Renewable energy investors and financiers who are looking at opportunities in Turkey need a clear, bankable framework, according to Sustainable Infrastructure Department Managing Director of the European Bank for Reconstruction and Development (EBRD), Nandita Parshad.
Turkey and Central Asia are target regions for local and foreign investors, Parshad explained. "However, the bankability of projects and feed-in tariff mechanisms are key factors to scale up renewable energy investments in Turkey. Investors and financiers need a clear bankable framework," she told Anadolu Agency (AA).
Parshad remarks came on the sidelines of the Renewable Energy Outlook Conference: Financing, Investment, Regulation and New Technologies in Turkey, Central Asia, Caucasus and the Western Balkans organized by the Atlantic Council and the EBRD in Istanbul.
She added that the phasing out of feed-in tariffs by the end of 2020 poses challenges to realizing any project.
Turkey announced that the feed-in tariff scheme for renewable energy power plants would end by the end of 2020. The scheme, which started in 2011, supported wind and hydropower plants at a cost of $0.073 per kilowatt-hour (kWh), geothermal facilities at $0.105 kWh, and solar and biomass plants at $0.133 kWh. These figures varied slightly as they were dependent on the extent of contributions from locally produced equipment.
Green financing in countries the EBRD operates in is the bank’s top agenda item and this extends to Turkey, Parshad said.
"In 2019, the EBRD reconfirmed its position as the leading and also a green financier in Turkey. We invested a little over 1 billion euros in Turkey and green financing accounted for almost half of this," she said.
The EBRD began this year with the financing of a Turkish wind power plant, she said. This trend would follow for the remainder of the year, she explained, by looking at investment opportunities in sustainability projects with the expectation of offering financing options to the tune of 1 billion euros.
In January, Turkey’s Borusan and EBRD inked a $37 million financing deal for the development, construction and operation of an additional capacity of 72 megawatts (MW) to the currently operating 28 MW wind farm located on the west coast of the Black Sea province Kırklareli. The Industrial and Commercial Bank of China (ICBC) Turkey also provided the same amount of loans for the project.
"We do not have a definite target for 2020 as we are very much a demand-driven organization. We will always be exploring where we can push the boundaries," she noted.
Turkey leader in renewables in the region
A recently held investor meeting with foreign participants, including Poland and Romania, who are exploring opportunities in Turkey and Central Asia, proved successful.
"We see that there is interest, and I think Turkey has got great renewables potential,” she said. She admitted that there is a little bit of a lull because of the phasing out of the feed-in tariff mechanism, but she advised that Turkey should keep up the momentum and take advantage of the very low prices at present to scale up renewables.
"Certainly, it will not be possible to finance renewable projects just on the market. The Turkish power market is influenced by a number of external factors that can make investors nervous," Parshad explained, referring to uncertainty over the replacement feed-in tariff scheme that has not yet been announced. She said the EBRD has been working on the issue with Turkey's Energy and Natural Resources Ministry and hopes the ministry will find a satisfactory solution to let investors, such as the EBRD, finance more renewable energy projects
Turkey is already a regional renewable energy hub to some extent by holding the largest share of renewables in the region, with the exception of Georgia with the region's most hydro capacity, she explained. She commended the great number of Turkish companies that can go anywhere in the world and build renewables because of the experience they have gained in Turkey. However, she said operating as a hub for equipment and manufacturing offers more of a challenge because of the necessity to compete with large foreign manufacturers.
In some renewable energy tenders, Turkey requires investors to use local equipment to some extent in the plants. However, the World Trade Organization (WTO) and a number of international banks think such policies impact the competition and create market distortion. Turkey has asked that investors have around 60% usage of local equipment in the latest Renewable Energy Resources Zone tenders both for solar and wind.
"In this context, policies should not be distortive of the market," she noted.
New focus on smart grids, power distribution companies
She also remarked that the EBRD wants to focus on smart grid investments in Turkey through cooperation with electricity distribution companies.
"I think we would like to see more investments in smart grids and smart meters in Turkey and that is why we are focusing quite a bit of our attention on distribution companies. We think this is where investments should go," Parshad said.
She referred to the importance of smart meters in helping save energy while giving consumers the opportunity to optimize their consumption profile. She advised that regulators become aware of the ease of rolling out smart grids and urged that distribution companies be encouraged to do so through incentive schemes.
“Energy efficiency is the low hanging fruit in terms of meeting the carbon emissions target to combat climate change and the greenest kind of investment that could be undertaken. We have already financed network upgrades with a number of distribution companies, but a lot more is needed to make these networks smart which represents a good investment potential for Turkey,” she said.
Last year, the EBRD provided a financing package worth $100 million in Turkish lira's to Enerjisa Enerji, one of the country’s largest power utilities.
The loan was to finance the company’s ongoing investment program as agreed with the market regulator. The transaction was the first EBRD loan linked to the new Turkish Lira Overnight Reference Rate (TLREF) benchmark, which is expected to become the reference rate for corporate lending in Turkey. The TLREF is considered a new risk-free rate that has been developed by the government, regulator, Borsa Istanbul Stock Exchange (BIST) and other market participants.
She also suggested that the EBRD is willing to look at the second field of investments in Turkey in the form of green bonds, which could be driven by investor demand.
The EBRD is a major investor in Turkey. Since 2009 it has invested almost 12 billion euros in various sectors of the Turkish economy. Half of this investment was for projects that promote the sustainable use of energy and resources. To date, the EBRD has financed, both directly and through local banks, 3 gigawatts of installed capacity, or 7% of the total installed renewable energy capacity in Turkey.
