Turkey’s Renewable Energy Policy

By Okan

As a country that imports 98% of its natural gas and 92% of its oil, one of Turkey’s main goals is energy security (1). Energy independence will not only reduce reliance on Russian and Iranian natural gas, but will also improve trade deficit driven by the energy imports (>$60 billion of energy imports in 2012) (2). Moreover, in order to reach its goal of being one of the top 10 economies of the world, Turkey forecasts that it will have to increase its energy consumption by 8% per annum until 2023 and reach ~500,000 GWh (3). In order to reach these ambitious goals, Turkey has decided to follow a diversified energy policy that invests in renewables and nuclear (4). Turkey’s aim is to have 20 GW of wind, 3 GW of solar and 0.65 GW of geothermal capacity by 2023 in order to provide 30% of electricity production from renewable sources (5). I have carried out a simple calculation to see if the current investment rates are sufficient to reach this goal. I have particularly focused on wind energy, which is supposed to comprise biggest portion of the renewable portfolio.

Currently the wind capacity is at 3.424 GW with 0.466 GW added in the first half of 2014(6). If we assume this rate of investment continues, Turkey would need about 18 years in order to reach the goal of 20 GW. This means the wind energy goal can only be reached at 2032 and not by the target date of 2023.

We can also estimate the amount investment needed to reach the wind energy capacity target. The biggest wind energy farm of Turkey with capacity of 143 MW(7) cost about 153 million euros (8)(~191 million USD). Making the simplifying assumption that costs will stay the same, 16.58 GW of additional wind capacity will cost an additional 22 billion USD. This is only ~2.7% of the 2013 GDP of Turkey, which was $820.2 billion as reported by World Bank (9). So given that the investment will be distributed over almost a decade, the goal seems financially feasible.

This analysis shows that Turkey’s ambitious goals are feasible but the country needs to significantly accelerate its renewable energy investments. Here are some suggestions on how to accelerate:

  • Upgrade and expand grid distribution systems in order to reach to energy rich regions and deal with the intermittency of the renewable energy sources (10).
  • Continue to streamline and simply energy licensing. For instance the government already has eliminated licensing for less than 500 kWh wind plants (11).
  • Continue providing financial incentives. In 2012 the government provided 7.3 dollar cents per kWh of wind energy and even additional incentives for wind farms that used domestically manufactured equipment (12).

These are common policy recommendations, which are not groundbreaking. They are valid for many countries besides Turkey. The real challenge is to implement them with consistency and commitment, so that investors have the confidence and visibility to invest in long term projects (13).

(1) “Nuclear Power in Turkey.” World Nuclear Association, November 2014. Retrieved from: http://www.world-nuclear.org/info/Country-Profiles/Countries-T-Z/Turkey/ (access date: 11/27/2014)

(2) Ibid.

(3) Pocatom. “Akkuyu Nuclear Power Plant – Progress To-date and the Way Forward.” Powerpoint presentation retrieved from: http://www.iaea.org/NuclearPower/Downloadable/Meetings/2013/2013-02-11-02-14-TM-INIG/20.smirnov.pdf (access date: 11/27/2014)

(4) “Turkey’s Energy Strategy.” Republic of Turkey Ministry of Foreign Affairs. Retrieved from: http://www.mfa.gov.tr/turkeys-energy-strategy.en.mfa (access date: 11/28/2014)

(5) Yazar, Yusuf. “Renewable Energy in Turkey.” Powerpoint Presentation retrieved from: http://www.ewea.org/events/workshops/wp-content/uploads/2013/03/EWEA-TUREB-Workshop-27-3-2013-Yusuf-Yazar-YEGM.pdf (access date: 11/27/2014)

(6) “Turkey’s Wind Energy Capacity Increases in First Half of 2014.” Daily Sabah. Retrieved from: http://www.dailysabah.com/energy/2014/07/22/turkeys-wind-energy-capacity-increases-in-first-half-of-2014 (access date: 11/28/2014)

(7) “Enerjisa Puts Turkey’s Biggest Wind Power Plant ‘Balikesir WPP’ into Operation.” November, 2013. Retrieved from: http://www.enerjisa.com.tr/en-US/Media/Pages/PressBulletin_117.aspx (access date: 11/28/2014)

(8) “Turkey invests big in nuclear power.” Deutsche Welle. Retrieved from: http://www.dw.de/turkey-invests-big-in-nuclear-power/a-16824428 (access date: 11/28/2014)

(9) “GDP (current US$).” Word Bank. Retrieved from: http://data.worldbank.org/indicator/NY.GDP.MKTP.CD (access date: 12/1/2014)

(10) Tsagas, Ilias. “Turkey secures $350 million renewable energy loan “ Retrieved from: http://www.pv-magazine.com/news/details/beitrag/turkey-secures-350-million-renewable-energy-loan-_100015202/#axzz3K22QGBkG (access date: 11/28/2014)

(11) “Government Incentives Lead to a Wind Energy Boom in Turkey.” Oilprice.com. August, 2012. Retrieved from: http://oilprice.com/Alternative-Energy/Wind-Power/Government-Incentives-Lead-to-a-Wind-Energy-Boom-in-Turkey.html (access date: 11/28/2014)

(12) Ibid

(13) Hamilton, Kirsty. “Investing in Renewable Energy in the MENA Region: Financier Perspectives” Chatham House. June 2011. Retrieved from: https://www.chathamhouse.org/sites/files/chathamhouse/0611hamilton.pdf (access date: 12/1/2014)

Advertisements

About macomberjohnd

HBS Finance faculty interested in sustainability in the built environment including devices, structures, townships, and cities.

One Response to “Turkey’s Renewable Energy Policy”

  1. With such an ambitious goal for additional renewable energy installations, I think the Turkish government is making a mistake by first setting the price of energy and then “hoping and praying” that sufficient interest of developers will be generated to provide ~1.7 GW per year every year through 2023. If energy security goal is so important and the country is committed to reaching it by the target year, it needs to first use the microeconomic basis of supply and demand to set the price / subsidy each year.

    For example, every year the government can run an auction-style process whereby developers propose wind projects (over a certain size in MW), specifying the project’s capacity and the “take-or-pay” feed-in electricity tariff that would cover the developer’s costs and profit margin over the full term of a 25-year agreement with the public electric utility. Then, all project proposals are sorted in order from lowest to highest tariff, and approved such that their cumulative capacity meets government’s annual target – the least competitive (or highest clearing) tariff proposed by the developer is then set as the tariff for all of that year’s approved projects. This process would be very competitive and transparent, incentivize construction of mega-farms that have lower per-KWH costs, and over time drive down the amount of wind power subsidy that is required to make the projects financially viable.

    With clear rules and guarantees that most cost-competitive projects will be approved, Turkish government can attract large international developers with technical know-how and off-balance sheet financing capacity that would appreciate this “guaranteed pipeline” approach to new renewable capacity and require a more streamlined process for mega-farms in particular (as these projects would ultimately drive down per-KWH costs but also have the most significant at-risk investment requirement in order to sufficiently develop the plans prior to receiving approvals).

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: