www.pwc.com/tr Turkey’s Renewable Energy Sector from a Global Perspective Welcome Over the past few years, policymakers in Turkey have realised the role that renewable energy can play in expanding power generation and diversifying the energy supply mix in an environmentally sustainable way. As Turkey’s reliance on imported More steps need to be taken in a Faruk Sabuncu natural gas for power generation has coordinated manner to improve Energy, Utilities and given rise to concerns over supply the investment environment for Mining Leader security and the country’s bulging renewable energy in Turkey. current account deficit, support of Firstly, regulatory uncertainties domestic energy sources such as coal and bureaucratic inefficiencies and renewables has gained a new in licensing and granting permits urgency. In this regard, Turkey’s shall be eliminated. Secondly, an new Renewable Energy Support investment plan shall be made for the Mechanism is an important step expansion of the power transmission forward. network in a way that will enable Murat Çolakoğlu the optimal mix of renewable energy Power Leader This publication is about Turkey’s power plants to be connected to the new Renewable Energy Support grid. More generally, policies that Mechanism and the state of play support the energy sector as a whole in its renewable energy sector. would also be beneficial for investors However, we also look at the policy in renewable energy. As such, further environment and commercial liberalization of the energy markets developments around the world, as would be key to attracting more we believe that the renewable energy investment to the energy sector. sector in Turkey cannot be evaluated in isolation. Setting up the right We hope that the stakeholders in policy and regulatory framework Turkey will find our report helpful in for renewable energy has been a understanding the dynamics in the great experiment for policymakers renewable energy sector – in Turkey all around the world, and there is and abroad. still much to learn from local and international experience. Introduction The starting point for this publication is to in China in 2010, and Chinese and Taiwanese report the changes introduced by Turkey’s companies produced 59% of all solar cells in new Renewable Energy Support Mechanism, 2010. Chinese wind turbine manufacturers which have gone into effect on 01 December are also growing rapidly, with Sinovel having 2011. However, the renewable energy sector acquired the second largest market share in Turkey cannot be evaluated in isolation from behind Denmark’s Vestas in 2010, and closing developments in other countries. In Turkey the technology gap with their European and and abroad, the renewable energy sector American counterparts. Political support has and government policies have interacted and played a large role in the success of the Chinese changed at drastic speed over the last few years. industry, and protectionist measures are now Supporting renewable energy has been a great being introduced in places like the US, Italy and experiment for policymakers all around the Turkey. world, and they still have much to learn from local and international experiences. Finally, limitations of the power transmission networks constitute a significant problem for Several themes emerge from our report. The many countries including China and Germany. first is the interaction between government Public resources required for the promotion policy and the development of the renewable of renewable energy are not limited to fiscal energy sector. Concerns with climate change incentives and feed-in tariffs, but significant and security of supply have spurred fiscal investment in transmission networks may and regulatory support for renewable energy. be necessary. These costs may be reduced, Generous feed-in tariffs were introduced in however, by smart grid controls and intelligent European countries such as Germany, Italy load management systems as well as planning and Spain, and the renewable energy sector the geographic distribution of renewable energy emerged as one of the main recipients of project sites and increasing the diversity of stimulus spending in the US and in China. the renewables portfolio. A separate power However, policymakers could not foresee the control centre for renewable energy has been significant reductions in technology costs, which established in Spain to monitor and control led to great expansion in project development renewable power generation. Taking account and created an unexpected burden on already of the constraints in the transmission network, over-stretched European budgets. Policy Turkey has announced the wind and solar reversals in the US, Germany, Italy and Spain capacity that can be connected to the grid and have already started to reduce investment in devised a special policy to discern between project development in these countries. numerous license applications. Our second theme is the expansion of the Chinese manufacturing base for wind turbines and solar photovoltaic cells in particular. According to the Renewables 2011 Global Status Report prepared by the Renewable Energy Policy Network for the 21st Century, ten of the top fifteen solar cell manufacturers were based Turkey’s Renewable Energy Sector from a Global Perspective 3 Section 1: Global trends in renewable energy Market trends in renewable technology and power generation Despite the global financial crisis, the renewable energy sector has achieved important advances in technology and power generation project development over the past few years. Strong government support played a big role in shielding the sector from the crisis and propelling its growth. In 2010, 195 GW of new power generation capacity was established globally and approximately half of this capacity is based on renewables. Renewables constitute nearly 25% of the global installed capacity, whereas in power generation the share of renewables is around 20%. Chart 1: Renewable Energy Share of Global Final Energy Consumption, 2009 Nuclear 2.8 % Renewables 16.2 % Fossil Fuels 81% Source: Renewables 2011 Global Status Report In 2010 wind power capacity installations tripled investment in solar power has already started to the capacity installed in 2005 throughout the globe. decline in Europe. The manufacturing industry However, much of this growth occurred between continues to shift to Asia, where market growth has 2005 and 2009 while market growth in 2010 was been supported by cost reductions, new applications, minimal. Political uncertainty and low prices for increasing interest and policy support. natural gas in the United States and Europe led to slower growth but developments in China helped the Biomass continues to increase its share in electricity sector. production. As of the end of 2010, 62 GW of installed biomass power is in operation around the The global installed capacity of hydropower reached world. Especially in Europe, the United States and 1,010 GW in 2010. 150 countries in the world utilise China, power production from biomass experienced hydropower for electricity production. Renovation of rapid growth in 2010. New global trends include existing plants and new construction are attracting conversion of many existing coal and gas-fired power investment. The hydropower equipment industry plants to “co-firing” biomass with fossil fuels. Most of is the most developed among the renewables the biomass equipment industry is based in Europe. equipment industries, especially in developed In the biomass industry, energy generation is taking markets such as the United States and the European precedence over waste treatment and management. Union. As of 2010, geothermal power plants were operating The solar photovoltaics industry experienced in 24 countries throughout the globe. Power astonishing growth on the back of supportive feed-in capacity installation slightly decreased in 2010. In tariff policies in Europe and the declining cost of the upcoming years technological improvements solar technology. 17 GW solar photovoltaic capacity may lead to significant development. New drilling was added in 2010 worldwide, increasing the technologies are expected to trigger capacity installed solar PV capacity by 70%. In the wake installations in new countries. of feed-in tariff cuts in Germany, Spain and Italy, 4 Turkey’s Renewable Energy Sector from a Global Perspective Chart 2: Average Annual Growth Rates of Renewable Energy Capacity and Biofuels Production, 2005-2010 38% Biodiesel Production 7% 23% Ethanol Production 17% 16% Solar hot water/heating 16% 3% Hydropower 3% 4% Geothermal Power 3% 25% Concentrating Solar Thermal Power 77% 27% Wind Power 25% 60% Solar PV (grid-connected only) 81% 49% Solar PV 72% 0 90 end 2005-2010 five year period 2010 only Source: Renewables 2011 Global Status Report Turkey’s Renewable Energy Sector from a Global Perspective 5 The impact of gas prices Low natural gas prices were sustained over 2010 and Policies like the Renewable Portfolio Standard, which 2011 due to advances in technology that enabled the are imposed on power utilities by many countries extraction of significant new reserves. The prices are including the US, Canada, India and Australia, will likely to stay low as new supplies come online from ensure that the effects of low gas prices on renewable shale gas drilling in North America and Europe. The generation investment is limited. Natural gas may also competitiveness of renewable energy has deteriorated emerge as a reliable complementary