Legal Briefing - New Feed-in Tariff and Domestic Manufacturing Uplift Announced
The Presidential Decision concerning the feed-in tariff, domestic manufacturing uplift and their application periods applicable to electricity generation facilities holding a renewable energy source (“RES”) certificate has been published in the Official Gazette dated 30 January 2021 and numbered 31380 (the “Decision”). The Decision determined the feed-in tariff in Turkish Lira for power plants that would commence their commercial operation between 1 January 2021 and 31 December 2025.
The RES support scheme came into effect with the Law on the Utilisation of Renewable Energy Sources for the Purpose of Generating Electrical Energy numbered 5346 (the “RES Law”) in 2005 as an incentive aimed to attract investors in line with the government’s policy to develop the renewable energy sector in the country.
A feed-in tariff and additional domestic manufacturing uplift in US Dollars was introduced for ten years – i.e. for power plants that commence their commercial operation between 18 May 2005 and 30 June 2021.
After this crucial time period, the authority to determine the applicable feed-in tariff and the domestic manufacturing uplift was then granted to the President with an amendment introduced to Article 6 and Article 6/B of the RES Law on 2 December 2020. The President recently determined the new RES feed-in tariff and domestic uplift in Turkish Lira instead of US Dollars and designated the application period for such support scheme.
Feed-in Tariff and its application period
The feed-in tariff and domestic manufacturing uplift determined in US Dollars under the RES Law will still apply to power plants that achieve their commercial operation by 30 June 2021. However, for power plants that will achieve their commercial operation between 1 July 2021 and 31 December 2025, the following feed-in tariff will be applied for ten years:
- TL 0.40/kWh for hydroelectricity power plants;
- TL 0.32/kWh for wind and solar power plants;
- TL 0.54/kWh for geothermal power plants;
- For biomass energy facilities;
- TL 0.32/kWh for energy generated from power plants based on landfill gas and by-products of waste tire treatment;
- TL 0.54/kWh for energy generated from power plants based on biomethanisation; and
- TL 0.50/kWh for energy generated from power plants based on thermal disposal.
Further, the Decision states that the feed-in tariff shall be updated every three months as of 1 January 2021 and that the first update shall be made on 1 April 2021 in accordance with the formula stipulated in Annex-2 of the Decision, which takes (i) the RES support scheme feed-in tariff of the previous three months; (ii) the producer and consumer price indices for the past months; and (iii) any changes in the TL/ US Dollars exchange rate into consideration. Such formula principally aims to adapt the new feed-in tariff to increases in investment costs caused by fluctuations of the exchange rates in order to provide a limited form of protection to investors.
The Decision also sets a maximum limit to the feed-in tariff in US Dollars. Accordingly, the feed-in tariff must not exceed the Turkish Lira equivalent of the thresholds stated below:
- US Dollar 0.64/kWh for hydroelectricity power plants;
- US Dollar 0.51/kWh for wind and solar power plants;
- US Dollar 0.86/kWh for geothermal power plants;
- For biomass energy facilities;
- US Dollar 0.51/kWh for energy generated from power plants based on landfill gas and by-products of waste tire treatment;
- US Dollar 0.86/kWh for energy generated from power plants based on biomethanisation;
- US Dollar 0.80/kWh for energy generated from power plants based on thermal disposal.
To determine such threshold, the average exchange rate of the past three months prior to the month of the update is to be used. By way of illustration, if the feed-in tariff calculated for hydroelectricity power plants on 1 April 2024 is TL 5.50 and the average exchange rate of US Dollar of 0.64 in January, February and March 2024 is equal to TL 5.00, then in accordance with the Annex-2 of the Decision, the applicable feed-in tariff would be TL 5 which is the equivalent of the maximum limit denominated in US Dollars, instead of TL 5.50 as calculated under Annex - 2 of the Decision.
According to the Decision, the new domestic manufacturing uplift will be a single price (previously, there were separate prices for separate components which in aggregate totalled a commercially more advantageous uplift and these were listed in a long list annexed to the legislation). If a power plant based on renewable energy uses domestically manufactured parts, a domestic manufacturing uplift of only TL 0.08/kWh will henceforth be paid in addition to the feed-in tariff.
The domestic manufacturing uplift will be applied for five years starting from the commercial operation date of the relevant power plant and will also be updated in accordance with the same formula stipulated in Annex – 2 of the Decision (without the US Dollar denominated threshold component of the formula).
The TL denominated RES feed-in tariff and domestic manufacturing uplift is a considerable decrease compared to the former US Dollar denominated tariff and uplift. Solar power plants are the most affected with a net decrease of 67% but the least affected (i.e. hydroelectricity power plants) face also a serious decrease of 25%. This is a new era and the energy market will need some time to adapt to this new mechanism.
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 Published in the Official Gazette dated 18 May 2005 and numebred 25819.
 The Law Amending the Electricity Market Law and Certain Other Laws, published in the Official Gazette dated 2 December 2020 and numbered 7257.