In the coming months, Turkey is expected to reach 1 GW of installed solar PV. The majority of these PV installations come from the so-called unlicensed fragment of the market, which incorporates installations up to 1 MW. And it is a market that picked up pace in 2016, after the sector saw cumulative installations of just 70 MW and 150 MW in 2014 and 2015, respectively.
In October, however, Turkey connected an 8 MW solar farm to the grid in the Elazig region. This is a critical development. Firstly, the project in Elazig, as well as a 5 MW PV project in the eastern region of Erzurum, was tendered in May 2014. Secondly, in December 2014, they became the first two tendered projects to be given final installation approval by the Turkish institutions.
What is particularly interesting about the 8 MW project in Elazig, however, is that it was tendered for a very high license fee – tenders are subject to a one-time variable license fee. So, the Elazig project had to pay TRY 827,000 (USD 241,195) per MW, while the Erzurum project is only contracted to pay TRY 68,000 (USD 19 852) per MW. Many analysts had feared that projects, like the PV farm at Elazig, with such high license fees would not materialize.
Given that a risky project like the 8 MW plant in Elazig was installed, is it rational to expect that the rest of the 600 MW of tendered projects will eventually be realized? The answer is far from being straight forward and depends heavily on the source of financing.
The 8 MW park in Elazig was jointly commissioned by Turkish company Asunim and German company Phoenix Solar for Akfen Renewable Energies. Akfen is a leading Turkish infrastructure group, which has received generous financing from the European Bank for Reconstruction and Development (EBRD). In December 2015, the EBRD also acquired a 20% stake in the renewable energy subsidiary of Akfen Holding. Therefore, access to financing for Akfen was not too complicated.
This is certainly not the case for other Turkish stakeholders.
Financing solar in Turkey
Turkey’s banks have vastly expanded their portfolio during the last decade due to impressive economic development in the country and strong performance of the Turkish currency. But this is a thing of the recent past.
The value of the country’s currency has since dwindled, in the last year alone, Turkey’s lira lost 5.2% of its value. Among other developing economies, only the Mexican and Argentine currencies devalued more in the same period. And economists forecast that the Turkish lira could yet devalue further.
Turkey’s economy has also experienced a significant slowdown. The OECD forecasts Turkey’s GDP to grow by approximately 4% in 2016, which is far less the double-digit growth Turkey has been experiencing in the last decade.
Within this new environment, banks are struggling to finance new loans, while businesses are often unable to pay back their existing loans. Cutting spending on energy projects, especially renewable energies, is one potential, if not probable, outcome in this new reality.
Build now or wait?
Tendered projects are obliged to be connected to the grid by the end of 2019. This gives developers plenty of time, while investors now have the option of waiting until project costs decrease further.
Although the Turkish government’s announcement of a new 1 GW solar PV tender by the end of the year made headlines, the reality for solar PV investors in Turkey is not so heartening. The new tender will have very strict regulations that will require locally manufactured content, which hardly appears to be a convincing way to boost the solar PV sector in the country. Turkey has massive potential to generate energy from its plentiful solar resources, but, unfortunately, the new 1 GW tender is not the best way for the country’s politicians to embrace the clean energy technology.