Incentives under the Long-Awaited Renewable Energy Law - Turkey
January 27, 2011 By Kolcuoglu Demirkan
On 29 December 2010, the Turkish Parliament finally passed the long-awaited Law Amending the Law on Utilization of Renewable Energy Sources for the Purpose of Generating Electrical Energy (the “Amended RES Law”). The Amended RES Law was enacted to incentivize more investment in this field. Despite criticism, the extent to which the Amended RES Law will be successful in achieving this purpose is yet to be tested.
The Amended RES Law entered into force upon its publication in the official gazette on 8 January 2011. Since then, it has been the target of criticism, particularly by those who feel that it could have provided more encouraging incentives for investors.
Professor Tanay Sıdkı Uyar, head of the Turkish branch of the European Association for Renewables, commented, “while Germany is seeking to get 100 percent of its energy from renewables by 2050 and England aims to reduce carbon emissions to zero, in a country like Turkey with great wind and solar energy potential, renewable energy law should have promoted renewables far more." (Hürriyet Daily News & Economic Review, dated 30 December 2010)
Surprisingly, the tariffs are now based on USD/cents instead of EURO/cents. Many investors' concern is that the feed-in tariffs set by the Parliament as an incentive mechanism for renewable energy investments are lower than expected. As known, a feed-in tariff is a guaranteed payment by the kilowatt-hour, for generated energy. Accordingly, the Amended RES Law guarantees:
(i) a price of 7.3 USD/cents per kilowatt-hour for wind and hydroelectric power;
(ii) a price of 10.5 USD/cents for geothermal energy; and
(iii) a price of 13.3 USD/cents for energy from either waste products (such as biomass or municipal solid waste-to-energy projects) as well as for solar energy.
These incentives will be applicable to renewable energy generation license holders who generate energy, for a term of ten years, following the relevant facility’s operation commencement date, provided that the commencement date is between 18 May 2005 to 31 December 2015. For energy purchases from facilities established after 31 December 2015, prices will be set by the Council of Ministers.
Hybrid facilities that generate compact solar energy with other non-renewable energy resources will also be subject to the guaranteed payment incentives.
The Center of Market Financial Conciliation will announce a total sum for the renewable energy resources and determine the payment obligation rates to apply to each supplier.
Designated Generation Areas
The provisions regarding the classification and use of areas where the renewable energy will be generated will further be regulated under a separate regulation. Designated renewable energy generation areas will be marked in the relevant zoning plans, followed by the approval and notification of the Ministry of Energy.
Application Process and Electricity Sales
The terms and conditions of the application process for the establishment of renewable energy facilities will also be further regulated under a separate regulation to be issued by the Energy Market Regulatory Authority (“EMRA”), after obtaining affirmative opinions of the Ministry of Energy, the Ministry of Internal Affairs and the Public Waterworks Administration. Moreover, pursuant to Amended RES Law, the provincial administration of the relevant city has the authority to grant permissions in connection with water usage rights, in connection with hydroelectricity generation facilities.
Under Article 6/A of the Amended RES Law, individuals and legal entities generating electricity from renewable resources are able to benefit from the above feed-in tariffs for ten years, provided that they allocate any excess amount of generated electricity to the national electricity distribution system.
Incentive for Use of Local Electro-Mechanical Equipment
If the mechanical and electro-mechanical equipment used in renewable energy facilities that have started operation before 31 December 2015 are manufactured in Turkey, an additional incentive of 0.4-2.4 USD/cent for five years will be provided to such facilities.
Other Important Provisions
Article 6/C states that when evaluating generation license applications, EMRA will give priority to facilities generating energy from renewable resources.
With regard to applications to build a solar generation facility over a specific immovable property, if the owner of the relevant property files a license application, no other applications will be accepted in connection with any proposed facilities over the same property. If there is more than one application for the same field or same transmission station, a competition will be conducted by TEİAŞ (the Turkish Electricity Transmission Company), where participants will compete by offering decreases in the amounts set out in the regulated feed-in-tariffs.
The Amended RES Law limits the total generation of licensed solar energy facilities to 600 MW annually until 31 December 2013. After the said date, the Council of Ministers will determine new limits.
Conclusion
The promotion of renewable energy resources in the generation of electrical energy is crucial for Turkey, given its potential for renewable energy resources. The Amended RES Law was enacted to incentivize more investment in this field. Despite criticism, the extent to which the Amended RES Law will be successful in achieving this purpose is yet to be tested. While some think that prices are not convincing and guarantees with a few more cents should have been given, some are certain that investors will do business with these prices. The general reaction so far is that particularly the solar feed-in-tariff is short of what any international investor would have expected, for a decent return of investment. Anyhow, new investments are expected in the Turkish renewable energy market, as the enactment of the Amended RES Law has at least eliminated the tariff related uncertainties.
ABOUT THE AUTHOR: Pinar Uyar
Kolcuoglu Demirkan is a full service Istanbul-based law firm offering a wide range of legal services to domestic and international companies, institutions and individuals.
Copyright Kolcuoglu Demirkan
More information about Kolcuoglu Demirkan
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
Professor Tanay Sıdkı Uyar, head of the Turkish branch of the European Association for Renewables, commented, “while Germany is seeking to get 100 percent of its energy from renewables by 2050 and England aims to reduce carbon emissions to zero, in a country like Turkey with great wind and solar energy potential, renewable energy law should have promoted renewables far more." (Hürriyet Daily News & Economic Review, dated 30 December 2010)
Surprisingly, the tariffs are now based on USD/cents instead of EURO/cents. Many investors' concern is that the feed-in tariffs set by the Parliament as an incentive mechanism for renewable energy investments are lower than expected. As known, a feed-in tariff is a guaranteed payment by the kilowatt-hour, for generated energy. Accordingly, the Amended RES Law guarantees:
(i) a price of 7.3 USD/cents per kilowatt-hour for wind and hydroelectric power;
(ii) a price of 10.5 USD/cents for geothermal energy; and
(iii) a price of 13.3 USD/cents for energy from either waste products (such as biomass or municipal solid waste-to-energy projects) as well as for solar energy.
These incentives will be applicable to renewable energy generation license holders who generate energy, for a term of ten years, following the relevant facility’s operation commencement date, provided that the commencement date is between 18 May 2005 to 31 December 2015. For energy purchases from facilities established after 31 December 2015, prices will be set by the Council of Ministers.
Hybrid facilities that generate compact solar energy with other non-renewable energy resources will also be subject to the guaranteed payment incentives.
The Center of Market Financial Conciliation will announce a total sum for the renewable energy resources and determine the payment obligation rates to apply to each supplier.
Designated Generation Areas
The provisions regarding the classification and use of areas where the renewable energy will be generated will further be regulated under a separate regulation. Designated renewable energy generation areas will be marked in the relevant zoning plans, followed by the approval and notification of the Ministry of Energy.
Application Process and Electricity Sales
The terms and conditions of the application process for the establishment of renewable energy facilities will also be further regulated under a separate regulation to be issued by the Energy Market Regulatory Authority (“EMRA”), after obtaining affirmative opinions of the Ministry of Energy, the Ministry of Internal Affairs and the Public Waterworks Administration. Moreover, pursuant to Amended RES Law, the provincial administration of the relevant city has the authority to grant permissions in connection with water usage rights, in connection with hydroelectricity generation facilities.
Under Article 6/A of the Amended RES Law, individuals and legal entities generating electricity from renewable resources are able to benefit from the above feed-in tariffs for ten years, provided that they allocate any excess amount of generated electricity to the national electricity distribution system.
Incentive for Use of Local Electro-Mechanical Equipment
If the mechanical and electro-mechanical equipment used in renewable energy facilities that have started operation before 31 December 2015 are manufactured in Turkey, an additional incentive of 0.4-2.4 USD/cent for five years will be provided to such facilities.
Other Important Provisions
Article 6/C states that when evaluating generation license applications, EMRA will give priority to facilities generating energy from renewable resources.
With regard to applications to build a solar generation facility over a specific immovable property, if the owner of the relevant property files a license application, no other applications will be accepted in connection with any proposed facilities over the same property. If there is more than one application for the same field or same transmission station, a competition will be conducted by TEİAŞ (the Turkish Electricity Transmission Company), where participants will compete by offering decreases in the amounts set out in the regulated feed-in-tariffs.
The Amended RES Law limits the total generation of licensed solar energy facilities to 600 MW annually until 31 December 2013. After the said date, the Council of Ministers will determine new limits.
Conclusion
The promotion of renewable energy resources in the generation of electrical energy is crucial for Turkey, given its potential for renewable energy resources. The Amended RES Law was enacted to incentivize more investment in this field. Despite criticism, the extent to which the Amended RES Law will be successful in achieving this purpose is yet to be tested. While some think that prices are not convincing and guarantees with a few more cents should have been given, some are certain that investors will do business with these prices. The general reaction so far is that particularly the solar feed-in-tariff is short of what any international investor would have expected, for a decent return of investment. Anyhow, new investments are expected in the Turkish renewable energy market, as the enactment of the Amended RES Law has at least eliminated the tariff related uncertainties.
ABOUT THE AUTHOR: Pinar Uyar
Kolcuoglu Demirkan is a full service Istanbul-based law firm offering a wide range of legal services to domestic and international companies, institutions and individuals.
Copyright Kolcuoglu Demirkan
More information about Kolcuoglu Demirkan
View all articles published by Kolcuoglu Demirkan
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
