The rapid growth of the Turkish economy over the past decade has led to an increasing energy need in the market. Between the years 2000 and 2013, the electricity demand of Turkey almost doubled1 and it is expected to be 580 billion kWh by 2020. Currently, a large proportion of the energy need is met by fossil fuels and the use of renewable energy resources is not sufficient, yet. Most of the fossil fuels such as oil and natural gas are currently being imported. Importation of fossil fuels plays a significant role on the trade deficit, hence cutting down the energy expenses will lead to a sharp fall on the current rate of deficit. Since 2010, Turkish government has been providing significant incentives and support to the renewable energy sector in order to decrease the dependence on foreign energy sources.
Which Legislation Applies?
The primary legislation for the investments on solar energy resources is the Law on Utilization of Renewable Energy Resources for Generating Electrical Energy2 ("RER Law"). Approvals and certificates that are required to be obtained for those investments are subject to the RER Law. Energy facilities within the scope of the RER Law are required to obtain a Renewable Energy Source Certificate in order to enjoy the incentives provided there. How to enjoying the incentives are detailed in the Regulation on Certification and Support of Renewable Energy Sources3 ("Certification Regulation") as a supplementary to the RER Law.
The main source of legislation for the electricity sector in Turkey is Electricity Market Law4 ("Electricity Market Law"), governing the electricity generation, transmission, distribution, wholesale and retail sale, import and export, market operation activities including the rights and obligations of all real and legal persons engaged in those activities. The rules and procedures relating to the licensing issues, as well as necessary permits, which must be granted by the Electricity Market Regulatory Authority ("EMRA") are regulated under the Electricity Market Licensing Regulation5 ("Licensing Regulation").
How to Obtain a License?
Legal entities willing to incorporate generation facilities based on solar power need to obtain a solar power license from EMRA. Following the application to EMRA, entities fulfilling the requirements provided under the License Regulation are granted a pre-license at the outset, within 24 months following the date of application. During this time period, companies are supposed to (i) obtain the necessary permits for commencing the construction; (ii) demonstrate that they have obtained the ownership or real property rights of the land on which the generation facility is to be established; (iii) submit the relevant documents and information regarding the structure of the shareholders, payment documents including letter of guarantee and pre-license fee, and (iv) collect the solar measurement data at the site where the facility shall be established. After that, EMRA evaluates the solar power license application and considers the eligibility of the project.
If there are multiple license applications for the same site, Turkish Electricity Transmission Company, a state owned entity that controls the transmission sector, organizes a tender under the Licensing Regulation to determine on the eligibility among the applicants. The highest bidder is granted a pre-license to produce solar power. If there are no competing bids for the same area, the license applicant may be granted a license even when the requirements are fulfilled in the pre-licensing period. It should be noted that for each activity to be engaged in, and for each facility where the same activity is conducted, separate licenses must be obtained. Such generation licenses are granted for a term of minimum 10 years and maximum 49 years. For the time being, only one licensed solar energy plant is being operated in Turkey namely Solentegre Enerji Yatirimlari A.S. which was granted the first ever solar electricity generation license for an 8 MW facility to be installed in Elazig.
On the other hand, solar electricity generation activities having a maximum 1 MW capacity are not subject to licensing procedure of the EMRA. Therefore, electricity generation facilities based on the solar energy are allowed to carry out activities without the burden of obtaining a license. Moreover, real persons or legal entities generating electricity for their own needs will not be required to obtain a license from EMRA as long as they remain disconnected to the transmission and distribution network and do not engage in wholesale or retail activities to sell the electricity produced in these facilities.
What Kind of Incentives are Available?
Following the acquisition of the electricity generation license, legal entities are granted a Renewable Energy Resource Certificate ("RER Certificate") by EMRA in order to enjoy available incentives. According to RER Law, the RER Certificate holders may enjoy a purchase guarantee incentive. Existing solar energy plants or the ones to be established before December 31, 2020 can enjoy feed-in tariff at USD 13.3 per kWh as a fixed minimum electricity sale price. Solar power generation facilities may enjoy the fixed prices during the first 10 years of their start of operations. In addition to that, solar energy license holders are exempt from paying the annual license fees for the first 8 years following the date of completion of the facility.
Furthermore, solar energy facilities can enjoy the incentives for the usage of electro-mechanical equipments which are manufactured in Turkey. If the local mechanical and electro-mechanical equipments are used in a solar power plant, an additional fee ranges between USD 0.4/kWh and USD 2.4/kWh is granted. This local content fee is added to the foregoing feed-in tariff fee and this advantage applies during the first 5 years of the start of operations of the facilities. Investors willing to benefit from such advantage must prove that the components are produced in Turkey and obtain a "Local Component Certificate" from the Ministry of Energy.
Another incentive provided for the solar power plants is the 85% discount on the amount of the lease or right of use of the State owned land within the first 10 years of their start of operation. In the event that the investments are made in the counties with a population below 10.000, then the investment costs are 100% covered by the Agriculture and Rural Development Support Institution of Turkey.
Moreover, renewable energy facilities having a RER Certificate may also enjoy remarkable tax incentives that are as follows;
- The earnings to be acquired from the solar energy plants shall be exempt from VAT.
- Investments with an incentive certificate shall be exempt from customs tariff. No customs tariff shall be paid for imported system tools of solar energy plants.
- Companies operating solar power plants are not subject to the corporate income tax for 5 years.
The Need for Further Legislative Adjustments
Turkey is in an advantageous area for generation of generation of solar energy especially when compared to other European countries. The total annual hours of sunshine is reported to be 2640 in Turkey6, while the average global radiation is reported as 1,311 kWh/m2. On the other hand, incentives and support mechanism are still not appealing for investors when compared with other European countries. For instance; while the solar tariff purchase in Turkey is USD 13.3/kWh (Euro 12/kWh), it is Euro 40-60.16/kWh in Germany. Furthermore, the duration of guaranteed purchase of electricity in Turkey is 10 years but this period is 20 years in EU countries. From investors' point of view, feed-in tariffs need to be guaranteed for 15- 20 years in order to be able to achieve the required returns. In this respect, certain amendments are expected to be made in the regulations by the Turkish authorities. Apart from the efficiency perspective, legislators must bear in mind that in the era of a climate change, decreasing the carbon emissions of countries is a pre-requisite as an international and inter-generational responsibility. Being a clean and domestic energy source, solar energy should take larger part in the energy future of the countries.