Solar Energy Market Opportunities in Turkey for Lease and Power Purchase Agreements
Yağız Yar
ENGY 604 – Renewable Energy Economics University of San Francisco
December 15, 2018
OUTLINE
2.1 Photovoltaic Potential
2.2 PV Industry
2.3 Power Generation and Distribution Market
3. Legislation
3.1 Renewable Energy Law
3.2 Government Incentives
4. Power Purchase Agreements and Lease Agreements
5. Solar Energy Market in the Future
6. Conclusion
1. Introduction
2. Solar Energy in Turkey
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1. Introduction
Solar energy had been labeled as “energy/technology of the future” for a long time. This has changed now. In 2007, the global total of installed solar energy capacity was 8 GW whereas now it has reached above the 402 GW level. The importance of renewable energy sources has increased significantly as climate change has become a common threat on a global scale. Along with the air pollution problem in its major cities, being dependent on importing energy makes renewable energy technologies a strategic and an environmental future goal. Turkey’s solar energy map reveals that the opportunities solar energy presents for Turkey is not limited to supplying the energy need of the country.
Turkey’s energy policy is to maintain a high-quality, robust, reliable and cost-effective supply while Turkey targets to increase the share of renewable energy sources to 30 percent including a 5-Gigawatt addition to its solar PV installations. There are three modes that are currently in place in the, fairly new, Turkish renewable energy market in this period: unlicensed, licensed, and the RE-Zone model.
Since this is a very recent development and the solar energy infrastructure has not made its way into the cities (mostly utility scale solar plants on non-arable land), the market for companies that act as the bridge between PV panel manufacturers and energy consumers hasn’t formed yet. This research focuses on the conditions that power purchase agreements or lease agreements can be made with a real person or companies that has a land or a roof area which can be utilized with a solar PV system that creates a win-win situation for the both parties.
2. Solar Energy in Turkey
According to International Renewable Energy Association (IRENA) Turkey has an installed capacity of 4.8 GW solar energy as of July 2018. Figure 1 shows the growth in the installed capacity of solar photovoltaics in Turkey which implies that the technology started spreading
throughout the land very recently compared to leading countries in the market such as Germany, China or United States.
Turkish government is aware of the opportunity that lies within its land that has a and the Ministry of Energy and Natural Resources (ETKB) has already set some clean energy targets for 2023, the hundredth year of the Republic of Turkey, that includes reaching an installed capacity of 10 GW with PV solar panels.
Figure 1: Cumulative Installed Capacity of Solar Photovoltaics in Turkey
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2.1 Solar Energy Potential
Turkey has an average solar irradiance of 1700 kWh/m2.day where this number for UK and Germany is around 1100-1200 kWh/m2.day. So, it will not be surprising to see that Turkey to be investing in solar energy technologies just as much as any market leading country.3-4
Figure 2: Turkey's Solar Potential Map
2.2 PV Industry
Even though there are currently 17 companies that manufacture solar panels with the raw material they receive from mostly China, the companies that sold the biggest number of modules in the market are First Solar (U.S), Jinko Solar (China), Hanwha Q Cells (Korea). The main reason for this is that importing solar panels are still cheaper than the modules assembled in Turkey.5
As a counter-move Turkish government has issued a high VAT on customs for imported modules and also gives incentive to investors to use Turkish made products by increasing the feed-in tariff rates (price per kWh) they pay to the licensed power generators (PV owners).6
2.3 Power Generation, Transmission and Distribution Market
Power generation is being privatized on a very large scale to attract investors all around the world. Generation can be carried out by public or private firms and industrial zones with a license. According to the latest figures published by the Energy Market Regulatory Authority (EMRA) in April 2018 the distribution of licensed installed capacity is as follows:
• Independent power producers (64.3%)
• EÜAŞ (state-owned company) (24.2%)
• Build-operate power plants (7.4%)
• Power plants privatized under transfer of operation rights (2.5%)
• Build-operate-transfer power plants (1.7%)
Transmission is a monopoly that belongs to the Turkish Electricity Transmission Company (TEIAŞ). With a new Electricity Market Law introduced in 2013, EPIAŞ was also granted a license although TEIAŞ still operates the balancing power market and the ancillary services market while EPIAŞ is responsible for operating the day-ahead market and the intraday market.
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Electricity distribution network in Turkey consists of 21 distribution regions. After the privatization processes, all distribution companies obtained a distribution license. The distribution system assets are still owned by Turkish Electricity Distribution Company (TEDAŞ), but the distribution activities are now carried out by private companies.
3. Legislation
The primary legislation for the investments on renewable energy resources is the Law on Utilization of Renewable Energy Resources for Generating Electrical Energy.5 After an application process to EMRA for obtaining a solar power license, entities that fulfill the requirements provided under License Regulation are granted a pre-license within the two years from the date of application. The first Renewable Energy Law was passed on May 18, 2005.
3.1 Renewable Energy Law
There are three models in the Turkish renewable energy market: unlicensed, licensed and the RE-Zone model. Plants that has a smaller capacity than 1 MW are unlicensed, but the owner still needs to notify TEDAŞ. Projects that are larger than 1 MW requires licensing from the government. It is prohibited by law, to use arable land for any other purpose than farming in rural Turkey.
3.2 Government Incentives
Solar plants that are licensed by EMRA and established before December 31, 2020 has purchase guarantee from the government at a feed-in tariff rate of 13.3 per kWh as a fixed minimum electricity sale price.
Table 1: Feed in Tariff Prices in Turkish Renewable Energy Law
Furthermore, solar plant owners can benefit from the incentives for using electro- mechanical equipment that are manufactured in Turkey.
Table 2: Additional benefits to Feed in Tariff prices with the usage of equipment that are made in Turkey
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4.Power Purchase Agreements and Lease Agreements
Currently there is an opening in the market for companies that carry out the purpose of connecting the energy consumers to the renewable energy equipment manufacturers. Turkey is at the beginning of a period where the installed capacity is a fraction of its potential, so the market actually needs some companies to come in and act as a catalyst as they would bring business to the industry and cheaper energy for the public. Another customer profile to attract are supermarkets (warehouses) and shopping malls who pay the highest tariff for electricity and also consumes substantial electricity due to their HVAC and lighting operations. Figure 3 shows the tariffs for each customer segment.
Figure 3: Consumer Tariffs and Wholesale Prices (in Turkish Liras)
Power purchase agreements (PPA) or leases are an opportunity for the entrepreneurs to enter the market without having to pay for a land and/or other expenses. It is also an opportunity for the consumers to have access to clean and cheaper energy without having to pay for the PV infrastructure.
Having large roof and land areas, factories and companies that are located in organized industrial zones where there are proper power transmission and distribution infrastructures are already built, these factories are the optimal customer profile because they consume high amount of energy and the infrastructure is convenient for the installation thus is cheaper for the solar company. On the other hand, consumers need to pay to opt-out of a contract or switch suppliers before the agreement period ends and they would also have the option to extract the contract or to buy the system from the electricity retailer.
Current energy law is vague about PPAs and lease agreements as it addresses long-term (10 year) PPAs with the main energy distributor TEDAŞ but not between solar companies and end-users. Since the market is still shaping into its final form with reforms in every decade or
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so, I think the next reform in the energy law will address the uncertainties about the market for solar PPAs and leases.
5. Solar Energy Market in the Future
According to World Bank Group, due to economic and population growth, it is estimated that average consumption will continue to grow in the coming tears but at a slower rate. Ministry of Energy and Natural Resources projections show that around a 72% increase in the next 10 years. World Bank Group reports that the following issues need to be addressed in the next phase of Turkey’s electricity market development:
• Financial and derivative markets
• Further steps for wholesale and retail competition
• Phasing out the national tariff
• Utilization targets for domestic sources
Figure 4: Average Power Generation Costs for PV Solar Systems
As it can be seen in the Figure 4, the technology is trending towards being cheaper and also having higher average efficiency in the future. This implies electricity retail and wholesale market in the future is likely to be a perfect competition in the future with the new reforms in the energy law and companies that has the means and early access to the market will gain a competitive edge from its beginning.
6. Conclusion
Assuming a company has been authorized with the supply licenses by the EMRA and EÜAŞ to carry out wholesale electricity market activities, they would not face many barriers to entry especially if the investors network includes a government official, prior to finding a client, except a starting capital around 100,000$ to finance a minimum efficient scale of a solar project, which is around 500 kW (unlicensed plant) in Turkey to cover all costs while providing the client a cheaper rate for unit amount of electricity (according to the World
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Bank Group). Although prices are regulated by EMRA currently and there is a lack of information regarding the market, I think that buyers (end-user consumers) will have influence on the wholesale and retail market which will be highly competitive. Wholesale companies will have influence in the suppliers (PV manufacturers, installers, etc.) since they will form a major portion of their sales and PV companies will be in a perfect competition with each other. There wouldn’t be any switching costs associated with a decision to change PV panel suppliers. A substitute to electricity retailers would be purchasing a solar system or another electricity provide, although electricity wholesalers themselves can actually be complements to main distributor (government-owned).
In my opinion it is crucial to find the optimal level of feed-in tariff the company will receive and the levelized cost of electricity. Both these values are highly correlated with the selection of the electro-mechanical equipment that are used in solar projects. The companies that are manufacturing PV modules and that has a high capital can finance their projects for cheaper and gain a competitive advantage in contract biddings.
Turkey’s electricity market is not as complex as California’s market, but it is on its way there. Companies and investors who act timely, right and precise can turn this opportunity into a large-scale business that would help for a better air quality, create jobs and add value to the region and it’s people’s lives.
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milestones and challenges.