Ember has released a report titled “Turkey: Wind and solar saved $7 bn in 12 months”. Ember’s analysis reveals that the recent surge in electricity prices in Turkey has been led by globally high gas prices, with wind and solar power generation lowering electricity bills by replacing fossil gas imports. Accelerating wind and solar power in an effort to lower electricity bills will require a significant expansion in auctions and reserved capacities for wind and solar, and removal of the obstacles against the free market disrupting new investments. REGlobal provides an extract from the report covering how renewables helped Turkey and the way forward for the renewables sector…
- Fossil gas prices led to high electricity prices in Turkey: A more than sevenfold rise in gas prices in a year translated into a sixfold increase in electricity prices. The depreciation of Turkish lira exacerbated the impact of the fossil gas prices on the power prices.
- Wind and solar saved 7 billion dollars in 12 months: Wind and solar power generation lowered Turkey’s import bills by preventing seven billion USD fossil fuel imports in the last 12 months. In the following months, approximately 700 million USD in savings is expected each month if the gas price remains the same.
- Market interventions do not lower the cost burden on the country: Turkey tried to keep electricity prices down by suppressing the market wide price caps, national electricity tariff prices and gas tariff prices. However, market interventions do not lower the cost of electricity generation and the total cost burden on the country remains the same.
- Capacities for wind and solar need to rise dramatically: While the Transmission System Operator reserves limited capacities for wind and solar, auctions attract 10-15 times more applications than the auctioned capacities. The investment appetite needs to be utilized more efficiently by raising these capacities.
A volatile year for gas
For international gas prices, the recent months can be divided into several periods. During the first quarter of 2021, the prices were still low (20-25 USD/MWh) under the continuing impact of COVID. As of 2021-Q2, prices started to gradually increase (25-35 USD/MWh). In July-August 2021, the prices almost doubled and reached 40-50 USD/MWh. However, the worst had not been seen by then, average monthly gas prices went beyond 90 USD/MWh level in September 2021. Although prices loosened a bit with the new year; following the Russian invasion of Ukraine on 24th February, gas prices soared once again.
Gas import savings thanks to wind and solar
Every unit of generation by renewables prevents a unit of electricity to be produced by fossil fuels and the corresponding fossil fuel imports. Similarly, any unrealized unit of renewable generation will be compensated by fossil fuel imports. Wind and solar power plants generated 46.3 TWh of electricity between 1st May 2021 and 30th April 2022. Without these power plants, underutilized gas-fired plants or coal power plants relying on imports would have had to run in order to compensate for them. Assuming that all 46.3 TWh power was generated by gas-fired plants, this would mean wind and solar power replaced 7 billion USD extra gas imports during that 12-month period.
Wind power plants, with their 32.2 TWh generation between May 2021 – April 2022, own the lion’s share in the import savings with 5 billion USD. Solar power plants account for 2 billion USD import savings, with 86% of that from unlicensed solar power plants.
The Russian invasion of Ukraine deepened the fossil fuel crisis across the world, keeping prices high, with correspondingly painful fossil gas import bills for Turkey. Between the beginning of the war on 24th February and the end of April, 2 billion USD of potential fossil fuel imports were replaced by wind and solar power generation in Turkey. As long as the escalation continues, the contribution from wind and solar power in lowering these bills will continue rising at the same speed. We expect roughly 700 million USD savings in gas imports thanks to wind and solar generation every month, if the price of gas remains at these levels.
Renewable is the future
The future of energy lies in renewables. In accordance with this, 97% of the new capacity that Turkey added into its power stack last year consisted of renewable sources. And there is the opportunity for much more growth, with untapped potential in wind and solar power in Turkey. However, Turkey has not deployed enough renewables to meet the surge in its power demand in recent years.
Three main forces are behind recent wind and solar investments in Turkey: feed-in tariff, auctions and the free market.
Routes towards new deployments
Participation in the generous renewable feed-in tariff scheme paid in US dollar ended as of July 2021 in Turkey. However, wind and solar have already become the cheapest source of generating power in the country, so similar subsidies should not be needed to incentivize future investments.
While the free electricity market should favor affordable renewables, this is under threat from frequent interventions. Market interventions risk disrupting new investments by damaging investor confidence, so Turkey needs to reconsider if interventions do more harm than good.
For instance, in the new market design, which applies a windfall tax on renewables, contributions from wind and solar power in six months are very limited (0.3 billion USD).
Turkey should therefore consider an exemption for wind and solar power from this change. By doing so, Turkey would provide a clearer direction to investors for the country’s future energy plans: wind and solar should be rapidly growing.
The Transmission System Operator (TSO) in Turkey is responsible for reserving new capacities at the transformer stations. New capacities are not reserved for licensed solar, although there is an investment appetite. Last year a 1000 MW solar auction received 9440 MW applications in total, and in April this year another 300 MW solar auction received 4900 MW applications. To harness this demand and take advantage of the opportunity for cheap, home-grown power, Turkey should consider scaling up auction and reserved capacities for wind and solar power.
Crisis needs rapid action
The energy crisis needs quick solutions. Solar panels especially can be deployed quickly and play a key role in the fight against the rising fossil fuel prices and high electricity bills. Turkey has the highest solar panel manufacturing capacity in Europe with 8 GW annual capacity.
However, Turkey adds less than 1 GW solar power plants every year. By fully utilizing its domestic solar panel manufacturing capacity, Turkey can reduce the electricity bills further by replacing costly fossil fuel imports.
The full report can be read here