Solar energy in Turkey – Quo Vadis?
Armed with the potential to be the one of the world’s leading solar power generating countries, Turkey is still far from realizing that potential. When the Energy Market Regulatory Authority (the “EMRA”) first announced in 2013 that it would start accepting applications for licensed generation, it appeared that national energy policy was finally and wholeheartedly embracing solar. In 2015 the licensed generation application process was undertaken for the first time. Licensing applications totaling some 15 times the available 600 MWs were received by the EMRA, catching it, so it would seem, completely off guard. The unanticipated interest necessitated the opening of a tender process. Although successful, it is clear that the 2015 tender for 600 MWs in no way met the market’s obvious interest in licensed solar generation.
There is also an “unlicensed” generation option allowed subject to certain rules. As the name suggests, these generation facilities do not need a license issued by the EMRA. Unlicensed generators are also exempted from corporate formalities imposed on licensed generators. They do not have to establish a legal entity in order to operate. They must, however, obtain approval from the local distribution company for grid connection and system usage, and secure land use rights and environmental clearance.
Turkish Electricity Transmission Company (Türkiye Elektrik İletim A.Ş.) (“TEİAŞ”) determines the electricity capacity to be connected to the grid for both licensed and unlicensed facilities and announces the installed capacity.
Based on TEİAŞ data, as of December 2016, the installed solar capacity is 832.5 MW, with 1,045 facilities. This constitutes only 1 percent of the nationwide installed capacity. Currently there are only two licensed facilities.
Every year, prior to May 1, TEİAŞ is charged to determine and notify EMRA of the capacity for licensed solar energy for the following five and ten years. Law No. 5346 on “Utilization of Renewable Energy Resources for Electricity Generation” (the “Renewable Energy Law”) limited the total installed capacity for licensed solar power to 600 MW. This capacity was completely allocated during tenders held in 2015. Because TEİAŞ did not announce the capacity allocations in 2016, no preliminary license applications were received by EMRA and no tender process was undertaken.
There has been, however, some important progress in large-scale licensed projects. In September 2015, Karapınar Energy Industry Zone in Konya province was announced to be a renewable energy resource area (Yenilenebilir Enerji Kaynak Alanı or YEKA) (“Resource Area”). On October 20, 2016, the Ministry of Energy and Natural Resources announced the tender for the Karapınar Resource Area. The capacity for Karapınar Resource Area will be 1 GW and the whole capacity will be allocated to one developer. The tender will take place on March 20, 2017. The tender specifications determine the conditions for allocation and also require that a local manufacturing facility is set up to boost local production.
Unlicensed generation of electricity is regulated under the Law No. 6446 on the Electricity Market and the Regulation on Unlicensed Generation of Electricity (the “Unlicensed Regulation”). The capacity for unlicensed energy is determined by TEİAŞ on a per transformation station (trafo merkezi) basis.
Private individuals and entities may directly or indirectly own and operate renewable energy generation facilities with a total installed capacity of 1 MW or less. The main purpose of the Unlicensed Regulation is to promote power plants that generate power to meet their own electricity consumption. Any excess power not consumed by the facility may be sold to the grid over the applicable feed-in rate.
Delays and uncertainties in the licensed segment have prompted investors to explore alternative ways to invest in the power sector. Unlicensed generation proved to be very convenient for some domestic and foreign investors. These investors aimed to benefit from a somewhat grey area in the unlicensed generation legislation by setting up multiple facilities (for instance 10 facilities each having an installed capacity of up to 1 MW) within the same region with a view to sell the excess power to the grid. Normally a generator planning an installed capacity larger than 1 MW would need to secure a license from EMRA. The unlicensed legislation neither allowed nor prohibited this structure. However, the legislation itself states that, as a general rule, license-exempted generation must be used by consumers to meet their own power needs and not primarily for trading.
Indeed, in March 2016, the Unlicensed Regulation was amended to explicitly state that apart from rooftop installations, no
(i) legal entity; (ii) individual; or (iii) legal entity in which (i) or (ii) have direct or indirect shareholding or otherwise exercise control rights, will be able to have more than 1 MW of unlicensed installed power capacity within a transformation station. Therefore, investors will no longer be able to establish separate special purpose vehicles, each holding a separate unlicensed project to be operational in a substation. Rooftop installations and unlicensed generation facilities, which secured a call letter (letter issued by the local distribution company allowing the facility to connect to the grid) prior to March 23, 2016 (the date when the amendments became effective), are exempt from this restriction. Therefore, there may still be some room to invest using the above-described structure.
Each unlicensed facility is required by law to be connected to a consumption unit. Pursuant to the amendments referred to above, the installed capacity of a solar or wind power plant may not exceed 30 times the total amount of the power to be drawn by the related consumption unit. This restriction will not be applicable to those facilities that secured a call letter before March 23, 2016. Any excess power not consumed in the consumption unit can be sold to the grid. The power so generated will benefit from the feed-in rate as mentioned below. According to an unofficial statement made by the Renewable Energy Directorate, legislation will be introduced, likely this year, to govern the development and operation of rooftop installations. Such legislation will be planned with the cooperation of the Ministry of Energy, EMRA and the Ministry of Environment and Urbanization and will apply to rooftop installations deployed by 2018.
Incentives and Financial Burdens to Consider
Licensed solar generators may benefit from a feed-in rate mechanism if they opt into the Renewable Energy Support System (Yenilenebilir Enerji Kaynakları Destekleme Mekanizması or YEKDEM). The support mechanism encompasses the incentives provided by the Renewable Energy Law and its applicable regulations, mainly the feed-in tariffs and domestic component incentives. Feed-in rates are valid for 10 years for power generators that commence operations by December 31, 2020. In addition to feed-in rates, renewable energy legislation provides for incremental price incentives for generators that use certain domestically-manufactured mechanical and electromechanical components in their facilities. Incentives for using domestically-manufactured components are available for five years after a project commences operations.
Unlicensed solar generators may benefit from the feed-in rate for the excess power which is sold to the grid. However, following an amendment made to the legislation in October 2016, domestic component incentive no longer applies to unlicensed facilities.
Solar power facilities are currently granted a feed-in rate of 133 US$/MW-hour (photovoltaic or concentrated). The total incentive could be as high as 200 US$/MW-hour (photovoltaic) and 225 US$/MW-hour (concentrated) if the maximum amount of domestic component incentive were obtained.
Other incentives which are applicable to all renewables, not solar-specific, include reduced fees and costs in gaining rights to access and use state-owned lands, grid connection priority and license fee discounts. Solar power plants also benefit from the general incentive system if the project meets certain criteria under the general investment incentives scheme. These benefits include exemption from customs duties for imported machinery and equipment, and value added tax exemption for imported or domestically purchased machinery and equipment. The import of solar panels from abroad, however, is excluded from the scope of the incentive mechanism: even though solar investments continue to be within the scope of the general investment incentives scheme, exemptions do not apply to solar panel imports.
One of the expenditure items for generation facilities is the distribution system usage fees. In November 2016, the president of EMRA stated that the system use fees paid by unlicensed generators were too low compared to those paid by licensed generators; and that they were intending to increase the system usage fees applicable to unlicensed entities by 10 times to make up the imbalance.
On December 29, 2016, EMRA issued a decision increasing the system usage fees payable by unlicensed generators. To put things into perspective, even the discounted fee that will apply to the generators as they have secured the provisional acceptance by 2018, is 3.37 times of the fee applied in 2016. No discount will apply to those generators who secure the provisional acceptance in 2018, translating into a 1,250% hike in fees compared to 2016 figures. It is therefore of utmost importance that unlicensed generators secure provisional acceptance by December 31, 2017.
As a comparison, for licensed generators, the applicable fee for 2017 is 61% higher than of 2016.
Turkey’s capacity target for licensed solar power plants by 2023 is 3 GW. As stated above, 600 MW of such target capacity was allocated during 2015 by way of tenders. It is expected the remainder of the 3 GW capacity to be assigned to Resource Areas (such as Karapınar).
In relation to unlicensed generation, even though the above mentioned legislative amendments will not be applicable for those facilities that secured a call letter prior to March 23, 2016, it is expected that they will have a negative impact on the investments.
In light of the amendments affecting the unlicensed generation described above and the statements confirming the Government’s aim to boost rooftop installations, it seems that the development of unlicensed solar power plants will most likely be limited to self-consumption and to rooftop installations going forward.
 Please see Turkey Boosts Large-Scale Solar Investments.
 According to an unofficial statement made by the Renewable Energy Directorate of the Ministry of Energy, the Renewable Energy Support System Regulation will be amended by 2018 to determine the fees applicable following 2020.
 The system usage fee for unlicensed generators who cannot secure the provisional acceptance in 2017 will be 10.2510 TLkr/kWh (approximately US$2.65). For those generators who are issued provisional acceptance prior to December 31, 2017, a 75% discount will be applicable so long as they benefit from the feed-in rates, resulting in a fee of 2.5628 TLkr/kWh (approximately US$0.71). The usage fee for 2016 was 0.7597 TLkr/kWh (approximately US$0.21) which indicates a 237% increase for those who are applied the said discount.
 The fee for 2017 is determined as 0.8969 TLkr/kWh (approximately US$0.23) which was 0.556 TLkr/kWh (approximately US$0.14) for 2016, showing a 61% increase.