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Tariff and the Non-Tariff Based Renewable Energy Incentives in Turkey

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Turkey is one of the fastest growing economies among the emerging markets. Its 4% average growth rate throughout the last decade catapulted her in to a class of its own among the MENA region. However, the rapid industrial development and economic growth have increasingly been putting forward an expensive energy bill before the country. Energy related costs are estimated to account for half of the current account deficit of Turkey which stands around USD$ 52 billion. Moreover, dependency on foreign energy resources serves as a problem for Turkey as its neighbors might find themselves in a situation not able to fullfil their commitments to Turkey either due to their own domestic shortages or political crisis. In order to reduce the energy bill and to decrease the foreign energy dependency, the Turkish authorities have started to take steps to transform the energy landscape of Turkey from a fossil fuel based one in to a one based on renewable energy.

Tariff Incentives for the Renewable Energy

The Renewable Energy Law that was adopted at the end of 2010 was deliberately drafted to include several incentives for the investors to promote the development of such kind of energy generation in Turkey. By 2020 Turkey would like to generate 20.000MW of its energy from renewable resources. In order to do so Turkish authorities decided to re-arrange the price mechanism to reflect the new incentives for the investors. The new tariffs include the following rates of feed in tariffs for the renewable energy resources; USD$ 7.3 cent for the hydroelectricity, USD$ 7.3 cent for the wind, USD$ 10.5 cent for the geo-thermal, USD$ 13.3 cent for the biomass and USD$ 13.3 cent for the solar energy production. For the holders of the renewable energy license facilities which had obtained their licenses before December 31, 2015 the aforementioned tariffs will be in place for 10 years.

Non-Tariff Incentives for the Renewable Energy

Moreover, in order to shift the onus from foreign imports to domestic production, Turkish authorities provided non-tariff incentives as well. If the production of the equipments that will be utilized in the renewable energy facilities are produced in Turkey subsidies will be granted to the producers. The hydroelectricity facilities will be granted USD$ 1.3 cent/kWh if the turbines are locally produced and USD$ 1.0 cent/kWh if the generator and the power electronics are locally produced. The wind energy generation facilities will be granted USD$ 0.8 cent/kWh for the local wing production, USD$ 1.0 cent/kWh for the locally produced generator and the power electronics, USD$ 0.6 cent/kWh for the local turbine tower and USD$ 1.3 cent/kWh for the locally produced mechanical parts for the rotor and nacelle groups. The photovoltaic based solar energy facilities will be granted USD$ 0.8 cent/kWh for the domestic PV panel integration and solar structural mechanical manufacturing, USD$ 1.3 cent/kWh for the locally produced PV modules, USD$ 3.5 cent/kWh for the locally produced PV module forming cells, USD$ 0.6 cent/kWh for the domestically produced inverter and USD$ 0.5 cent/kWh for the equipment that focuses sun rays on PV modules. And finally, the geo-thermal production facilities will be granted USD$ 1.3 cent/kWh for the locally produced steam and gas turbines and USD$ 0.7 cent/kWh for the domestic generator and power electronics.

As Turkey needs to reduce down its energy costs and its dependency on foreign energy resources, it has adopted a positive attitude towards the renewable energy resources. The recent regulations provide not only lucrative feed in tariff incentives for 10 years but also provides the additional benefits for the investors looking to manufacture the parts that they will utilize in energy production. From the perspective of the investors such incentives will be seen as a great opportunity not only because of the rates and durations offered but also because it is being offered by an economy that has been recording a significant and ongoing growth rate for more than a decade. As Turkey manages to combine strong economic growth with an increasing industrial base, such regulatory arrangements in renewable energy sector will serve both for the benefit of the potential investors who will make their investments in a better regulated atmosphere and for Turkey which will eventually benefit from declining energy costs.

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