Turkish regulator mulls revision of renewable tariff mechanism

The Turkish regulator EPDK could next year revise payment arrangements for the feed-in tariff to ensure fair market competition, a source at the watchdog told ICIS on Tuesday.

Companies with end-customer portfolios have been calling for a change in the current mechanism regulating contributions to the feed-in tariff in a way that would see the component removed from the active energy price passed on to end consumers and incorporated in the transmission costs, or some other mechanism that would enable this cost to change yearly and to be foreseeable.

They say the move is justified by a steep rise in monthly payments since the beginning of the year and which are creating significant market distortions.

Steep rises

Under the current setup, companies with end consumers make a monthly contribution towards the feed-in tariff which is set in US dollars and paid in Turkish lira at the exchange rate on the day of settlement.

Last year, the annual average value of that contribution was Turkish lira (TL) 1.40/MWh ($0.51/MWh), but since the beginning of the year, the tax has increased sharply, reaching TL 9.00/MWh in April ’15.

The tax has spiked on two accounts: the sharp depreciation of the Turkish lira against the US dollar and healthy renewable generation which has been covering a large portion of the total generation.

This year, nearly 6GW of renewable capacity, or a threefold increase on 2014, are operating under the feed-in tariff.

The guarantee of a firm price has incentivised companies to generate, whenever possible, at full steam, leading to a production overhang since the beginning of the year.

However, sources interviewed over the past weeks said wind and solar output may increase even further in July and August, boosting their contributions towards the tariff even more. This means that further rises in the feed-in tariff component could deepen market distortions.

Hitting competition

Existing regulations dictate that the contribution for the feed-in tariff be included in the so-called active energy cost. This is in effect the price of raw energy paid by consumers. However, the feed-in tariff contributions are estimated in advance and vary from company to company.

This means that the energy prices quoted by some companies could appear cheaper than those of others.

In order to smooth out the differences and ensure companies compete purely on energy prices, they have suggested the feed-in tariff contribution be removed from the active energy cost and incorporated into the transmission costs paid to the grid operator TEIAS.

The EPDK source said the regulator may consider revising the current arrangements in the next year or the year after.

“Suppliers are right [to raise the issue] about the feed-in tariff,” he said. “However, at the moment TEIAS has too many responsibilities that will make it difficult to convince them to accept the change. Maybe in one year or two years’ time it will be changed,” he said.

The source explained that TEIAS has already accepted a similar change in the way that the zero balancing fee is paid.

The levy paid for the balancing of the system was initially embedded in the active energy cost, but will be transferred to the transmission cost from January 2016. aura.sabadus@icis.com