Can solar power light up Turkey’s energy supply?

Turkey relies on imports for more than 70% of its energy needs, which comes at a great cost to the government. In 2018, the bill for this fuel reached over $42bn, up from $37.2bn in 2017, according to official Turkish data. Alongside this, energy demand is growing fast, having increased by more than 90% from 2002 to 2018.

To encourage locally produced energy, at the beginning of 2011, the Turkish Parliament passed renewable energy legislation that provided generous feed-in tariffs ($0.133/kWh) for rooftop solar. The rate was increased if ‘made in Turkey’ components were used.

The move was successful; the first licensing round in 2013 for 600MW was hugely oversubscribed. Overall, the incentives have seen a spike in installations over the last three-four years, as well as some factories being setup to produce PV modules.

However, feed-in tariffs will end this year, with little clarity on what, if anything, will replace them. Instead, the government will focus on the auction of 1MW projects under Turkey’s Renewable Energy Resources Area Project (YEKA).

“There are good motivations to move away from feed-in tariffs now, simply because prices are falling and the government does not want the industry to rely on high subsidies anymore. Instead they want developers to compete so that eventually the country is paying less for procuring solar energy,” explains BloombergNEF solar analyst Lara Hayim.

In 2017, the government held the first of the YEKA solar power auctions. It awarded South Korean company Hanwha Q CELLS and Kalyon Enerji Yatirimlari A.S. a tender to construct a solar power plant producing 1GW of energy. As part of the award criteria, the consortium had to build a fully integrated solar cell and module factory with a capacity of 500MW. Construction of the plant started in December 2017.

However, the project has experienced difficulties and delays, with Hanwha pulling out in February 2019.

“There were big local content requirements, with the factory having to produce everything apart from polysilicon. This has resulted in quite a few delays and the government pumping in even more subsidies,” says Hayim.

The government has said it will provide the project with a $333m cash injection.

Despite the challenges of this first venture, Hayim says the other auctions are expected to go ahead, but will instead be broken down into several smaller projects that will together amount to 1MW of power. The projects will be located at sites the government has identified as being the most suitable.

“Breaking down the auction into smaller chunks should increase market participation and move away from there being just one big winner. Compared to one major project in one location, these smaller ones will also reduce the pressure on the grid,” says Hayim.

“This is how the government is planning to plug the gap caused by the end of the feed-in tariffs."

While there isn’t enough renewable penetration at present to worry about managing the volatility on the grid, in the future this, along with energy storage, will be something the government will need to consider.

However, although the overall outlook for Turkey’s solar market looks positive, its biggest challenge is attracting investors scared off by the country’s economic volatility. In recent years, the currency has been subject to steep drops and the economy has experienced high inflation and a recession.

“The main issue for investors is Turkey's economic and political stability - that's usually the main question we get from clients,” says Hayim.

“Investors’ perceived risks around currency fluctuations is probably the main challenge Turkey will need to overcome - it needs to provide the right protection framework to give confidence to potential investors and cover them against potential future currency fluctuations."

Nevertheless, 2020 is expected to be another strong year for Turkish solar. The end of the feed-in tariff is expected to see a rush for roof-top solar installations as companies look to monetise on them before they are scrapped.

Furthermore, last year Turkey adopted a new net metering programme, which offers customers electricity bill discounts in return for the PV power they inject into the grid. This is expected to boost the payback period of investment in solar power, especially for commercial segments.

Going forward, the Turkish solar body, GÜNDER, expects the country to add a further 1GW of solar power per year which will help the country further reduce its reliance on imports.

“With utility and the commercial scale systems combined, I think Turkey should be able to install a gigawatt a year in the next three to four years. It’s difficult to say what will happen beyond that but certainly there is the motivation and the market has proved that it has the ability to reach gigawatts,” says Hayim.