Renewable Power Development
Turkey’s general trend of increasing consumption means that the country needs to add 40,000 MW to its installed capacity by 2020, according to MENR. Fuel security, volatile prices, the environment, and EU membership are all important issues, yet renewable power technologies may offer the perfect solution to Turkey’s electricity dilemma — especially considering Turkey’s wealth of renewable energy resources. However, with renewable energy more costly than its competitors, and some of the technologies less proven, many challenges lie ahead before alternative energies are ready to play a serious role in Turkey’s future.
Renewable energy power generation began in Turkey in the late 1990s. By 2000, approximately 1,700 MW of renewable energy projects were in the planning process, according to Professor Necdet Altuntop of the International Solar Energy Association. This included 1,379 projects, mostly wind and small hydro, that were being partly funded through a $200 million World Bank loan. Then, in 2001, Turkey was hit by a severe financial crisis, and the condition of the resulting IMF help was that Turkey had to scrap sovereign guarantees to generation investments. This led to planned renewable projects being pulled, including the cancellation of a 390-MW wind power tender that was at an advanced stage.
The reforms were intended to create a more liberalized electricity market by reducing direct government involvement in greenfield generation projects. In reality, the lack of a bank guarantee frightened many renewable investors away, leading to a five-year dry spell without any major renewable plants coming online.
New Law Pushes Renewables
The key development came in 2005 with the passing of Renewable Energy Law 5346. This aimed to encourage investment in renewable technologies by guaranteeing projects a seven-year (updated to 10 years by Energy Productivity Law 5627) feed-in tariff of 5.5 eurocents, a 99% discount on the license fee, and a free annual license fee for the first eight years following completion. Renewable projects were also offered an 85% discount on the purchase of government land and priority connection to the transmission grid.
An important distinction for investors was that the law defined river- or canal-type projects of less than 50 MW, or a hydropower plant with a reservoir volume of less than 100 million square meters or a surface area of less than 15 km 2, as a renewable project, but larger hydropower projects were not eligible for the benefits offered by the law.
The technology that responded most markedly to this new legislation was wind power. Turkey’s first commercial wind energy power plant, the 12-turbine, 7.2-MW Ares Wind Farm near Izmir, was built in 1998. Seven years later, only two more significant plants had been built, and installed wind capacity was a mere 20 MW in 2006, according to the European Wind Energy Association.
Then, in 2007, everything changed. Eight more wind farms came online, helping wind capacity leap 736% to 140 MW. In the same year a government tender for wind farm projects attracted 751 bids worth a total of 78,000 MW, according to EMRA. Today, the International Wind Energy Association notes the total installed wind capacity is 433 MW, and 3,328 MW more are scheduled to be constructed by 2010, according to EMRA (Figure 9). It must be noted, however, that observers do not expect that goal to be met, as companies are likely to request extensions due to financing problems. "The market has moved extremely quickly in a short time," noted Ms. Goknur Atalay of consultancy firm Enerjidanismanlik.
9. Wind power installed in Europe at the end of 2008 (MW). Source: European Wind Energy Association
More Help Wanted
Though the Renewable Law was the main factor in this radical change, another important element was the success of the first project that proved that this energy was economically viable. Hydropower plant operator Bilgin Elektrik developed the first 100% free market wind energy plant in 2006. The 20-turbine, 30-MW Bares II plant based in Bandirma proved to the Turkish business community that wind farms could generate both electricity and profits.
"Bandirma gave a massive psychological boost to the industry. More importantly, it showed banks that they could invest in wind power. This was key, as it made project financing for later projects more fragile," explained Bilgin Elektrik General Manager Tolga Bilgin. Bilgin, who is also chairman of the Turkish Businessmen’s Wind Association, RESSIAD, dismisses claims that the government should do more to help the industry.
"Some people say that 5.5 euro cents is too low a price (it is lower than the incentives offered by other European countries), but I say it is better than nothing. Indeed, so far producers have not had to sell to the government for this price, as the market price has been consistently higher," added Bilgin. Indeed, it is interesting to note that, due to tight supply, the open market rate has been steadily above that figure, averaging 8 euro cents per kWh.
This optimism is shared by Wadie Habboush, CEO of Turkish energy investor Habboush Group: "The government has done a good job with the Renewable Act, which helps the private sector to exploit new opportunities in Turkey. In fact, Turkey offers great potential to investors, especially in renewable energy."
Despite the enthusiasm permeating the Turkish wind industry at present, there are many who feel that some aspects, for example the 2007 tender for wind power, have been badly managed.
Christian Johannes of Ankara-based consultancy Re-Consult said, "Of the 78,000 MW applied for, about 60,000 MW are not feasible and will not be realized. Unfortunately, very few companies actually performed wind measurements, and many applications were purely speculative."
"The problem is that since 2001, when the Electricity Market Law was introduced, nobody in Turkey — and the responsibility would principally fall on EMRA — has developed a mechanism for separating the wheat from the chaff," added Johannes.
Another renewable technology that has benefited from considerable government support is small hydro. Small hydro is generally defined as a project less than 10 MW for residential or industrial use. Within that bracket a project of less than 1,000 kW is termed mini hydro and one of less than 200 kW is a micro hydropower project, according to the Turkish Electromechanics Industry, a related establishment of MENR.
Small hydro is particularly attractive to the government, as it does not require extensive infrastructure, it can serve remote areas that are not connected to the grid, it has less of an environmental impact than large hydro projects, and, perhaps most importantly in the current credit climate, it is not capital intensive.
In addition to the support offered through the Renewable Energy Law, the government has also commissioned state-owned hydro-turbine producer Temsan to create a host of small, mini, and micro turbines. There are currently 60 micro, mini, or small projects operating in Turkey with a combined installed capacity of 129 MW, and an additional 493 MW of projects are in the planning stages, according to the DSI.
Tapping the Earth
The government has also been heavily involved in the development of Turkey’s geothermal resources. Turkey has one-eighth of the world’s geothermal potential and ranks seventh in the world in terms of geothermal energy. Turkey’s geothermal resources are mostly found in the southeast of the country and are a mixture of high enthalpy (30C and above) and low enthalpy. Turkey has an estimated potential of 31,000 MWt of geothermal energy that could theoretically heat one-third of the country’s homes, according to the International Geothermal Association.
The government has set itself the ambitious target of adding 500 MWe and 3,500 MWt by 2010. One step it took to achieve this goal was the 2007 Law on Geothermal Resources and Natural Mineral Water, which clarified the licensing procedure for geothermal energy. It was also a government body, the Directorate for Mineral Research and Exploration, that carried out the preliminary work for Turkey’s largest geothermal plant, the 47-MW Aydin Germencik facility. After extensive preparatory work, the government awarded the concession to Turkish construction giant Guris. Guris completed the plant in early 2009 and is hopeful that further work and improved technology can boost the installed capacity of the plant to 120 MW.
"This project is not only good for Guris but also good for Turkey," said Guris Vice-President Ali Karaduman. "Our minister of energy attaches much value to alternative energy projects. We hope our success in geothermal plants will convince him of their worth."
Just as Bares II provided inspiration for wind developers, it is hoped that Aydin Germencik will kick-start investments in Turkish geothermal projects.
With the technology for renewable power systems continually evolving, it is important that Turkish firms either develop their own technology or gain access to foreign equipment. One example of a firm doing just that is Dokar, a turnkey power construction company. Sabri Karabay, Dokar’s general manager, explained, "We have arranged distributorships with international energy companies that allow us to offer equipment which can produce electricity from low-temperature water sources (as low as 100C) such as geothermal water, process water, etc."
There is no doubt, however, that the financial crisis could dampen the development of renewable energy in Turkey. Recessions tend to make investors more risk averse, which reduces the allure of new and less-established technologies. Furthermore, the cost per MW of renewable energy is often higher than that of its competitors. EMRA figures based on projects completed in Turkey during 2007 put the investment cost per MW of wind energy at $2 million and hydro at $1.45 million, compared to $900,000/MW for gas or coal projects.
Prime Sun Power
These financial hurdles make the support of the government even more vital. At present, legislators are discussing a new renewable energy law that would set differentiated tariffs for various types of renewable technologies. This is especially important for photovoltaic (PV) thermal solar energy, which is one of the most expensive forms of renewable technology. Turkey has an estimated solar potential of 380 billion kWh but currently only uses a very small amount for thermal applications, such as to heat water for homes and businesses.
"Turkey has already established a production base for solar thermal equipment and will be in a good position to do the same for PV in the near future," said Celal Toroglu, general manager of solar panel manufacturer Solartek. "Solar energy is good for Turkey because it is a domestic source of power; but we need to make sure that we are not importing the equipment for PV power plant installations."
There is a real sense of anticipation with regard to solar power in Turkey. Many firms are completing feasibility studies so that they can move quickly if EMRA launches the tender that is expected later this year. Observers estimate that the new legislation will create a 21 eurocent per kWh tariff for solar energy, but until that is confirmed, no one is taking anything for granted.
One challenge that has more immediate consequences for renewable technology is the limitations of the transmission network. The grid operated by TEAS is nearing the limit of its capacity. Without rehabilitation and extension, it would be unable to transmit significant amounts of extra renewable energy. Furthermore, the grid is at its weakest in many of the rural areas, where renewable projects will be located. Ertugrul Sayin, general manager of EMA Contracting, a company that installs electromechanical equipment for wind farms and connects them to the grid, explained, "A massive investment on the grid would be needed to allow renewable energy to contribute more to Turkey’s electricity generation."
Incorporating wind or small hydropower into any country’s grid is difficult because it is not a baseload power source. Small hydro also provides variable power, especially in Turkey, where rivers are particularly irregular owing to the country’s climate and topography. Turkey’s grid would need to be upgraded to cope with the fluctuating power from renewable technology, while new baseload generation plants would have to be built to provide back-up when renewable supply drops. Additional baseload power would allow operators to "firm" the energy (offer a guaranteed consistent supply regardless of weather conditions).
However, the electricity market is yet to be fully liberalized and, as a result, sophisticated market mechanisms, such as firming, that could mitigate renewable power’s variability are not likely to be introduced in the foreseeable future.
Even though their country recently signed the Kyoto Protocol, Turkish renewable producers still are unable to participate in the protocol’s carbon trading scheme. Though some Turkish firms have participated in voluntary carbon trading, they receive a lower price than that available through the Kyoto scheme.
There is no doubt that so far renewable energy in Turkey has managed to generate more excitement than electricity. Renewable technologies have the potential to wean Turkey off its addiction to imported gas, insulate the economy from fossil fuel volatility, benefit the environment, and possibly help Turkey get one step closer to that elusive EU membership. However, the extent of renewables’ contribution to meeting any of these goals will depend on regulatory support and brave investors.
—James McKeigue (james @gbreports.com), Agostina Da Cunha (agostina@gbreports.com), and Daniela Severino (daniela@gbreports.com) are journalists with Global Business Reports.
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