Why Should Investors Choose the Turkish Solar Market?

Applications for close to 600 solar projects and more than 9,000 MW of capacity were submitted in June 2013 by those wanting to be part of the Turkish solar energy journey. Only 600 MW will be licensed in the first round; the bid date is still unclear but is expected to be held by early 2014.

What might be the drivers of that huge demand? How is it possible to have a feasible project with a feed-in-tariff of 133 USD/MWh?

Let’s draw the big picture:

Electricity demand in Turkey is growing at an annual rate of almost 8 percent and currently the country is highly dependent on fossil-based imports to meet its increasing energy needs. We can mention that renewable energy, particularly solar, has much more significance than simply as an energy source, mostly it equals to energy independence in Turkey. Energy demand is of course related to increasing GDP but the country succeeds to keep its momentum going.

Under the terms of the new law, projects which are operational by the end of December 2015 may benefit from the support mechanism for a period of 10 years, starting from the date of operation. The license is issued for 49 years.

In order to allocate the capacity, all participants in one specific region are bidding for their capacity. Winners of the bid are guaranteed a minimum feed-in tariff of US$133/MWh for their submitted capacity. The feed-in-tariff can go up to 200 USD/MWh in case local input is being used, but practically it is still impossible.

On the other hand, a pre-licensing mechanism was introduced in the new law. The winners of the bid will be rewarded with a pre-license and it will be replaced by a permanent license at the beginning of construction. License applications must pertain to a specific site and during the pre-licensing period, which is for a maximum two years, the producer must obtain the required permits, approvals and licenses in order to start con­struction. The critical point is the shareholding structure; during the pre-license and permanent license it is not allowed to be changed. This is a signal from the government that they want to deal with end investors rather than project developers. Also, co-operation between two types of risk-taker is strongly encouraged.

The core issue of securing capacity is the bid. Bidders will bid to pay TEIAS an amount per megawatt of capacity for the license and TEIAS will award the license to the bidder offering the highest price. The price offered by the successful bidder will be paid to TEIAS within three years after commercial operation date. After paying the bidding amount, producers will have two options, either to sell the power to the national grid or through bilateral contracts through the Market Financial Settlement Center operated by TEIAS.

Unlike to any other market, there is no space for manipulative small scale project developers in Turkish Solar Energy market. The market is suitable for financially strong investors or mid and large scale project developers which co-operate with end investors.

People who are looking for great feed-in-tariffs will be disappointed in Turkey but also people who suffered in Spain or Bulgaria due to sudden cut of the feed-in-tariff balloon were also disappointed and some others will experience it again in other countries as well.

Currently, investors are not making their assumptions on the feed-in-tariff. They try to predict the market price in the coming years as Turkey is already at grid parity for private households and commercial users. In the coming years solar energy will be feasible without any feed-in-tariff mechanism. 

I believe that for an end investor, knowing that a project will not be dependent on a feed-in-tariff mechanism in the near future means much more security and opportunity than going to a country where feed-in-tariffs became a balloon and more than 90 percent of the market is based on project developers which do not want to invest any money in the projects that they present as the greatest opportunity of this century.    

The incentive of the investors who are interested in Turkish market is not “making easy money for a short period”. The investors who are interested in Turkish market see the growing energy demand, regular increase in price of energy and willing customers who have been already paying this cost. Moreover, in the long term, each built MW will have an enormous impact on the energy independence of the country.

Investors should see their strategy as putting couple of their golden eggs into the Turkish basket, as well as balancing their energy investment portfolio.

Consequently, Turkey offers minimum expectation to speculative investors, but encourages them to benefit from its future potential and success. I think that is the core principle of a partnership, isn’t it?

Lead image: Turkey map via Shutterstock