. A market awareness is required for creditworthy clients
in terms of guarantees provided by energy service companies. In
this regard, FITs, which are provided by government shall be
considered as a main collateral from the point of commercial banks.
On the other hand, ESCO's energy saving guarantees should be
considered as a reliable result of comprehensive technical and
financial analysis. A more balanced market with regard to
ESCO's and project owners' expectations should be
harmonised with government feed in tariffs and incentives in
Turkish energy market.
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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Turkey has amended the Electricity Market Law numbered 6446 to promote use and security of domestic energy resources. Under the amendments, planned capacity mechanisms must give priority to local energy sources.
Turkey's energy regulator previously ruled (decision numbered 5709, dated 30 July 2015) that a total capacity of 2,000 MW would be reserved in the period up until 2020 for wind power pre-license applicants to connect to the grid.
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