This article focuses on Turkey's renewable energy potential. Currently electricity is mainly generated in Turkey using thermal power plants (which consume coal, lignite, natural gas and fuel oil), geothermal energy and hydro power plants. Turkey has no large oil or gas reserves. The main indigenous energy resources are lignite, hydro and biomass. Turkey has to adopt new, long-term energy strategies to reduce the share of fossil fuels in primary energy consumption, therefore the development and use of renewable energy sources and technologies is increasingly vital for the sustainable economic development of Turkey. The most significant developments in renewables have been observed in wind, hydropower and geothermal.
Renewable energy is derived from resources that, for all practical purposes, cannot be depleted and produce fewer pollutants. This makes renewable energy fundamentally different from fossil fuels and has prompted many countries, including Turkey, to promote its use through incentive and subsidy schemes.
International Energy Agency (IEA) ministers declared in 2001 that they "intend renewables to play an increasing role" in the energy sector, this prompted the Renewable Energy Working Party (the IEA body responsible for renewables) to expand its work in facilitating the use of renewable energy to ensure that it can meet the expectations and challenges of the future.
To achieve this requires the use of renewables in IEA members' energy sectors to expand while also decreasing cost. According to the Energy Market Regulatory Authority (EMRA) average investment costs (per MW) in 2007 (based on type of generation facility and resource) were:
(a) Coal: 1,250 YTL (approximately US$1,050);
(b) Natural Gas/LPG/Fuel Oil: 1,000 YTL (approximately US$850);
(c) Hydroelectricity: 1,600YTL (approximately US$1,300); and
(d) Wind*: 2,000 YTL (approximately US$1,700).
*Increased demand for wind power has caused investment costs to increase from US$1,000 to US$1,700 but it is expected that this will decrease again in the future (but operating costs are the lowest).
Renewable energy investment opportunities in Turkey
Turkey's renewable energy sources are plentiful and renewable energy supply provided approximately 12% of total primary energy supply (TPES) in 2003 (i.e. 10.10 million tons of oil equivalent (Mtoe)), making it the second-largest domestic energy source after coal. The primary renewable energy resources (RER) in Turkey are: hydro, biomass, wind, biogas, geothermal and solar.
The benefit from greater exploitation of these sources would be enormous: (i) reduced reliance on imported fuels (increased energy security); (ii) decreased environmental impact compared to fossil fuel and nuclear power plants (i.e. no greenhouse gas emissions (except biomass and biogas) or toxic waste); (iii) competitive costs (which are still decreasing) compared to many conventional technologies; and (iv) no fuel costs (except biomass and biogas) and virtually inexhaustible fuel sources.
The yearly average solar radiation is 3.6 kWh/m2-day and the total yearly radiation period is approximately 2640h, sufficient for solar thermal applications. Despite this huge potential, flat-plate solar collectors for domestic hot water production in coastal regions are the only real use of solar energy. Approximately 8 million m2 of solar collectors were produced in 2004 and the total solar energy production is estimated at 0.290 Mtoe.
The amount of sunlight that Turkey receives annually is equivalent to roughly 11,000 times the amount of electricity generated in Turkey in 1996. Clearly, both photovoltaic and solar-thermal systems could be used to great effect. Use of solar thermal is already widespread. Turkey's total solar energy potential is 35 Mtoe per year and solar energy production is expected to reach 602 kilo tonnes of oil equivalent (Ktoe) in 2010 and 1,119 Ktoe in 2020.
Turkey's technical wind energy potential is 88,000 MW and its economic wind energy potential is 10,000 MW. 40 new wind farm projects (totalling approximately 1400 MW) have already obtained licences and 751 licence applications (totalling approximately 78,000MW) are still awaiting approval.
Some cities in Turkey have relatively high wind speeds. These have been classified into six wind regions with a low of about 3.5 m/s and a high of 5 m/s at 10m altitude, which corresponds to a theoretical power production of between 1,000 and 3,000 kWh/(m2yr). The most attractive sites are the Marmara Sea region, the Mediterranean Coast, the Aegean Sea Coast.
Turkey has one eighth of the world's geothermal potential and is ranked seventh in the world. The cost of electricity generated from geothermalreserves ranges from €0.03 to €0.10c/kWh, the bottom end of which is competitive with conventional systems. Data accumulated since 1962 shows that about 4,500 MW of geothermal energy usable for electrical power generation may exist in high enthalpy zones. Heating capacity runs at 350 MW which is equivalent to 50,000 households, this can be increased to 500.000 households by 2010.
Turkish Government enacted Application Regulation of the Law on Geothermal Resources and Natural Mineral Water on 11.12.2007. Regulation encloses the procedure, elements and sanctions in relation to; issuing Licence for operation; transferring this licence; auditing the actions; resource and the environment; revoking the Licence; protecting the resources; leaving the area of the Licence in relation to the geothermal resources and natural mineral water that are specified or will be specified and gas, which origins from geothermal.
There are 11 other geothermal fields, all in far south-west Turkey, which maybe suitable for geothermal power production. The Germencik-Aydın field in the Aydın Province is the most promising one. Power generation potential in this field has been estimated to exceed 100 MW.
The economic hydropower potential has been estimated at 127.000 MW per year, of which 35% has been exploited and its total hydroelectric potential is 46,000 MW.
There are 678 sites available, 135 of them are under operation, for hydroelectric plant construction, distributed over 26 main river zones. The total gross potential and total energy production capacity of these sites is nearly 37 GW and 127 TWh/yr respectively, about 30% of which may be economically exploitable. At present only 35% of the total hydroelectric power potential (approximately 13,000 MW) is operational. The national development plan aims to increase this to 100% by 2010. The contributionof small hydroelectric plants to total electricity generation is estimated at 5-10%.
Biomass still represents a significant share of total energy consumption in Turkey, despite a drop from 20% in 1980 to 8% in 2005. Fuel wood and animal waste are the main biomass fuels used for heating and cooking in many urban and rural areas. The total recoverable bio energy potential was estimated at 16.92 Mtoe in 1998. This estimate is based on the recoverable energy potential from agricultural residues, livestock farming wastes, forestry and wood processing residues and municipal wastes. Total biomass production was 7.3 Mtoe in 2005 and is expected to be 52.5 Mtoe in 2030.
Legislation on renewable energy
Although Turkey is not a party to Kyoto Protocol (Minister of Forestry recently announced that Turkey will be a party to Kyoto Protocol under certain conditions), having signed the United Nations Framework Convention on Climate Change it is committed to managing greenhouse gas emissions. The goal is to maintain emissions at the level of 1990 (3,15 per capita). Therefore, Turkish government keeps focusing on renewables. Turkey enacted its first specific renewable energy law in 2005 (the Renewable Law) but there are also provisions regarding renewable energy in the Electricity Market Law (which authorises EMRA to take measures to promote renewable energy use) and in secondary legislation.
The purpose of the Renewable Law is "to expand the use of renewable energy resources for generating electricity and to benefit from these resources in a secure, economic and qualified manner; and to increase thediversification of energy resources, reduce greenhouse gas emissions, assess waste products, protect the environment and develop the related manufacturing sector to realize these objectives."
The Renewable Law covers wind, solar, geothermal, biomass, biogas, wave, stream, tidal, river and arc type hydroelectric generation facilities and hydroelectric generation facilities either canal or run of river type or with a reservoir area of less than 15 km2.
Incentives provided by the Renewable Law and Electricity Market Licensing Regulation
(a) Development plans which might have a negative effect on the use and efficiency of RER areas can no longer be created on public land.
(b) Each legal entity holding a retail sale licence must purchase a specified amount of electrical energy from RER certified generators which have been in generation for less than 10 years. This amount is based on a comparison between the amount of energy sold by that retail sale licence holder, in the previous calendar year, and the total electrical energy offered for sale by all retail sale licence holders in Turkey.
The price of electrical energy bought in accordance with this provision is determined by EMRA and is the average Turkish wholesale price announced in the previous year. This amount is 9.67 Ykr/Kwh in 2007 (approximately 5 Euro cents). The retail price must be between 5.0 and 5.5 Euro cents but a generator can sell its electrical energy for a higher price if there is market demand.
In practice all generators are currently selling their electrical energy to the Market Financial Reconciliation Center, which currently offers the highest price in Turkey due to a recent supply gap.
(c) Real persons and legal entities establishing an isolated electricity generation plant and grid supported electricity generation plant; using hydraulic resources with a maximum installed capacity of 1,000 kW that is to be used solely to satisfy their own needs, are not required to pay service charges for these projects. This is provided that the final design, planning, master planning, preliminary surveying and first auditing were prepared by either the DSI (State Hydraulic Works) or the EIE (Electrical Power Resources Survey and Development Administration).
(d) The sale price, rent, rights of access and usage permissions of state owned land are subject to an 85% reduction where the property is used for the purpose of generating electrical energy from RER which fall within the scope of the Renewable Law. ORKOY (General Directorate of Forest and Village Relations) and forestation special allowance revenue are not charged for forested land.
(e) Within the framework of the Renewable Law: (i) investment in energy generation facilities; (ii) procurement of domestically manufactured electromechanical systems; (iii) investment in research, development and manufacturing in the scope of electricity generation systems using solar cells and concentrated collectors; and (iv) investment in research and development facilities for the generation of electrical energy or fuels by utilizing biomass resources, can benefit from incentives determined by the Council of Ministers.
Legal entities applying for Licences for the construction of facilities based on domestic natural resources and RER only pay 1% of the total licensing fee and do not pay annual Licence fees for the first 8 years following completion of the facility.
Legal entities engaged in generation activities at facilities based on RER can purchase electricity from private sector wholesale companies on the condition that they do not exceed the annual average generation amounts indicated in their Licences for that calendar year.
TEIAS and/or legal entities holding distribution Licences must give priority for connection of generation facilities to the system based on whether they use domestic natural resources and RER.
Since November 2007 EMRA has been requesting bid bonds and performance bonds for Licence applications. Bid bonds with an amount of 10,000 YTL per MGW are requested at the application stage and, if EMRA approves the application, a performance bond, with an amount to be calculated in accordance with the capacity to be installed, is also requested.
If and when requested by any legal entity holding a generation Licence, a RER certificate must be granted by EMRA for the purpose of identifying and monitoring the resource type used in electrical energy generation or for the purpose of accessing the incentives applicable under the Renewable Law.
The principles and procedures relating to RER certification are governed by secondary legislation issued by EMRA in 2005. There are two types of RER certificates which govern the:
(a) type of resource utilized to generate electrical energy; and
(b) incentives that the owner is entitled to under the Renewable Law.
If the Renewable Law is breached, EMRA is entitled to impose a fine of 250,000 YTL (approximately US$200.000) and the legal entity in breach is required to cure this within sixty days. If the same breach is repeated by the same legal entity, the Renewable Law enables EMRA to impose even heavier sanctions including the cancellation of its Licence to perform energy market activities.
Turkey has great renewable energy potential and is keen to reduce its dependence on fossil fuels by increasing its use of RER.
Wind sector is a good example for the increasing demand to understand the generation of electricity with renewable resources. EMRA has stated that 751 Licence applications for RER electricity generation projects with a total capacity of approximately 78,000 MW were pending approval in November 2007. It is expected that government will call for tenders for wind Licences. A highly competitive market is emerging in Turkey and there will be further opportunities for foreign investors to enter it, both as foreign direct investors and as partners with local companies that have already obtained generation Licences.
Guner Law Office was established in 1996 and has since grown into one of the major corporate, M&A, banking, litigation, energy and TMT practices in Turkey. Guner Law Office is headed by Ece Guner and works with international law firm Denton Wilde Sapte.
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.