Domestic solar energy component production

November 2021

Indicative Return:

10% – 15%

Investment Timeframe

Medium Term (5–10 years)

Business Model Description

Investing in the domestic production of solar energy components: Producing tempered glass, solar cells, back sheet, EVA, junction box, inverters, and frames for solar energy.

Expected Impact

This IOA will increase the share of renewable resources in the domestic energy portfolio and contribute to energy security while reducing energy-related CO2 emissions.

Regions

Central Anatolia Region, Mediterranean Region

Sector
Renewable Resources and Alternative Energy > Alternative Energy

Direct Impact SDGs:

Indirect Impact SDGs:

Sector
Renewable Resources and Alternative Energy

Development need: According to the Sustainable Development Report Dashboard 2020, significant challenges remain in Turkey’s performance on SDG 7 (Affordable and Clean Energy). Major challenges remain in the country’s performance on SDG 13 (Climate Action); major challenges remain in particular with regards to CO2 emissions from energy and the effective carbon rate.

Policy priority: The 2020 Annual Presidential Program highlights that Turkey is an energy-dependent country with growing electricity demand. It suggests that the import dependency should be solved through switching to sustainable alternatives. The 11th Development Plan and the SDG VNR also address this goal of securing a stable supply of energy and reducing carbon emissions.

Gender inequalities and marginalization issues: Globally, female employment in the energy sector is around 22%, while the renewable energy sector employs about 32% women. Even within renewables, women’s participation in STEM jobs is far lower than in administrative jobs. (17) In the developing world, 1/7 people lack electricity, especially in rural areas. (19) Providing alternative energy options that are off-the-grid can increase the coverage rate of the rural population and provide cheaper alternatives.

Investment opportunities: Turkey ranks 5th in energy consumption in Europe. Yet, the country meets almost 73% of its energy requirements from external sources. Turkey has a great natural potential for solar, wind, and geothermal energy. It has a localization objective of obtaining 30% of energy from renewables by 2023. This area is largely privatized & supported by various government incentives (6).

Key bottlenecks: With its growing population and economy, Turkey has an increasing demand for energy. Although successful incentive mechanisms and regulatory changes have been adopted, they are mostly geared towards large-scale energy projects. Supporting small-scale renewable energy projects and renewable energy cooperatives in a way that is compatible with market conditions is essential.

Subsector
Alternative Energy

Development need: Turkey’s demand for electricity has been growing at an annual rate of 5%, above the global average of 3% (2). There is a need to increase the share of renewable resources in total electricity production to meet the rising demand sustainably, and utilize domestic production capacities to decrease the dependency on energy imports .

Policy priority: Addressing this energy demand through alternative energy production is a goal delineated by the 2020 Annual Presidential Program, the 11th Development Plan, and the SDG Voluntary National Review.

Gender inequalities and marginalization issues: Globally, female employment in the energy sector is around 22%, while the renewable energy sector employs about 32% women. Even within renewables, women’s participation in STEM jobs is far lower than in administrative jobs. (17) In the developing world, 1/7 people lack electricity, especially in rural areas. (19) Providing alternative energy options that are off-the-grid can increase the coverage rate of the rural population and provide cheaper alternatives.

Investment opportunities: Turkey ranks 5th in energy consumption in Europe. Turkey has an average annual solar radiation of 1527 kW·h/(m²·yr).(6) The country can utilize solar energy far above its current usage metrics. Moreover, recent regulatory changes have also paved the way for individual usage by allowing roof-top producers to sell excess energy back to the grid.

Key bottlenecks: With its growing population and economy, Turkey has an increasing demand for energy. Although successful incentive mechanisms and regulatory changes have been adopted, they are mostly geared towards large-scale energy projects. Supporting small-scale renewable energy projects and renewable energy cooperatives in a way that is compatible with market conditions is essential.

Market Size and Environment
Critical IOA Unit

The global solar energy market was valued at $52.5 billion in 2018 and is projected to reach $223.3 billion by 2026, growing at a CAGR of 20.5% from 2019 to 2026 (8).

Turkey has 274 rooftop solar energy facilities and 5721 solar farms. It has 6 GW of installed power for rooftop solar facilities and solar farms for self-consumption (9).

Solar energy facilities for commercial use have a total market sizing of 5995 MW in Turkey (9).

Indicative Return

10% – 15%

Small YEKA tenders for the licensed production of 600 MW generate an IRR of around 8% in USD. (9)

Interviewed investors already active in this area target an IRR between 8-12% on average from investments in the field with a maximum of 20%.

Investment Timeframe

Medium Term (5–10 years)

Requires high initial capital investments and substantial financing, complex manufacturing processes followed by marketing and distribution in a way that will make up for the competitive advantage of international companies already dominating the market.

The returns for small YEKA tenders are issued in 9 years (9).

Ticket Size

USD 1 million - USD 10 million

Market Risks & Scale Obstacles

Market – High Level of Competition
Domestically, the strong presence of the public ASPİLSAN in the field provides an obstacle for the private sector. Globally, the presence of dominant international manufacturers with a competitive advantage in pricing provides an obstacle.
Capital – CapEx Intensive
Access to finances in the production of such technologies are also vital as they have high installment costs initially.
Market – Volatile
The ambiguous legal framework behind the support mechanism might limit scale over time (The YEKA mechanism will continue, however, it is not clear what will replace YEKDEM or whether it will be extended).

Sustainable Development Need

Turkey has been experiencing rapid demand growth in all segments of the energy sector for decades due to its population and GDP growth. Turkey’s energy consumption of primary energy and electricity has increased at an annual average rate of 4 to 8 percent in the last two decades (10).

At present, Turkey is dependent on imports for the acquisition of solar energy components such as solar cells, batteries, and junction boxes.

YEKA tenders are awarded the obligation that a pre-determined share of solar energy components and production tools used in the renewable energy facilities in YEKA zones are produced domestically.

Gender & Marginalisation

The % of women employed in the industry (defined as mining and quarrying, manufacturing, construction, and public utilities) is at a mere 15.8% while the percentage of men in this sector is at 29.7%. (18) The domestic manufacture of solar components can increase female employment in this area.

Expected Development Outcome

Decrease the cost of solar energy production systems through affordable domestic alternatives, and thereby increase the share of renewable energies in total energy production and consumption.

Reduce import dependency and generate more value in the domestic economy, contributing to economic growth.

Generate employment; for each MW of production, the solar energy sector provides 33 people with employment (9).

Gender & Marginalisation

Increase energy access in rural areas / female-led households.

Increase female employment in the renewable energy and manufacturing sectors.

Primary SDGs addressed

7.1.1 Proportion of population with access to electricity

7.1.2 Proportion of population with primary reliance on clean fuels and technology

7.2.1 Renewable energy share in the total final energy consumption

7.3.1 Energy intensity measured in terms of primary energy and GDP

7.b.1 Installed renewable energy-generating capacity in developing countries (in watts per capita)

Current Level100% (11)(12)

Not Available

13.37%(11)(12)

0.82kWh/$ (12)

Not Available

Target Level100% (11)(12)

100%

Around 51% (dashboard)(11)

The world average is 1.43kWh/$ (tracker)(12)

Not Available

Secondary SDGs addressed

Directly impacted stakeholders

People
Households and firms reducing their energy costs through the integration of solar panels, employees in the solar industry.
Gender inequality and/or marginalization
Rural population and female-led households who lack access to energy.
Planet
Increased solar energy production and consumption (vis-a-vis fossil fuels) will work towards reducing greenhouse gas emissions.
Corporates
Component manufacturers and service delivery companies.
Public sector
The Ministry of Energy and Natural Resources, Turkish Electricity Transmission Corporation, Energy Exchange Istanbul.

Indirectly impacted stakeholders

People
Benefits the general public as it cuts down on carbon emissions and energy import-dependency, generate jobs and income. It may decrease price fluctuations over energy.
Gender inequality and/or marginalization
Female population in search of employment.
Corporates
Financial institutions, creditors.

Outcome Risks

Environmentally detrimental effects of battery degradation and the hazardous materials used in solar component production, especially if solar waste is not recycled properly.

Impact Risks

Unexpected Impact Risk

Impact Classification

B—Benefit Stakeholders

What

Important, positive outcome: increased share of renewable resources in electricity generation.

Who

Those who are employed in the manufacturing process and the greater population due to cheaper energy options.

Risk

Low Risk (Risks related to battery degradation for the surrounding population should be considered).

Impact Thesis

This IOA will increase the share of renewable resources in the domestic energy portfolio and contribute to energy security while reducing energy-related CO2 emissions.

Policy Environment

(2020 Annual Presidential Program): The need to increase renewable energy production & reduce energy import dependency is noted by the 2020 Annual Presidential Program, 2014-2023 National Strategy for Regional Development, the 11th Development Program, the Ministry of Energy 2019-2023 Strategic Plan and the VNR Report.

İzmir Development Agency currently runs the Best for Energy (Boosting Effective and Sustainable Transformation for Energy) project to increase the competitiveness of clean energy component production in Turkey.

(2014-2023 National Strategy for Regional Development): The need to increase renewable energy production & reduce energy import dependency is noted by the 2020 Annual Presidential Program, 2014-2023 National Strategy for Regional Development, the 11th Development Program, the Ministry of Energy 2019-2023 Strategic Plan and the VNR Report.

Financial Environment

Financial incentives: Battery production is eligible for the “Project-Based Investment Program” by the Ministry of Industry and Technology ( tax, employment, and financial incentives). “The Technology and Innovation Fund” offers financial support to innovative programs of certain budget size.

Under YEKDEM, if the mechanical/electro-mechanical equipment of renewable energy power plants is produced locally, a premium shall be added to the feed-in-tariffs (13). However, it should be noted that the YEKDEM mechanism will expire by the end of December 2020.

The YEKA model will continue to support the use of locally manufactured equipment in large-scale renewable energy projects and tenders. In this context, “under the YEKA Regulation, the use of domestically manufactured equipment is not an option for an additional tariff but an obligation”(14).

Regulatory Environment

Law No.6446, the Electricity Markets Law lays down the rules for the establishment of a financially sound and transparent electricity market operating in a competitive environment.

The Law on the Utilization of Renewable Energy Sources (RES) for the purpose of generating energy, (Law No. 5346 of 10/05/05) was Turkey’s first Renewable Energy Law enacted in 2005 by the Parliament. Law #6094 amended Law No.5346, and extended its mandate until 31 December 2020.

Regulation on Renewable Energy Zones (YEKA)/ Official Gazette #29852: YEKA sets out the legal framework for the allocation of land for large-scale renewable energy projects. For the tenders to be awarded, there is an obligation to use domestically manufactured components.

PRIVATE SECTOR

Individual and commercial solar energy investors, domestic and international banks such as Akbank, Denizbank, Garantibank, Isbank, and Vakifbank and Clean Technology Fund (CTF), solar system installers, and manufacturers.

GOVERNMENT

Ministry of Energy and Natural Resources, Turkish Electricity Transmission Company, Energy Market Regulatory Authority, Enerji Piyasaları İşletme A.Ş (The Energy Markets Management Company, EPIAŞ).

MULTILATERALS

International Energy Agency, GÜNDER, Energy Exchange Istanbul, Association of Power Exchanges (APEX)