Mega projects, mega problems

Turkey’s 1 GW solar farm at Konya was meant to be the poster child for the country’s PV industry. The project was auctioned in March 2017 and included strict local content requirements, which called for Turkish manufacturing of PV ingots, wafers, cells and modules.

Despite these requirements, the tender attracted bids from four consortia, of which South Korea’s Hanwha Q Cells' joint bid with local firm Kalyon Enerji was successful, with an offer to sell the generated electricity at a FIT rate of $0.0699/kWh for 15 years. Moreover, Turkey’s Renewable Energy Support Mechanism allows renewable energy generators to sell their electricity for a price per kilowatt-hour, fixed in hard currency (USD), so fluctuations in the Turkish currency won't affect the viability of projects.

In line with the tender requirements, the South Korean-Turkish consortium started building a manufacturing facility in Ankara in December 2017. Hanwha Q Cells' factory in the Turkish capital was supposed to have an initial capacity of 500 MW, producing modules for the 1 GW PV plant in Konya. The factory’s output was set to reach 1 GW at a later stage.

However, things have not progressed according to plan. Information collected by pv magazine shows the tender rules require Hanwha Q Cells’ Turkish factory to produce 60% of its output for local solar PV installations in its first year of operation. The percentage is then supposed to increase to 70%. Similarly, the factory’s R&D department should employ at least 80% Turkish staff.

The split

Hanwha Q Cells’ factory in Ankara was scheduled to produce its first modules by the end of 2018, and the Konya park was to begin generation in the first quarter of 2019 — neither of which has occurred to date.

Instead, the Turkish PV sector has been rife with discussion regarding the separation of the successful consortium. Turkish media reports suggest that the split is related to the inability of the partners to secure financing. The initial 500 MW phase of the manufacturing facility in Ankara requires around $450 million of investment, while this increases to $1 billion when the factory’s output becomes 1 GW. Similarly, Hanwha and Kalyon were expected to invest $1.3 billion in the 1 GW Konya park.

A spokesperson for Hanwha Q Cells claims that “nothing has been determined” at this stage. However, the website of Turkey’s competition authority lists a transfer of shares from the Hanwha-Kalyon Enerji consortium to Kalyon Enerji alone. Industry sources say that Kalyon Enerji is actively searching for a new project partner so it can attempt to secure financing and build the PV farm in Konya.

Regarding the factory in Ankara, Hanwha Q Cells has been more forthcoming. “Operating in a global solar economy, Q Cells carefully and continuously assesses its business objectives and re-balances its risk management. The fluctuations of various economies, local currencies, and markets around the world impacts our own business activities, often in unforeseen ways,” the company tells pv magazine.

“With this in mind, Q Cells is always striving to improve our competitiveness and ability to serve the solar markets where demand is high. In terms of our mid to long-term objectives, this strategy can be seen in the U.S. market, where we are close to completing our 1.7 GW module facility, and also in the EU, where we are market leaders in many of the main solar countries. As part of Q Cells’ rebalancing of its risk management, this also means minimizing some investment in emerging or contracting markets. The current situation of the project in Turkey reflects this business strategy.”

Made in Turkey

Turkey has always wanted PV development to be coupled with local manufacturing. Initially it offered higher FITs to projects utilizing locally made components, but it soon realized that the market was not responding to this measure. It then applied an import tax (gözetim vergisi) on PV modules. In 2017, the Turkish government imposed anti-dumping penalties on China-based PV manufacturers.

PV developers have often imported panels from Vietnam and Thailand to avoid the antidumping fee. However, such modules incur a hefty value-added tax (VAT) at customs, which is almost double the VAT applied to local modules.

To tackle this problem, some international PV module manufacturers have imported raw materials from China, Taiwan, or elsewhere. They then tap local manufacturers to assemble the modules. In this case, local companies will operate as OEMs and sell the modules under their Turkish name and branding.

This OEM structure constitutes the bulk of Turkish PV manufacturing today. By contrast, the proposed Hanwha Q Cells factory in Ankara would have been the country’s only vertically integrated PV production facility. There are reports that of an original 42 to 45 module assembly operations that were active in Turkey several years ago, many are now closed.

Yusuf Bahadir Turhan, founder of YBT Energy — which currently has a 20 MW installed portfolio in Turkey — explains: “Because of the customs and taxes the government has imposed on imported products, especially panels, Turkish products are a bit cheaper on the first day of the investment now.” Turhan adds that investors are still skeptical about the quality of local products, as they have fewer references from the field.

It’s the economy, stupid

Turkey has been experiencing a decade-long, credit-led economic boom, supported by strong domestic consumption. However, its current account deficit has deteriorated, inflation has escalated and the national currency has fallen sharply.

To battle the country’s 15-year inflation peak, the government slashed taxes on products such as vehicles, furniture and white goods, but the cuts have excluded PV equipment. What’s more, given challenging external financing conditions, credit growth is expected to remain subdued in the near term, depressing investment. Financing projects has become more difficult.

On top of this, various solar industry experts have also expressed doubts over the potential cost structure of Turkish manufacturing. Surely, “made in Turkey” modules avoid import taxes, but local production isn’t necessarily cheaper than in China or Malaysia — where Hanwha already operates solar fabs.

PV market growth

Last but not least, investing in local manufacturing requires strong domestic demand. It is not only Turkey’s economic woes that curb the PV market’s growth, but its solar policies.

To date, Turkey’s cumulative installed PV capacity has been achieved largely through projects in the “unlicensed” sector — smaller than 1 MW. Despite the name, these projects also require licenses, with the majority expiring in 2019.

Turkey’s well-advertised 1 GW tender for three PV parks was scheduled to be held this year. But in January, the Turkish government scrapped the tender. Local stakeholders report that this might be due to a lack of interest. The tender would have followed the YEKA (Yenilenebilir Enerji Kaynak Alanları, or Renewable Energy Resource Areas) tender model, which requires local content.

On this basis, Turkey’s PV sector is turning its hopes toward the 600 MW of licensed projects, which include PV plants tendered in 2014 and 2015. Of this, just 15 MW and 13.3 MW were installed in 2017 and 2016, respectively, but 2018 saw an increase in activity.

Licensed PV plants are meant to be developed by the end of 2019. However, Andreas Schuenhoff —  director of the Asunim Group, an EPC firm active in Turkey — says that some projects have managed to extend their installation deadlines due to changing terrains. Overall, Schuenhoff estimates that about 450 MW to 500 MW of the tendered projects will be built.

Umut Gurbuz, of Asunim Turkey, provides more details: “We expect around 110 MW of licensed systems to be commissioned in 2019, another 160 MW in 2020, and a further 100 MW in 2021, mainly the ones with bureaucratic problems [such as]… land issues.”

Gurbuz appears more hopeful about financing. There are some licensed projects for sale due to a lack of financing and Turkey’s current economic status, but with lower balance of system (BOS) prices, the systems are feasible. The next step is to secure modules and other equipment, which are often manufactured more cheaply abroad than at home.