TURKEY PHOTOVOLTAIC MARKET

Handbook for Investments

2012/2013

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TURKEY PHOTOVOLTAIC MARKET: HANDBOOK FOR INVESTMENTS 2012/2013

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TABLE OF CONTENTS

TABLE OF CONTENTS ....................................................................................................... 3

FOREWORD .................................................................................................................... 7

1 METHODOLOGY AND LIMITATIONS ....................................................................... 9

Methodology ............................................................................................................. 9 1.1 Limitations ............................................................................................................... 10 1.2

2 EXECUTIVE SUMMARY ........................................................................................ 11

3 TURKEY POLITICAL AND ECONOMIC ENVIRONMENT ........................................... 14

Basic country data ................................................................................................... 14 3.1 Political Climate and Ruling Party ........................................................................... 17 3.2 GDP and Economic Growth ..................................................................................... 18 3.3 Labor market and unemployment rate ................................................................... 20 3.4 Electricity Imports and Exports. Electricity prices for business and households .... 21 3.5 Industrial Output and Private Consumption ........................................................... 23 3.6 Foreign direct investments (FDI) ............................................................................. 23 3.7 Taxes ........................................................................................................................ 25 3.8

3.8.1 VAT ....................................................................................................................... 25 3.8.2 Income and Corporate Taxes ............................................................................... 26 3.8.3 Property Tax......................................................................................................... 26 3.8.4 Transfer Tax ......................................................................................................... 26 3.8.5 Types of corporation in Turkey ............................................................................ 26 Inflation ................................................................................................................... 29 3.9

Monetary indicators ................................................................................................ 31 3.10 Banking and Credit Market ..................................................................................... 32 3.11 Monetary Indicators ................................................................................................ 33 3.12 Ease of doing business in Turkey............................................................................. 35 3.13

4 TURKEY PHOTOVOLTAIC ENERGY MARKET .......................................................... 37

General electricity market information .................................................................. 37 4.14.1.1 Electricity Consumption and Production ............................................................. 39 4.1.2 RES targets ........................................................................................................... 40 Country attractiveness index for renewable investments ...................................... 41 4.2 Porter 5 Forces analysis ........................................................................................... 42 4.3 PHOTOVOLTAIC market........................................................................................... 46 4.4

4.4.1 Why invest in photovoltaic energy in Turkey? .................................................... 46 4.4.2 Turkey solar resource potential ........................................................................... 48 4.4.3 Overview of Turkey photovoltaic market ............................................................ 50 4.4.4 Market prices for photovoltaic energy projects in Turkey .................................. 52 4.4.5 Photovoltaic modules supply in Turkey............................................................... 52 4.4.6 Market prices for photovoltaic modules supply in Turkey ................................. 54 4.4.7 Key development photovoltaic projects in Turkey ............................................. 54

TURKEY PHOTOVOLTAIC MARKET: HANDBOOK FOR INVESTMENTS 2012/2013

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5 EUROPEAN RENEWABLE ENERGY POLICY LANDSCAPE ......................................... 59

RES Regulations and EU Directives .......................................................................... 59 5.15.1.1 Precedent EU regulations .................................................................................... 59 5.1.2 Most recent EU renewable energy policy developments.................................... 60

6 TURKEY RES LEGAL AND REGULATORY FRAMEWORK .......................................... 61

Main laws and regulations ....................................................................................... 61 6.1 Support schemes ..................................................................................................... 63 6.2 Mandatory photovoltaic measurements ................................................................ 64 6.3 Competition regulation (tender procedure) ........................................................... 65 6.4 Zoning, planning and construction related authorizations ..................................... 67 6.5

6.5.1 Zoning plans procedure ....................................................................................... 67 6.5.2 Building permit (construction license) procedure ............................................... 68 6.5.3 Operation License Procedure .............................................................................. 68 Environmental related authorizations..................................................................... 69 6.6

6.6.1 Natura 2000 Network .......................................................................................... 69 6.6.2 Clean Development Mechanism (CDM) and Joint Implementation (JI) .............. 70 Energy law authorizations ....................................................................................... 71 6.7

6.7.1 Power Generation Licensing ................................................................................ 71 6.7.2 Grid Interconnection ............................................................................................ 72 6.7.3 Power Off-Take .................................................................................................... 72 6.7.4 Feed-in tariff (FIT) ................................................................................................ 72 6.7.5 RES Certificates .................................................................................................... 74 Financial Incentives and Support for RES electricity ............................................... 74 6.8 Future market pricing mechanisms ......................................................................... 75 6.9

Key Co-financing opportunities ............................................................................... 75 6.106.10.1 Turkey Sustainable Energy Financing Facility (TURSEFF) ..................................... 76 6.10.2 Green for Growth Fund ........................................................................................ 79

7 KEY ORGANIZATIONS AND INSTITUTIONS ........................................................... 81

Government ............................................................................................................. 81 7.17.1.1 The Ministry of Energy and Natural Resources (MENR) ...................................... 81 7.1.2 Energy Market Regulatory Authority (EMRA) ...................................................... 81 7.1.3 General Directorate of Electrical Power Resources Survey and Development Administration (EIE) ......................................................................................................... 81 7.1.4 Ministry of Environment and Forestry (MoEF) .................................................... 82 7.1.5 Energy Efficiency Co-ordination Board (EECB)..................................................... 82 7.1.6 State Planning Organization (SPO) ....................................................................... 83 Electricity GENERATION AND ELECTRICITY Distribution Companies ...................... 83 7.2

7.2.1 TEIAS..................................................................................................................... 84 7.2.2 EUAS and PP’s ...................................................................................................... 85 7.2.3 TETAS .................................................................................................................... 87 7.2.4 TEDAS and Private DisCos .................................................................................... 87 NON-GOVERNMENT ORGANIZATIONS .................................................................... 88 7.3

7.3.1 Turkish Photovoltaic Energy Association (GENSED) ............................................ 88 7.3.2 Turkish Society for the Protection of Nature ....................................................... 89 7.3.3 Turkish Wind Energy Association (TWEA) ............................................................ 90

TURKEY PHOTOVOLTAIC MARKET: HANDBOOK FOR INVESTMENTS 2012/2013

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7.3.4 EUROSOLAR TURKEY ............................................................................................ 90 Key photovoltaic companies operating on TURKEY market ................................... 92 7.4 Lobby groups ........................................................................................................... 94 7.5 Stаkeholder Аnаlysis ............................................................................................... 95 7.6

8 RISKS ABOUT RENEWABLE INVESTMENTS IN TURKEY .......................................... 97

Risks Associated with the Renewable Energy Industry in Turkey ........................... 98 8.18.1.1 Regulatory Risk .................................................................................................... 98 8.1.2 Competition within the Renewable Energy Industry .......................................... 99 8.1.3 Public Attitudes towards Renewable Energy Projects ...................................... 100 8.1.4 Emerging Market Risk ........................................................................................ 100 8.1.5 Insurance Risk .................................................................................................... 100 8.1.6 Force Majeure Risk ............................................................................................ 101 Risks Associated with the Investor’s Finance Arrangements ................................ 101 8.2

8.2.1 Asset Sale Risk.................................................................................................... 101 8.2.2 Borrowing Risk ................................................................................................... 101 8.2.3 Foreign Exchange Risk ....................................................................................... 102 Risks Associated with the Development of Renewable Energy Plants ................. 102 8.3

8.3.1 Variability in the Source of Renewable Energy ................................................. 102 8.3.2 Development of the Project and Construction Risk .......................................... 103 8.3.3 Capital Cost Risk ................................................................................................. 103 8.3.4 Permits ............................................................................................................... 103 8.3.5 Land Options ...................................................................................................... 104 8.3.6 Construction ...................................................................................................... 104 8.3.7 Dependency on Suppliers .................................................................................. 105 8.3.8 Technology Risk ................................................................................................. 105 8.3.9 Operation and Maintenance Risk ...................................................................... 106 8.3.10 Market Price of Electricity ................................................................................. 106

9 SWOT ANALYSIS ............................................................................................... 107

10 CONCLUSIONS .................................................................................................. 110

11 LIST OF ABBREVIATIONS ................................................................................... 113

12 REFERENCES ..................................................................................................... 115

13 DISCLAIMER ...................................................................................................... 118

14 APPENDIX I. SOLAR MAPS OF EUROPE AND TURKEY .......................................... 119

LIST OF MAPS, CHARTS AND TABLES

Map 1: Where is Turkey on the world map ........................................................................... 14 Map 2: Major transport corridors passing through Turkey ................................................... 15 Map 3: Turkey regions ........................................................................................................... 16 Map 4: Solar resource map of Turkey .................................................................................... 48

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Map 5: Solar irradiation and solar electricity potential for optimally inclined photovoltaic modules in Turkey, JRC PVGIS 2008 ....................................................................................... 50 Map 6: Electricity grids network of TEIAS .............................................................................. 84 Map 7: Hydro Power Plants of EUAS ...................................................................................... 86 Map 8: Thermal Power Plants of EUAS .................................................................................. 86 Map 9: Districts covered by TEDAS and DisCos ..................................................................... 87 Map 10: Solar irradiation and solar electricity potential for horizontally mounted photovoltaic modules in Turkey, JRC PVGIS 2008 ................................................................ 119 Map 11: Solar irradiation and solar electricity potential for horizontally mounted photovoltaic modules in Turkey, GeoModel Solar s.r.o. 2011............................................. 119 Map 12: Solar irradiation and solar electricity potential for optimally inclined photovoltaic modules in Europe, JRC PVGIS 2008 ............................................................... 120

Chart 1: Real GDP growth for the period 2000-2012 (including estimates) .......................... 19 Chart 2: Turkish GDP growth compared to EU-27 for the period 2002-2011 ....................... 20 Chart 3: Unemployment rate in % from 2000 to 2011 .......................................................... 21 Chart 4: Electricity imports and exports for the period 2000-2011 (in million MWh) including estimations ............................................................................................................. 22 Chart 5: FDI for the period 2000-2011 (in million EUR) ........................................................ 24 Chart 6: Corporate tax income in selected CEE and SEE countries ....................................... 26 Chart 7: Corporate tax income in selected CEE and SEE countries ....................................... 28 Chart 8: Inflation Rate per year for the period 2004-2012 .................................................... 30 Chart 9: Historical Structure of Turkish electricity market from 1983 to 2012 ..................... 38 Chart 10: Share of RES electricity in gross energy consumption 2011 .................................. 39 Chart 11: Turkish RES targets for 2023 in % set by the State Planning Organization ............ 40 Chart 12: Solar indices February 2012 by E&Y analysis, ........................................................ 41 Chart 13: Photovoltaic modules supply in Turkey in % by countries for 2012 ...................... 53 Chart 14: Cumulative developments of photovoltaic power plants in Turkey in MWp from 2000 to 2020, including estimates ........................................................................................ 58 Chart 15: TURSEFF Structure .................................................................................................. 78 Chart 16: Market Shares by Sales of the Major Electricity Distribution Companies in Turkey in 2011 ........................................................................................................................ 83 Chart 17: Share of power producers in Turkey by installed capacity .................................... 85

Table 1: Electricity prices for business and households ......................................................... 22 Table 2: Support schemes for RES generation in the EU countries and Turkey .................... 46 Table 3: Regional Distribution of Solar Energy Potential of Turkey ....................................... 49 Table 4: Market prices for photovoltaic projects in Turkey for 2012 .................................... 52 Table 5: Market prices for photovoltaic modules supply in Turkey in 2012 ......................... 54 Table 6: Selected operational, under construction and planned photovoltaic projects in Turkey ..................................................................................................................................... 56 Table 7: Feed-in-tariffs for electricity from renewable sources in Turkey ............................ 74 Table 8: Additional incentives to Feed-in-tariffs for electricity from solar PV sources in Turkey for domestic procurement ......................................................................................... 75

©2012. All rights reserved. Inea Consulting Ltd., Bulgaria; Last Edited on 26.07.2012.