Versatile financing instruments essential for sustainable renewable energy market

With the goal of ensuring financial sustainability in renewable energy projects, investments should benefit from alternative financing instruments, including green bonds, venture capital and crowdfunding while increasing liquidity in the domestic markets and decreasing borrowing costs

Building on the renewables experience of the last decade and drawing from the best international examples, Turkey introduced the Renewable Energy Resource Area (YEKA) mechanism in March 2017 with the first 1,000-megawatt (MW) solar power YEKA project. The successful realization of the auction and ceiling price in the first YEKA featured technology intensive investments and high rates of localization of the technology, equipment and staff to be employed.

In addition to these advantages setting the Turkish experience as a global example, the necessity to diversify financing options is emphasized to be an essential benchmark to create a sustainable renewable energy market in the report prepared by the Istanbul-based think tank, the SHURA Energy Transition Center.

The renewable energy sector has seen significant growth over the last 15 years, with an intensified performance from 2013 to 2018, during which onshore wind and solar power plants increased exponentially. The wind power capacity alone reached 7,000 MW by the end of November 2018 and a major portion of this capacity, 5,700 MW, started operating in the period of 2013 to 2018.

In the last 15 years, Turkey invested $67 billion in electricity generation capacity. The investments in power generation made up 63 percent of the total investments in the energy industry, the report pointed out. The estimates also demonstrate that the country will reach 440 billion and 550 billion kilowatt hours (kWh) in electricity demand by 2030.

According to the data of the Energy and Natural Resources Ministry, Turkey's electricity generation was recorded at 292.17 billion kWh in 208, with a 0.75 percent rise from the previous year. The SHURA report indicates that the country's electricity generation will record annual growth of 4.8 percent on average until 2030.

As part of the 2023 vision, Turkey aims to generate 30 percent of its electricity consumption from renewable resources. Within the framework of that goal, Turkey plans to reach 34,000 MW hydroelectric power, 20,000 wind power, 5,000 solar power, 1,000 MW geothermal power and 1,000 biomass power capacity, explained the SHURA report entitled, "Turkey is capable of generating 50 percent of its electricity from renewable resources: Opportunities making the YEKA mechanism more effective to strengthen the regulatory framework supporting energy transition."

Turkey's aggregate installed power capacity was recorded at 88,000 MW in November 2018, and 12,000 MW of this capacity was made up of solar and wind power plants. While wind power accounted for 7,000 MW, the remaining 5,000 MW capacity came from solar plants. These figures prove that Turkey prematurely reached its 2023 goal in solar power capacity in November 2018.

In January this year, the energy ministry announced that nearly 60 percent of Turkey's electricity was generated from local resources.

The immense growth in renewable resources was expedited thanks to the Renewable Energy Resources Mechanism (YEKDEM), a program that was introduced and will be abolished in 2020.

In order to capitalize more efficiently from the bountiful resources in Turkey, the Energy and Natural Resources Ministry introduced another mechanism to attract more investors, produce the technology of renewable energy and increase the localization of equipment and technology by ensuring optimum market prices and strengthening the market conditions.

For the new YEKA scheme, SHURA Director Dr. Değer Saygın told Daily Sabah in an exclusive interview, Turkey's YEKA model features the expansion of the equipment manufacturing capacity and technology transfer while primarily aiming to create a competitive domestic market to lower costs of power generation and electricity consumption.

"The requirement of localization is one of the most important elements of Turkey's YEKA scheme considering its priorities to increase the share of renewables and narrow down the share of energy imports on the current account deficit," Saygın said and drew attention to the fact that the localization requirements in YEKA models around the world are generally a secondary goal.

"Until ensuring market saturation, the technology-oriented tender models are considered a positive approach to boost local production of renewable energy resources," Saygın said.

Drawing attention to the decreasing costs of renewable energy investments, Saygın underscored that the increasingly developing technologies will further bring down the costs.

"Global opportunities in renewable energy make countries like Turkey more attractive for investors and the growth potential of Turkey is expected to fuel investments in renewables," the SHURA director said.

In a bid to highlight the importance of sustainable financing for the renewable investments, he said, "In order for Turkey to continue its progress toward low-carbon energy transition in the first stage, it is necessary to analyze the issue of sustainable energy financing with a systematic and holistic approach and to reveal the current situation in Turkey and in the world, as well as the opportunities and challenges for the future."

With an aim of increasing accessibility to sustainable financing, the SHURA report also highlighted that the attractiveness of the domestic market should be promoted for international funds by way of public and private sectors as local and global financial institutions. The liquidity in the domestic markets should be increased, while financing costs of the projects must be decreased.

Dr. Değer Saygın also emphasized that green bonds, venture capitals, crowdfunding and alternative financing instruments must also be taken into consideration in addition to the conventional bank loans to finance the renewable energy projects. He also added that financing models to ensure effective risk management must also be developed.

Turkey's YEKA tenders

Turkey held the first 1,000 solar power YEKA tender in March 2017 and the consortium of Turkish Kalyon and South Korean Hanwha group was awarded the contract for the $1.3 billion project to be built in the central Anatolian city of Konya. The feed-in-tariff at the auction was set at $6.99 per KWh.

The first 1,000 wind power YEKA contract was awarded to the Turkish-German consortium consisting of Kalyon-Türkerler-Siemens. The feed-in-tariff was set at $3.48 per kWh, which was recorded as the lowest price in YEKA tenders around the world.

After single-area large renewable plants, Turkey decided to hold the YEKA tenders in smaller portions. For instance, the government planned solar power YEKA projects in three regions, Şanlıurfa, Niğde and Hatay; however, in early January, the tender was canceled.

Following the first 1,000 MW wind power YEKA, the government planned to hold four 250-megawatt for plants in Balıkesir, Çanakkale, Aydın and Muğla with an investment volume of around $1 billion. The proposal deadline for this project was extended until March 7, according to an announcement published on the Official Gazette at the end of January.

For more efficiency and to attract more investors, allowing smaller entrepreneurs to bid for renewable energy investments, the SHURA report recommended that the YEKA tenders should be held in smaller portions, as the energy ministry has planned for second solar and wind power YEKA tenders.

Elif Erşen / Daily Sabah

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