Foreigners considering investment risky leave the energy sector

THE Energy Resources Support Mechanism (YEKDEM), which helped to develop the renewable energy sector in Turkey, is no longer quite so attractive. No foreign companies joined the last YEKA (Renewable Energy Resource Areas) tender opened on June 28-29. Domestic investors are complaining about the loss of investment appetite.

Foreigners haven’t had a partnership or direct investment at auctions in 2021 and 2022 after the transformation into TRY, according to sector representatives. 30 firms won 74 solar power plant projects (SPP) at the YEKA GES -3 tender held on May 24-27, 2021. No foreigners were among these firms. Moreover, no foreign investors attended the first and second parts of the recent YEKA GES-4 competition.

The energy crisis, which has emerged with the Russia-Ukraine war, spurred the interest in renewables. YEKDEM paved the way for investments in this field in Turkey and the attraction of international capital in recent years. However, the interest in the system has decreased due to the changes in the system, the organization of tenders in TRY, and the hike in the Credit Default Swap (CDS). That’s why foreigners have started to not join auctions, and domestic companies have had similar complaints.

“The latest legislative arrangements have slowed investments in the sector. They will set new investments back in the near period. The YEKDEM mechanism, served the purpose of promoting renewable energy usage instead of imported resources in electricity generation, and it succeeded,” said Cem Ozkok, Chairman of the Solar Energy Investors Association of Turkey (GUYAD).

The expected investment acceleration hasn’t happened since the YEKDEM mechanism started to work on a TRY basis. “The Turkish renewable energy industry is the sole sector attractive to foreign investors, where people can find project financing, despite economic crises,” said Ozkok. “YEKA tenders show inverse correlation because they break all economic rules. If the sales numbers don’t reach a point where they can provide project finance and feasibility… SPPs won’t become operational,” Ozkok added. “Even the tenders held in USD can’t be linked with the system before five years, the projects with TRY sales prices subject to the escalation are more difficult to make operational on time.”

Turkey’s total installed capacity rose by 0.85% from 99,819 megawatts (MW) to 100,666 MW in May, compared to the beginning of 2022, according to the Turkish Electricity Transmission Corporation (TEIAS). “The number of preliminary licenses in force shows us investor behavior,” Ozkok noted. The number of applications was one and the number of preliminary licenses totaled 231 in January, according to the Energy Market Regulatory Authority (EPDK). The number of applications was three and the number of preliminary licenses amounted to 230 in February, while there were two applications and 227 preliminary licenses in March. “The project pool declines due to the absence of new entrances. No investors want to invest,” Ozkok said. “There are both new licenses and license cancellations. The number of players in the market is also declining. We are losing both investors and market players,” Ozkok added.