The Turkish lira has lost almost a quarter of its value since Thursday and more than 40% in the last month, worsening significantly a longer-term fall which began in 2003.
The crisis, triggered by sanctions imposed by the Trump administration – directly and on Iran, upon which Turkey depends heavily for imports to meet its energy needs – has created huge uncertainty for the Turkish economy and for fragile economies at risk of contagion. It was reported by the U.K.-based Guardian newspaper today that the Indian rupee is also on the slide and has lost 10% of its value this year.
How Turkish PV developers will react remains unclear, although signs of lower levels of development have been visible this year.
“Already in the second quarter I heard that the Turkish market had nearly come to a standstill due to the drop [in value] of the lira, and the general political insecurity ahead of [national] elections,” IHS Markit's Susanne von Aichberger told pv magazine. “It was expected then that the situation would relax after the elections, and the second half of the year would be much stronger”.
The elections came and President Recep Tayyip Erdoğan emerged triumphant again but Turkey’s situation, and the lira's freefall, have not stabilized. “This means that the investment climate continues to be impaired,” the analyst added.
New capacity slows to a trickle
The first signal the market was experiencing difficulties came from state-owned grid operator, TEIAŞ, which for July reported just 18 MW of new, registered and unlicensed PV capacity. By comparison, in the first three months of the year, newly registered unlicensed projects totaled more than 1.1 GW; in 2017, the figure was 2.5 GW – 1.7 GW of it grid connected.
“It's probably a bit early to say what the impact will be, we’d have to see if the currency reduction stays beyond August to really have a view on the impact on the Turkish market,” SolarPower Europe CEO James Watson said. “Short term changes rarely impact longer term decisions, thus the longevity of the change will be crucial to determining impact.”
That currency volatility and political uncertainty are likely to jeopardize future investment in clean energy in Turkey was confirmed by Katherine Poseidon, EMEA policy analyst at Bloomberg NEF.
“Although Turkey has a substantial pipeline of permitted utility-scale PV projects, developers will struggle to secure financing in the current climate,” the analyst told pv magazine. BNEF's most recent investment numbers show new solar financing in Turkey in the first half was down more than two thirds on the preceding six months.
The new government, Ms Poseidon went on to add, should provide more details on support for PV projects after the expiration of the feed-in tariff in 2020, and should announce the date of the 2018 tender for PV projects of more than 1 MW in scale. “Without clarity on this, I would expect a slowdown in project development as the deadline gets closer,” she said. “President Erdoğan's consolidation of control over the central bank, and the lack of effective response to the currency crisis so far, may be a longer-term blow to investor confidence.”
The Turkish government last month decided to authorize foreign-currency loans for approved unlicensed PV projects to reduce domestic foreign exchange exposure for investors and developers of PV projects of up to 1 MW.
According to Halil Demirdag, CEO of Turkish developer and PV panel manufacturer, Smart Solar – and President of Turkish Solar Energy Industry Association GENSED – the crisis may turn into an opportunity for Turkish solar, as it is now being called upon to help the country reduce its dependence on power imports. “Turkey produces about 300 billion kWh of electricity every year, and only 7 billion kWh is [from] solar,” he said.
He admitted this year the solar market may see a considerable drop in new installations, with around 1 GW of newly constructed capacity likely. “Like in many EU countries, and lately China, after each boom there is a shock effect in many markets. This is a serious slowdown, but I can say that this is temporary, and solar is just starting in Turkey,” he told pv magazine.
Mr Demirdag believes the falling lira may also mean lower balance of system costs for solar parks. “With lower international cell prices and lower cost with the exchange rate for local module production, the calculations are with investors,” he said, adding: “This crisis of foreign currency shows us how much more we need solar. When we say solar business, we mean now cheap enough solar business; our target is cheaper or similar cost with electricity produced from imported natural gas or coal.”
FITs could be paid in euros
The regulatory framework for solar, Mr Demirdag went on, is improving. “In our meeting with the new minister of energy, he clearly stated two things: net metering is coming, and every year the ministry will open new permits of 1,000 MW minimum, for next five years,” said the Smart Solar CEO.
GENSED has suggested Turkey pay feed-in tariffs in euros and other currencies, to make investment more attractive. “The low euro interest rates can give a good chance to euro finance, to bring more affordable energy to Turkey,” he said.
That the Turkish PV sector may go more local, with a “localization” trend dominating the country’s energy sector, was stressed in May by Murat Zekeriya Aydin, a representative of Turkey’s Ministry of Energy and Natural Resources.
Whether “being local and national” will be enough to help the country comply with renewable energy targets will probably depend on whether, and how fast, the Turkish government can contain the currency crisis. One thing is certain: if Turkey really has to rely on solar to quickly reduce its dependence on power imports, the combination of net-metering, 1 GW of unlicensed projects per year and tenders for large-scale solar – another 1 GW tender is planned by the end of the year – may not be enough.
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