PV Analysis of the Belt and Road Initiative

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PV Demand Analysis of the Belt and Road Initiative: Turkey of Western Asia

Turkey Country Profile

The current population of Turkey is estimated at 82.2 million. In 2018, the Turkish economy grew by only 2.6% in terms of real gross domestic product (GDP). That can be attributed to Trump’s sanctions and tariffs on Turkey, which caused a currency crisis and a 20% surge in inflation. With the nation’s economy facing risk in U.S. sanctions treat, S&P Global Ratings revised down the credit rating for Turkey to BB- with negative outlook.

The coastal areas of Turkey have a hot-summer Mediterranean climate. With a structurally complex terrain, the temperatures average around 16°C-22°C in plateau and 25°C-30°C in canyons throughout the year. The average daily solar radiation is 4.18kWh/ m2 and 1,527kWh/m2 for average annual solar radiation.

Renewable Energy Development in Turkey

To meet Turkey’s national renewable energy target of 30% of electricity generated from renewable source by 2030, the Turkish government launched the Strategic Plan 2015-2019 in December 2014 following the then Prime Minister Erdogan’s announcement of Vision 2023 in 2013. The target for solar determined by the energy strategy is 5 GW installed capacities by 2023. 

Currently, Turkey’s electricity is primary generated with natural gas and coal, which made up nearly 70% of the country’s electricity generation in 2018. Among the total electricity generated, about 20% came from hydropower and 10% from wind, solar, and geothermal. 

Turkey Electricity Generation by Source in 2018

PV Policy of Turkey

1. Feed-in Tariff

Solar projects, regardless licensed or not, will qualify for a USD 0.133/kWh FIT payment and a 10-year PPA contract if installations of which are completed by Dec. 31, 2020.  

2. Local Content Support

To vitalize the development of renewable energy, the Turkish government introduced a license mechanism, which provides support for domestically manufactured equipment used in the licensed generation facility by a requirement of at least 55% local content ratio. To encourage investment, investors whose every part of equipment exceeds the 55% local content ratio will be granted multiple tariffs.  

3. Unlicensed Model

Investors with unlicensed projects of capacity up to 1 MW do not need to establish a company and bid for capacity, but only apply to the relevant network operator with required documents for grid connection approval. Procedure of application for such is faster and easier compared with licensed model.

Unlicensed projects that secure approval will be granted a USD 0.133/kWh tariff that lasts up to 10 years. 

4. Licensed Model

The minimum installed capacity for licensed projects is 1 MW. As procurement and land acquisition for licensed model is organized by the central government, the procedure of application, which encompasses administration work, environmental evaluation, and assessment, is more complex compared to that for unlicensed projects. 

5. YEKA Zone

The Turkish government issued a Regulation on Renewable Energy Resource Zones (YEKA) in 2016 to support the renewable energy development. The Regulation aims at spurring PV market demand through tender mechanism and replacing FIT with YEKA model. YEKA Zone is also expected to accelerate the development of manufacturing industry and promote foreign and local investment in the renewable energy through local content requirement.

PV Development in Turkey 

The Turkish solar market was rejuvenated upon the announcement of solar policy. With supportive policies in place, the solar market saw growing demand from unlicensed projects. Demand from licensed projects, on the other hand, is relatively weak due to complex procedure and inefficient centralized management. As Turkey has met its 5 GW goal ahead of time, it is expected that demand will continue to decrease gradually in the future without demand from target installation. 

Regarding incentives, the official FIT payment is calculated by the US dollar instead of Turkish lira. That prevents local project developers from exposing to transaction risk but from a financial perspective, it increases the burden on public network operator. Thus, it remains to be seen whether these projects will be awarded full amount of FIT payment in the future.

From the perspective of manufacturing, Turkey-based manufacturers used to supply the local market and export Turkey-made modules to Europe to eschew the minimum import price (MIP) imposed by the EU. However, following the EU’s decision to lift MIP on Chinese module imports as well as the U.S. sanctions against Turkey, the country was hit by stock market crash, currency collapse, and inflation surge, which resulted in huge investment burden for investors. Thus, most Turkey-based manufactures have frozen their capacity expansion plan.

By the end of this January, the cumulative solar installation has reached 5,141 MW in Turkey, with 5,060 MW of which generated from unlicensed projects, representing 99% of the total installations. 

Turkey Cumulative Installation by the end of January 2019

Turkey-China trade: module imports and exports 

According to PV InfoLink’s China customs database, China exported 145.01 MW of modules to Turkey in 2017 and 48.36 MW in 2018. The huge gap between shipment volume and actual capacity demand can be ascribed to the local content requirement, which encourages the use of modules made by Turkish manufactures or foreign companies’ facilities in Turkey. 

In addition, the U.S. sanctions as well as the delayed demand from the utility scale projects of 1 GW tended in 2017 can be the reasons behind the considerable decrease in module shipment volume in 2018 from 2017.

China's Exports of Module to Turkey

Conclusion

Overall, unlicensed projects will continue dominating Turkey’s PV market; whereas demand from licensed projects will remain weak due to government inefficiency, making the Turkish market comprise mainly small, unlicensed projects of less than 1 MW. 

After hitting by economic crisis, foreign companies have become increasingly reluctant to invest in Turkey, which will lead to difficulty in implementing utility-scale projects in the future as well as achieving policy objectives. 

 

*PV InfoLink will hold a seminar titled “2H19 PV Market Trends and Outlook” in Shanghai on June 3. Welcome to join us for more market insights and technology trends.

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