The weekend read: Turkish policy turns to the rooftop

The sprawling metropolis of Istanbul. The city offers a major opportunity for rooftop solar, but uptake is complicated by bureaucracy and overcrowding, with multiple family dwellings and hastily constructed rooftops a common sight in the city.

In Turkey’s sprawling mega-city of Istanbul, there is perhaps no clearer indicator of rampant inequality than the skyline. The harbor-side mansions that litter the shores of the Bosphorus, known as yalı in Turkish, are iconic, often historic properties, passed down through generations of Istanbul’s elite families. They sell for prices in the millions (or tens of millions) in a city where the average worker takes home just 31,000 Turkish lira (just over $5,000) a year – although professionals earn many times this figure. The tiled rooftops of Istanbul’s wealthy Sarıyer district are distinctly colourful in a city where most are confined to living in drab grey apartment blocks.

On the other end of the spectrum is the gecekondu – literally, “put up overnight” – slum housing, built rapidly to avoid the hassle and expense of purchasing land and obtaining construction permits. A report by the newspaper Sabah states that one-third of Istanbul’s 16 million inhabitants reside in these neighborhoods, typically after migrating from impoverished corners of Anatolia. This figure is a contentious one and there have been government initiatives to reduce the number of people forced to live in such conditions. Sheets of rust covered corrugated steel and ceramic tiles protect Istanbul’s underclasses, as best they can, from the elements.

This visible delineation between rich and poor – a remarkable inequality of housing – is apparent all throughout Turkey, not just in crowded Istanbul.

Cut to Turkey’s PV sector. It is well-noted that Turkey has some of the highest solar potential in Europe – experiencing 2,714 hours of sunlight per year (compared to Germany, with a mere 1,738 hours) – but also that these favorable conditions have not yet been adequately exploited. There are a number of reasons for this: For one, Turkey has only recently embraced PV technology as part of a bid to become less dependent on foreign energy imports. Furthermore, seeking planning approval from multiple arduous layers of bureaucracy is a headache for both foreign and local investors, as are the high upfront costs associated with financing licensed projects.

Policy options

One of the biggest hurdles to the adoption of PV is the lack of incentives for the average Turkish consumer to adopt solar technology in the rooftop, or DG, segment. Encouragingly for the country’s solar sector, it is one that the government is slowly trying to address. One relatively straightforward solution is net metering: promised in both 2018 and put in place in May 2019.

On paper, providing consumers with the opportunity to sell excess power back to the grid looks an excellent motivator for more Turkish households to install rooftop PV. The greatest challenge for the rooftop segment in Turkey at the moment is that upfront costs to consumers are high and financing difficult. Furthermore, according to the Institute for Energy Economics and Financial Analysis (IEEFA), under the existing net metering system, the average payback period for rooftop PV is 16 years. According to that same report, the soon-expected changes to net metering would reduce a rooftop array payback period by a quarter, down to 11 years for new installations. Additional proposed reforms – the removal of the 18% VAT on equipment, the removal of fixed fees, the subsidizing of loans, and the matching of Germany’s feed-in tariff ($0.14/ kWh) – would see the payback window for systems installed in 2020 fall to just under seven years.

The adoption of rooftop PV – if reforms prove adequate and persuasive – presents a lucrative opportunity for households. Turkey’s ongoing economic crisis has seen a rapid, month-on-month increase in electricity prices, amounting to a total increase of 61% between the beginning of the currency collapse and the end of last year, when the EPDK (Turkey’s energy market regulatory authority) announced a freeze on further price increases. As wages remain stagnant, the ability to subsidize electricity bills with electricity generated by a rooftop solar system should be an enticing prospect for Turkish households.

In Istanbul there is an additional benefit for all parties: with solar potentially allowing households to circumvent the metropolis’ infamous blackouts – and with sufficient uptake – helping to tackle persistent energy shortages.

Enter storage

Worth noting is the government’s April 2019 introduction of energy storage regulations, which are expected to come into effect in the first quarter of this year. Pairing battery storage with rooftop solar allows households and businesses to cover more of their own energy needs with power generated onsite. This could prove especially relevant in Turkey, where the peak energy demand tariff (between 5 p.m. and 10 p.m.) is as much as 90% higher than the daytime tariff – giving consumers the opportunity to draw on their own energy reserves during expensive peak hours.

Replicating the growth of Turkey’s large-scale solar sector will allow the country to capitalize on what the World Bank, in a 2018 report, estimates to be nearly 4 GW of potential in rooftop solar alone. One of the biggest uncertainties ahead of the policy’s implementation is how industrial and commercial installations will be affected. The first iteration of the reform, released in January 2018, describes the initial rollout of net metering as being limited to residential properties with solar systems sized between 3-10 kW. The fate of larger rooftop installations remains unclear, as the existing FIT regime is expected to be phased out later this year. In February, however, ahead of the expected May announcement, the Turkish government reduced the tariff for unlicensed PV installations between 10 and 100 kW – an indication, perhaps, that the incentivization of industrial and commercial rooftop modules is on the agenda for 2020.

Will net metering be the silver bullet that jumpstarts demand for rooftop solar in Turkey? It’s too early to say, but discrepancies in quality of housing will likely have a major say in who is able to install PV, and where. In the concrete jungle of Istanbul, for example, the installation of rooftop PV is complicated by an abundance of multi-family dwellings – often with multiple apartment owners within the same building. That is to say nothing of the aforementioned gecekondu, some of which have roofs already shuddering under their own weight, even without with the addition of a solar system. All this is assuming, somewhat naively, that the average Istanbul resident, let alone the poorest of the poor, can afford to bear the loss for the duration of the 11-year payback window projected by the IEEFA with the introduction of net metering. And yet these two groups – lower-middle-class renters and the working poor – are the households that have been hit the hardest by rising energy prices and who stand to gain the most from net metering.

Outside of Istanbul, especially on the sunny southern coast, where multi-story apartment blocks give way to a greater multitude of single-family dwellings and summerhouses, the picture is brighter. But it remains to be seen whether Turkish consumers will find the incoming net metering provisions a sufficient motivation to embrace solar energy. All eyes will be on the new policy announced this May.

By Hugh Hutchison

This article was amended on April 6, 2020, to reflect feedback from a number of Turkish solar industry stakeholders, including an adjustment to reflect that net metering was introduced in May 2019.