South Eastern Europe | 17 Dec 2012
As the Turkish government drums up support for investment in renewable energy, international firms continue to face significant challenges in conducting environmental impact studies, securing funding and acquiring licences.
Turkish officials have undertaken a number of efforts to encourage support for investments in renewables, such as sending representatives abroad to meet with prospective international investors and amending the renewables law.
The law, a revised version of which was passed by parliament in 2010 based on an original document from 2005, set standardised prices for energy produced by renewable methods, ensuring the products remained economically viable despite global price fluctuations.
The regulations ensured renewable energy firms would receive a price of $0.073 per KW-hour for hydroelectric power and wind energy, $0.105 for geothermal energy and $0.133 for energy from waste products and solar energy. Recent amendments to the regulations have included strengthening the feed-in tariff mechanism, which the state has now structured to obligate power companies to first seek their electricity supplies from renewables providers.
These efforts have not gone unnoticed, and several companies have already made headway in the segment. Local firm Alto Holding, for example, recently raised $165m in venture capital for construction of a wind farm in Karaburun. The wind farm is expected to generate some 120 MW of energy but its completion date is unclear. Global conglomerate GE, meanwhile, announced in early November that it would provide Fina Enerji, a Turkish energy developer, with 43 wind turbines for four new projects, which are expected to add some 97 MW of energy capacity. And Germany-based Gehrlicher Solar is seeking a joint venture with local firm Merk Solar Enerji to install some 540 KW of solar modules.
However, the government is planning to issue licences for only 600 MW of solar energy in 2013. “In the eyes of many analysts, the government’s decision to limit the upcoming solar round to just 600 MW reflects a desire to avoid repeating the mistakes of 2007, when regulators moved too quickly in the wind segment and ended up issuing licences to speculators,” Evren Evcit, the CEO of Anel Enerji, told OBG.
Indeed, an auction in 2007-08 sold licences for overlapping projects that totalled more than 78,000 MW — far more than the economically feasible wind potential of 38,000 MW. Caution in awarding licences extends to the hydropower segment as well.
“There are hundreds of hydropower projects currently underway in Turkey, many of which are small-scale,” Steinar Bjornbet, the managing director of Statkraft, Europe’s largest renewable energy company, told OBG. “Lack of technical, operational and environmental pre-qualification criteria in Devlet Su İşleri (State Hydraulic Works) tenders and privatisations results in numerous water rights and licences issued to companies lacking experience in sustainable hydropower. This results in projects being postponed and in many cases cancelled.”
Additionally, most hydropower projects in the country are small in scale and are opposed by local farmers, who fear the projects will detract from water reserves set aside for irrigation. This, combined with little or no progress on projects for which licences were awarded several years ago (critics suggest this implies these companies were not serious about the projects to begin with), suggests the government will not likely achieve its goal of realising 100% hydropower potential by 2023.
These difficulties strike at a larger reality when it comes to investing in Turkish renewables, one that suggests the government needs to make a more concerted effort to improve regulations and bureaucratic procedures should it wish for investment in the segment to grow. While renewables are often a difficult segment to invest in globally, due to the high initial technology costs, Turkey is considered by many companies to be a particularly difficult case.
An April 2012 report by PwC on the opportunities in renewables investment in Turkey noted that acquiring licences and conducting feasibility studies in particular remain a notable example of government ineffectiveness. “Multiple projects along the same river receive licences, but the environmental impact of each project is evaluated on a singular basis without regard to the collective effect of all the projects and the interconnection system,” the report noted. “The same issue complicates feasibility studies, obliging investors to revise their original feasibility studies after licensing.”
A 2011 report on the sector by Deloitte noted similar issues and said that specific difficulties predominate across segments. “These difficulties are the delay in the preparation of the secondary legislations related to the implementation of the financial incentives, the absence of any minimisation of balancing costs of sales of renewable energy resources made into the market for either investors or system operator, environmental impact assessment problems both before and after investments are undertaken [and] … problems in meeting the financial requirements for new investments,” it added.
“Obtaining financing will be a major challenge in the renewable energy market, and the domestic manufacturing incentive within the existing feed-in-tariff mechanism should be well-defined in secondary legislation to increase its functionality and impact,” Mehmet Acarla, the general manager of Borusan EnBW, a renewable energy company based in İstanbul, told OBG.
If officials can find ways — through tighter regulations for licensing and more organised environmental impact studies, for example — of convincing investors that the country is a safe and reliable place for business, international firms may see more promise than difficulty in investing.