The winds blow east

Between the scattered towns of Anatolia, local construction workers pave roads leading to the region’s windy hills where new turbines will soon be spinning. For the labourers the access roads represent a job opportunity, but for energy companies and the government, the roads are literally paving the way to the future of Turkey’s clean energy sector.

Photo: Rengim Mutevellioglu

Turkey’s clean energy sector is fledgling—but growing. The country’s installed wind capacity shot up from 50 megawatts (MW) in 2007 to 800MW in 2009. By 2023, Turkey plans to increase its clean energy share to 30% of its power supply and increase installed capacity for wind to 10,000MW, according to Taner Yildiz, the Ministry of Energy and Natural Resources of Turkey.

The ambitious plan is garnering attention of businesses worldwide. California-based Clipper Windpower (CWP), for example, which designs and develops wind energy technology, turbines and wind projects, is the first company to provide U.S.-manufactured turbines to Turkey. With a foot in the door, CWP is one of the companies that can lead the way for a slew of smaller North American firms.

UNTAPPED OPPORTUNITY

North American firms have a reason to set their sights on Turkey. The sovereign’s credit rating was recently upgraded to investment grade by Standard and Poor’s, and its economy is expected to grow 7.5% in 2011, according to the Economist Intelligence Unit. Though growth is forecast to slow down to 3.5% in 2012—a sharp decrease from the previous year, it will still be considerably higher than growth in most developed countries—the EIU forecasts Turkey’s GDP growth will average 5% in 2013-16.

As its economy grows and its population becomes increasingly urbanized, Turkey will also consume more energy. At present, the average Turk uses less than one-third of the energy that the average European consumes. But the country’s electricity demand alone is expected to increase 5% to 6% per year in 2011-20, according to the EIU. And with limited resources, Turkey needs to find a new way to meet rising demand. The country has few oil and gas reserves, and depends heavily on Russia and Iran for its oil and gas supply. At one level, Turkey is concerned that its reliance on Russia will limit the extent to which it can challenge its neighbour’s regional policy. At another level, Turkey is finding its once-close relationship with Iran becoming strained as the two countries vie for a leadership role in the Middle East.

Though Turkey will not be able to completely wean itself from oil and gas, the country hopes an emphasis on renewable energy will help ease dependency on Iran and Russia, and expects to generate an additional 20,000MW from renewable sources in the next decade. The government has already taken great strides to attract investors to its alternative energy sector. In May 2005 its Energy Market Regulatory Agency (EMRA) granted licences designed to encourage companies to diversify and expand the country’s renewable energy resources. This law guaranteed that the government would purchase wind energy for 7 U.S. cents per kilowatt-hour, and set low tariffs that rise gradually until 2011.

In January 2011, the Turkish Parliament extended the law, guaranteeing that the government will purchase wind and hydropower for 7.3 U.S. cents per kilowatt-hour. These prices will be applied for ten years to firms that apply for licences between May 18, 2005 and December 31, 2015—a trade incentive that could help accelerate local and foreign investment in the sector by allowing companies to offer longer-term contracts.

FINDING THE RIGHT INVESTMENT STRATEGY

Most investment in Turkey’s wind energy has been focused on two promising areas: companies that build turbines and those that build power plants or sell energy. Companies that build turbines can choose to sell equipment to any generation company. But for companies with wind power installations of more than 500kW (true for most companies that generate power to meet community demand), a wind-power licence from the EMRA is required.

However, obtaining a licence has not been easy. “The No. 1 issue is the limited number of licences that are available. Currently, new wind applications are not being accepted, and for the limited licences that are already available, the approval process from agencies, together with grid-connection issues, can be problematic,” says Kor Kurt Akin, senior partner at Transnational Venture Consultants, which is helping head a project for CWP in Istanbul, where the company recently opened a bureau.

In order to overcome this, Akin urges foreign firms to work with local partners who can assist with bureaucratic or logistical obstacles. The key for local success is an up-to-date, realistic picture of the local market, projects and regulations, he says.

This is precisely what CWP did when it first entered, partnering with Istanbul-based EMA Contracting. The two companies worked together to build on-site roads and turbine foundations, as well as develop crane-field engineering, network and electricity connections, infrastructure and power lines for electricity. The collaboration helped EMA generate revenues of US$20 million, a US$5 million increase from the previous year—while CWP found a way to enter, and stay in Turkey’s thriving sector.

EAGER INVESTORS

In spite of the promising potential of the country’s energy sector, the Turkish government seems to sway between helping investors leverage opportunities and pushing them out. Foreign businesses often point to a lack of objectivity in the Turkish bureaucracy and legal system, while transparency and regulatory challenges remain major concerns.

But Akin believes that some problems, such as delays in awarding licences, will not last. “[Limits to licences awarded] has more to do with a lack of established process than to do with reluctance,” he says. “Opening the initial gates for wind licence application may cause delays and uncertainty but I believe the necessary work is under way for a proper process for licences.”

Turkey and foreign firms have a lot to gain if the country takes steps to mitigate bureaucratic challenges. Each month, the U.S. Commercial Service and U.S. embassy in Turkey receive between five to seven inquiries from potential U.S. suppliers in renewable energy. Turkey’s growing need for energy has set a new playing field for local and foreign firms, and a timely opportunity for companies to bring forth their product, service and technology value. Indeed, for many North American firms, the winds may just carry them towards Turkey.