INTERVIEW - Turkey to add 2.6 GW of solar capacity in 2 years, hit 10 GW wind in 5
Jun 20, 2016 11:42 CEST by
Mariyana Yaneva
Photo by Muren Guler. All Rights reserved
June 20 (SeeNews) - Turkey could add 2.6 GW of solar power within two years and easily boost wind capacity to 10 GW within five, the managing director of boutique advisory firm and international project development company Global Energy, Muren Guler, tells SeeNews Renewables in an exclusive interview about doing clean energy business in the country.
With a government targeting 27.5 GW of non-hydro power renewables capacity by 2023 and rapidly growing energy consumption, Turkey is currently considered a hot market for renewable energy investors.
Yet,
"Turkey's journey to fulfill its renewable energy potential has just started", Guler says, noting that while the fundamental support from the government is in place, there are also significant obstacles that, for now, prevent a real boom of the industry in the country.
WIND POWER
Wind energy has a relatively long history in the country and the installed capacity has recently reached 5 GW. A new auction for 3 GW more is expected to be held later this year and another 2 GW of applications are coming next year. "
I expect the market to be very competitive, squeezing profit margins for investors", Guler notes.
Wind power plant operators can choose each year if they want to involve in the existing feed-in tariff (FiT) scheme or they want to sell the generation to the spot market.
"It is a matter of calculating the risk as the FiT is fixed in US dollars but in some years the average spot market prices can go higher than the FiT and this is an opportunity for operators to improve profitability" Guler says. Over the last years most wind power plant operators preferred to stay with the FiT scheme as the spot prices were lower, he added.
Despite some uncertainties, an installed capacity of 10 GW can be easily achieved in the next five years, but still significantly lagging behind the government's target for 20 GW by 2023.
SOLAR POWER
Photovoltaics (PV) took off in Turkey in 2010 but the market is still crawling. The first round of auctions for 600 MW capacity was finalised just last year after a long waiting period and not a single licensed project has been commissioned yet. Тhe construction of a 5-MW licensed project is about to be finalised in Erzurum. Another 8 MW in Elazig is just starting construction. The latter facility is the first solar energy investment of the European Bank for Reconstruction and Development (EBRD) in Turkey as a shareholder, Guler says.
"So far, the market was growing mainly thanks to the unlicensed solar projects which were designed for consumers," he adds. Installed capacity in this segment has reached 400 MW. However,
recent changes in legislation have made the development of new utility-scale, unlicensed projects more difficult. This makes the previously approved 3 GW of unlicensed solar projects particularly valuable to investors, Guler notes.
About 2 GW out of the approved 3 GW of unlicensed projects can be built in the next two years. A further 600 MW of licensed projects are scheduled for construction by 2018. So, in total, some 2,600 MW should come online in the next two years," Guler forecasts.
An additional 4 GW of capacity in designated special energy zones can be realised in the next five years which would mean PV can achieve a total installed capacity of 7 GW by 2022.
"This scenario doesn’t include the battery revolution which is very close. In the battery revolution scenario, the regulatory obstacles will be immediately cleared and solar energy will gain significant momentum. In this scenario – sky is the limit for solar energy!" Guler says.
GOING LOCAL
Recent developments suggest that the government is heading to a different auction model that would change the market for solar energy a lot.
The government is designating Special Energy Zones where GW-scale sites will be developed directly by state companies. This is believed to minimise project development risk and costs for end investors, but to take advantage of this scheme, investors must meet local content requirements.
If this technology transfer design of the government succeeds in attracting solar panel and cell manufacturers to Turkey, then the solar energy sector will be structured around local manufacturers.
"Turkish Investors are already looking for acquisition opportunities of global panel manufacturers in order to position themselves better for the coming domestic and international solar energy opportunities," Guler says.
At present, most of the equipment stated in the local content requirement is not actually produced locally.
Some panel integration items are easy to source locally and have the highest probability of meeting the current local content requirements, adding about USD 0.08 (EUR 0.07) per kWh to the feed-in tariff of USD 0.133 per kWh.
"However, not everyone wants to use local content because local products are not at the cost level of Chinese products which means you need to share a significant portion of that local content bonus with the local manufacturers. If you add some bureaucratic paperwork on top of that, it could become a headache," Guler elaborates.
Local content requirements are easier to meet in wind energy where blades and towers can be produced locally to fit all global turbine brands. Some wind turbine manufacturers are even considering manufacturing generator and power electronics items in Turkey, Guler continues.
TRENDS IN MARKET DEVELOPMENT
At present, the market is dominated by local players but there is huge interest from foreign solar companies as well. German, US and Chinese solar companies are active in project development, investment and engineering, procurement, and construction (EPC) business.
"German and Chinese companies are more flexible and can take some calculated risks, particularly with the unlicensed projects while US companies prefer to be in the licensed segment even though the auction results can be quite challenging," Guler notes.
In general, c
ompanies willing to invest in Turkey should be flexible, dynamic and proactive. Legislation can be revised several times during project development, affecting the business model significantly, so decision-making has to be quick and ideally managed by someone who has the local know-how.
"Another critical issue is financing". It is quite a challenge to find project finance in Turkey. Therefore, access to long term (above 12 years), low-cost financing could help the company stay competitive in the market.
"Although Turkey and India are the two renewable energy markets where EPC costs are the lowest, investors in Turkey should be ready for 8%-9% unlevered internal rate of return (IRR), because of the competitiveness of the market," Guler concludes.
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