Turkey authorizes foreign-currency loans for already approved unlicensed PV projects

The possibility of using foreign-currency financing for renewable energy projects has been extended in Turkey to unlicensed PV projects with a capacity of up to 1 MW, and which were approved by June 21, 2018.

According to Turkish social enterprise, Solarbaba, the previous provisions for foreign-currency loans were only available for licensed projects exceeding 1 MW in size, and which are selected under specific tenders.

While the new provisions – made possible following amendments to Decree N. 32 on the Protection of the Value of the Turkish Currency, introduced by the government in early May – are favorable to small solar parks, those introduce with May's decree actually further limit the possibility of using foreign-currency financing. Indeed, under these restrictions, legal entities in Turkey are prohibited from using this kind of financing, unless they are able to generate foreign exchange income, which means revenue achieved with activities that bring foreign currency into Turkey.

The new measure  was likely conceived, in order to reduce exchange exposure for investors, while maintaining the strong development of unlicensed PV, amid a declining Lira and the increase of grid-fees for these kinds of projects, which has actually lowered the FIT value for PV projects up to 1 MW (and for bigger solar parks consisting of several 1 MW units). This fee, in fact, rose from 0.0256 TRL /kWh in 2017, to 0.1025 TRL/kWh (around US$0.027) this year, while the FIT remained unchanged at around $0.13/kWh.

Unlicensed PV has driven the Turkish solar market over the two past years, contributing to a record growth especially in 2017, while licensed PV projects selected by tenders still represent a small portion of the country’s installed capacity. This year’s growth, however, is not expected to reach a similar performance, as a result of the combination of aforementioned grid-fee increase and the plunging Lira.

After a multi-year fall, which started in 2003, when current President Recep Tayyip Erdogan of Turkey came to power, the Lira saw its value decrease by another 18% against the U.S. dollar in 2017, a trend which has continued over the course of this year.

This is clearly impacting all kind of investments made in local currency, while also increasing the government wide current account deficit, and the heavy indebtedness of Turkish banks and enterprises.

Over the past years, foreign-currency loans have been particularly used in the construction sector, which has been one of the main drivers of Turkey’s economy in the current decade.