Introduction: As one of the top twenty energy consumers worldwide, Turkey experienced rapid economic growth beginning in the early 2000s, and its energy requirements increased accordingly. The demand for energy in Turkey has been growing at an average rate of 6.5% over the past decade and official reports predict that the country will continue at this pace through 2020. The high demand for energy, liberal market conditions, and government incentives are attracting both domestic and foreign investors to the Turkish renewable energy market.
Historic Milestones at a Glance: Turkey began to liberalize its local electricity market in the early 1980s, and the liberalization of the energy market gained speed in 2001 with the establishment of the Energy Market Regulatory Authority and the enactment of the Electricity Market Law, which separated generation, transmission, distribution, and trading activities. As part of this process, the regulatory framework for renewable energy resources was introduced in 2005 with the Law on the Use of Renewable Energy Resources for Generating Electricity (the “Renewable Energy Law”), which, among other things, regulates the feed-in tariffs and incentives for renewable energy, creating an appetite among both domestic and foreign investors.
Official Targets: To address the country’s dependence on imported energy and to direct investors into environmentally-friendly means of energy production, in December 2014, Turkey’s Ministry of Energy and Natural Resources (the “Ministry”) published the National Renewable Energy Action Plan for Turkey, which was closely aligned with the EU’s renewable energy directives. This action plan sets out Turkey’s renewable energy strategy until 2023, aiming for significant increase in the volume of power generation and the share of renewable resources in the overall power generation. These targets include: (a) raising the share of energy produced from renewable resources up to 30% on a national level; (b) increasing the installed capacity of wind power to 20,000 MW; and (c) establishing solar energy plants with an aggregate installed capacity of 3,000 MW. In order to ensure the realization of these goals, strong incentives are provided to investors for energy generation activities from renewable resources, including feed-in tariffs, incentives for the use of locally manufactured equipment, facilities in land acquisitions, and regulatory approvals and tax advantages.
Ongoing Efforts: According to the current legislative framework, renewable energy power plants commissioned before December 31, 2020 are entitled to benefit from a purchase guarantee as well as feed-in tariffs in USD for a period of ten years starting from their commissioning. The incentives that will enter into effect in 2021 are yet to be established by the legislative organ.
Although the purchase guarantee and feed-in tariffs moved Turkey towards its goal of increasing the share of renewable energy sources in overall power generation, the market is uncertain as to the sustainability and continuance of the current levels of support due to exchange rate volatilities and macroeconomic factors. However, since these incentives play a key role in ensuring the realization of Turkey’s long-term energy goals, and in light of the government’s public statements, agenda, and draft legislation, there is not, apparently, any risk at the moment that the incentives will be cancelled. On the contrary: recent amendments to the Electricity Market Law introduced a general framework for the regulation of renewable energy resource areas (RERAs), which aims to efficiently utilize renewable energy resources, accelerate investment procedures, and reinforce technology transfers through domestically manufactured equipment requirements. On October 9, 2016, the Ministry issued the Renewable Energy Resource Areas Regulation, superseding the previous regulation and providing details on how the RERAs will be made accessible to investors. Accordingly, investors investing in RERAs must use domestic equipment to benefit from the Ministry’s cooperation with the administrative procedures associated with the enterprise (such as obtaining permits and licenses), and will be granted a purchase guarantee.
Current Landscape and Future Considerations: In line with high energy demand, over the past decade the country’s dependence on imported energy rose from 52% in 1990 to 76% in 2018. A significant volume of oil and natural gas is imported, leading to concerns regarding the foreign trade deficit and environmental issues. Given the unexplored potential in terms of renewables-based power generation, there is still space for future development. For instance, no offshore-wind plant has been commissioned yet, although recent research identifies high growth potential for offshore wind in Turkey. The Mediterranean and Aegean seas particularly represent offshore potential.
Finally, the overall lukewarm outlook of recent macroeconomic trends affected the Turkish energy market, made evident by investors’ shift to operational assets from greenfield assets. To boost ongoing interest in the energy market, a possible next step would be to streamline the process for investors and ease their procedural burden during investment periods.
By Duygu Turgut, Partner, and Guven Mavis, Senior Associate, Esin Attorney Partnership
This Article was originally published in Issue 6.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.