“I Would Give A1% Higher Chance To Self-consumption Than FIT In Turkey”
Upsolar opened its office in Istanbul in 2013 and it continues to expand its existence. Upsolar’s Turkey & Middle East Director Mr. Ioannis Markatatos answered the questions about why they decided to settle in the Turkish market as themselves rather than simply appointing a sales distributor. Markatatos has invaluable views and compares the Turkish PV market to some European markets.
Upsolar develops and produces high quality PV modules, offering a secure long-term investment for customers around the world. Thanks to a strong focus on research and development, as well as a flexible manufacturing platform, Upsolar can offer innovative PV technologies to meet the performance needs of its global customer base. Upsolar offers some of the most forward-thinking products on the market. The company’s smart modules, which boost efficiency and enable flexible system design, feature embedded intelligence from leading power optimization technology providers Tigo Energy and SolarEdge. This year, we will also introduce back-contact modules that improve the efficiency of traditional products by as much as two percent. All Upsolar products are backed by industry-leading product and performance guarantees to ensure superior performance over the lifetime of each system.
What is Upsolar’s business plan and what are the advantages it offers to your customers?
We built our business on an asset-light manufacturing model, where we work closely with trusted manufacturing partners in Asia, Europe and the Americas. This approach allows us to avoid the high costs of production equipment and facilities, while affording us unparalleled flexibility to easily scale up or down to meet the short-term needs of the market. Rather than worrying about emptying inventories or servicing equipment, Upsolar can focus instead on bringing new products and services to our customers to expand the global market. Our product development arm, for instance, was established to fund projects across Europe that would otherwise fall by the wayside. In recent months, we’ve completed more than 7.5 MW of projects. Upsolar has also launched financing packages in a number of markets to help customers achieve the benefits of solar with no money down, and our turnkey solutions for residential and commercial customers make “going solar” as simple as possible
What do you think are the strengths and the weaknesses of Turkey’s solar market?
The Turkish solar market is very promising. The country’s geographic location and high solar irradiation create the ideal basis for the development of a vast network of PV systems. Basic technical and financial indicators, such as strong economic growth and high demand for expensive electricity, complete the picture.
It is important to mention that Turkey is importing electricity from neighboring countries—mainly Bulgaria and Greece—to meet its current demand. The depreciation of the Turkish Lira makes these imports increasingly expensive, weighing on the national balance sheet. The depreciation of the Lira and the country’s financial growth also result in the increasing cost of oil and gas imports. The combination of these factors translates to a systemic need for local, large-scale renewable energy generation to reverse this trend and start exporting electricity instead. This is possible in Turkey, today. According to the Turkish Energy Market Regulatory Authority (EPDK), the price of electricity has increased by 10-11% yearly during the last six years, during which solar power has reached grid parity levels. Thus, investing in solar today is safe and financially attracting.
However, the expansion of the Turkish solar market should be a gradual and well planned process. An accelerated and massive deployment of PV systems can cause the market to collapse, like what happened in the Czech Republic, where the needed volume of PV systems was installed within 12-14 months and caused the government to end subsidies for renewable energy. Careful planning should take into consideration the total network capacity, as well as the country’s real electricity demand.
I believe that Turkey should develop a 5 to 10-year plan that limits installations to 3-4 GWp per year. At Upsolar, we have produced feasibility studies that clearly show how a factory that today pays 0,16 TRL/KWh, in the coming 20 years will have to pay 20 times 0,16 TRL/KWh, which corresponds to 3,2 TRL to consume 1 KWh/year. The general rule of thumb in Turkey is that, to produce 1 KWh/year, one will need to install 0,0006 KWp with an approximate cost of 1,5 TRL. This means that, in 20 years, the cost of solar power will be 0,075 TRL/KWh/year, which is 55-60% less expensive that what one would have paid to distribution companies.
In terms of challenges, I should emphasize two: First, the current inaction and the short-term availability of feed-in tariffs (FiT). Developers in Turkey are refraining from acting as first-movers and slowing the adoption process. At the same time, Turkey’s FiTs are only available for 10 years, which results in 7 to 8-year bank loans and leasing solutions. Calculating equity and the project’s internal rate of return (IRR) over a period of 20 years with a FiT contract of 10 years can be troublesome. When FiT programs span 20 years, as it often happens in other countries, banks can offer loans and leasing solutions that last 10 to12 years. A similar system would be preferred in Turkey as well, since increasing loans from 7 to 10 years would also increase the equity IRR by 1-1.5 percent.
Secondly, bureaucratic procedures are sometimes so complicated and time consuming that some investors lose interest. Despite this, we strongly believe that the Turkish market has the potential to succeed and offer the country an additional way to maintain its economic growth and international prestige.
What are some difficulties investors will face?
Like anywhere else in the world, investors in Turkey will face two kinds of difficulties entering this new market. The first is the aforementioned bureaucracy, which will hopefully be a minor barrier. The second and more important difficulty will be to define and choose the correct partners to make investments become realities. Finding experienced partners in a new solar market can be quite the challenge.
Since Upsolar first entered the Turkish market last summer, we have seen too many companies from outside the construction industry proposing construction projects for photovoltaic systems. We see consultants request high down payments, which can frighten the investors. We see consultants trying to promote low-cost materials to increase their margins, without thinking about how this impacts the long-term investment. For example, if utilizing a tier-2 inverter and/or module supplier results in even 2% less production per year, this means you’re seeing 20kWp less capacity per MWp, which translates to 30.000KWh per year lost. In 20 years, this is translated to 600.000KWh, or an $80.000 loss for the investor.
What is very optimistic in my opinion is that serious players seem to understand the need to follow the logic of a good quality/price ratio, and not only “cheap” solutions
Why did Upsolar enter the Turkish market?
Upsolar entered the Turkish market for many reasons. First of all, the country’s need for renewable energy, which has been clearly stated by the law in March 2013. Also we believe that Turkey has similar characteristics to other markets where we obtained excellent results. An example is Greece, where we installed more than 72MWp in 3 years, corresponding to about 3% of the local market. Our partner EPCs and investors felt comfortable with our results in terms of performance ratio in high temperatures. We created a local inventory to serve our customers faster, and we believe we can achieve the same – if not better – results in Turkey by setting up a similar system.
Our best promoters are often our own customers. Upsolar rewards its EPC partners, which is not always the case with our competitors. For example, we developed our own project development branch to invest directly with our customers. By offering a larger profit margin to our EPC partners, we are able to build and strengthen long-lasting business relationships. We have a clear success strategy, but we always keep in mind that our priority is for customers in Turkey to accept and trust our technology.
Which in your opinion is the “submarket” that will do higher volume: FiT or self consumption?
Taking into consideration my previous answer, I would give a 1% higher chance to self-consumption, especially for the commercial sector. Today, the Turkish electricity market is liberalized, however the cost of electricity is increasing every year. Economic growth, the depreciation of the Turkish Lira and the ever-increasing electricity demand without new investments to increase production would make Turkey even more dependent on oil and gas. The self-consumption system using solar power would protect commercial PV system owners from all these factors. For example, a 1 MWp system can satisfy part of the electricity needs of a factory, providing a quick payback time and solar power for the lifetime of the building. I am positively surprised by the level of understanding of this option by industrial managers and I have no doubt that soon, we will see more and more PV modules installed in industrial areas.
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