Invisible Hand

FAVORABLE REGULATIONS SPARKED THE MASSIVE GROWTH OF TURKEY’S RENEWABLES SECTOR, BUT THEIR UNCERTAIN FUTURE IS GIVING INVESTORS UNEASE.

• Focus: Regulations

SPECULATION ABOUT THE FALLOUT from the demise of Turkey’s most important renewable energy regulation, the Renewable Energy Resources Support Mechanism, or YEKDEM, has been brewing nearly since its enactment in 2013.

Indeed, YEKDEM is set to expire at the end of 2020, but a replacement regulation is expected to be enacted. The details of the replacement regulation have not yet been revealed—to the chagrin of the renewable energy industry, which is suffering from over-capacity and high levels of hard-currency debt. The renewables industry future hangs in the balance.

The most important part of the support scheme - the feed-in tariff, which subsidizes pricing for renewable energy producers—is likely to be replaced by a less-generous subsidy. One option cited as a potential replacement is a purchase guarantee system, only at a lower price than YEKDEM. This practice - reducing subsidies as a renewables market matures—is relatively common across other markets.

While renewable energy producers expect such a move, time is ticking on a replacement. Investors are asking for regulatory clarity - the feasibility of future projects cannot be determined until the details of YEKDEM’s replacement are revealed.

Another piece of regulation that is driving the sector’s growth - particularly for solar projects is the Renewable Energy Resource Areas law, or YEKA, enacted in 2016. YEKA specifically works to grow the indigenous value chain for renewable energy projects—a current weak spot for Turkey, which is mostly dependent on imported materials for both solar and wind projects.

Given the leaps in manufacturing technology and dramatic cost reductions seen in the solar manufacturing sector - that haven’t been as pronounced in the wind sector—the YEKA framework has been most applicable to Turkey’s solar sector. YEKA ties domestic production to subsidy support through two models.

The first model grants the right of a developer to construct and operate a solar facility, and sell electricity at a guaranteed price, provided that the equipment used in the facility is manufactured by the developer. In line with that model, Kalyon Energy is nearing the commissioning of Turkey’s first integrated solar ingot-wafer module cell production facility. The project, realized in partnership with China Electronics Technology Group Corporation (CETC) has an annual 50 MW production capacity.

The second YEKA model grants a developer the same rights, provided that the equipment is domestically produced—not necessarily by the developer itself. Though the first tender set up to follow this model was cancelled, in late 2019, the Turkish government announced a replacement tender which is likely to follow some elements of the second model.

A key difference between the first YEKA tender and the upcoming tender is average size of investment. While Kalyon was the sole winner of the first tender and has poured significant resources into the project, the upcoming tender will be awarded to 100 solar projects, each with a 10MW capacity across 39 different provinces. This lowers considerably the barriers to entry, and the risk associated with any single project.

This upcoming tender may set the course for the future of Turkey’s solar industry. A broad sentiment in favor of smaller-scale projects seems to be taking hold, especially as Turkey’s large energy companies financial troubles persist.