布鲁盖尔-Estimating-the-cost-of-capital-for-wind-energy-investments-in-Turkey_20页_4mb

Summary of "ESTIMATING THE COST OF CAPITAL FOR WIND ENERGY INVESTMENTS IN TURKEY"

Core Content

This paper estimates the cost of capital for wind energy investments in Turkey using data from 138 wind power installations that participated in the YEKDEM feed-in tariff scheme in 2017. The analysis is crucial for understanding the financial viability of wind power projects in the context of Turkey's 2023 energy strategy, which emphasizes increasing renewable energy capacity, particularly wind, to reduce energy import dependence and improve energy security and sustainability.

Main Points

• Wind Power in Turkey: Wind power is a key component of Turkey's energy strategy, contributing 6.1% of the electricity generation mix in 2017. The country aims to increase wind power capacity to 20 GW by 2023.

• Cost of Capital Significance: Due to the high capital intensity of wind power projects, the cost of capital plays a central role in investment decisions. A lower cost of capital reduces project costs and increases attractiveness to investors.

• Cost of Capital Estimate: The estimated cost of capital for wind power projects in Turkey is within a range of 5.55% to 12%, based on internal rate of return (IRR) calculations. This suggests that the cost of capital in Turkey is not higher than in south-eastern EU countries.

• Support Schemes: Turkey has two main support mechanisms for renewable energy:

  • YEKDEM: A feed-in tariff scheme that guarantees a price of 0.073 USD per kWh for the first ten years, with a local-content bonus available for the first five years.
  • YEKA: A reverse auction scheme that encourages local R&D, domestic equipment use, and employment, though it has covered fewer projects compared to YEKDEM.

• Economic Context: High inflation and the devaluation of the Turkish lira have negatively impacted foreign direct investment. However, the YEKDEM scheme, which is denominated in USD, helps mitigate these risks for investors.

• IRR Calculation Methodology: The IRR is used as an upper bound for the cost of capital, as it reflects the discount rate that makes the net present value (NPV) of a project zero. The IRR was calculated using plant-level data, including production volumes, feed-in tariffs, and O&M costs.

• Robustness Checks: The IRR estimates were validated using alternative assumptions, including different tax rates, market prices, and salvage values. These checks confirmed that the IRR range remains within 5.55% to 12%.

• Cost of Government Support: The cost of the YEKDEM scheme increased by 46% in Turkish lira terms between 2016 and 2017 due to the depreciation of the lira. This increase is partially borne by Turkish electricity consumers through higher wholesale electricity prices.

Key Information

• Data Sources: The analysis is based on data from the Energy Market Regulatory Authority of Turkey (EPDK) and other public sources, including the IMF, OECD, and IRENA.

• Assumptions:

  • Capital costs were approximated using data from the MidSEFF program.
  • O&M costs were derived from IEA & NEA (2015) and kept constant over the project lifetime.
  • A corporate tax rate of 20% was assumed, with a linear depreciation rule and a 20% salvage rate.
  • The economic lifetime of wind projects was set at 20 years.

• Production and Compensation: In 2017, wind power installations accounted for 32% of total production under YEKDEM and 31% of total compensation. The cost of capital is therefore a significant factor in the overall cost structure of wind projects.

• Policy Recommendations: The paper argues that continued commitment to the YEKDEM and YEKA schemes is essential for achieving the 2023 renewable energy targets. It emphasizes the need for transparent and predictable support mechanisms to attract and retain investment in both large and small-scale projects.

Conclusion

The study concludes that the cost of capital for wind power projects in Turkey is relatively low compared to other countries, but the increasing cost of government support due to macroeconomic instability poses a challenge. The findings suggest that the current support schemes, particularly YEKDEM, are important for maintaining investment in the wind sector. The results also have implications for the YEKA programme, highlighting the need for a balanced approach to support both large and small-scale projects to meet the long-term goals of the Turkish energy strategy.