By Fitch Solutions
- We have made upwards revisions for our Turkish wind power forecast over the coming decade due to signals for strong growth. We now forecast nearly 18.6GW in total wind power capacity by 2029.
- Supporting our outlook, we highlight several factors which will result in robust growth within the sector, including a sizeable project pipeline, a mature domestic manufacturing supply chain, and continued government support.
- We expect that the wind power sector will be the leading growth driver within Turkey’s non-hydro renewables sector.
- While we maintain a positive long-term outlook, we continue to note heightened risks in the near-term to medium-term due to both political uncertainty and weakened macroeconomic conditions.
We have revised up our forecast for Turkey’s wind power sector over the coming decade, and we now expect just under 18,600 megawatts (MW) in total wind power capacity by 2029. This represents the second positive upwards revision for the sector in recent months, with our increasingly positive outlook being supported by strong near-term growth potential – which has outperformed our expectations in 2020 despite significant challenges – as well as fundamentals which support a robust long-term growth outlook. As such, we now forecast total wind capacity to grow at an average annual y-o-y growth rate of 9.4% between 2020 and 2029, increasing from 8,733MW in total wind capacity in 2020 to 18,591MW in 2029. We expect the Western Coast will remain the wind power hotspot, with the Marmara and Aegean Regions boasting the largest amounts of both installed wind capacity and capacity under development – according to the Turkish Wind Energy Association (TÜREB)’s July 2020 report. Both regions have been focus points for wind power investment in Turkey due to the regions’ access to high wind speeds stemming from long coastlines.
Supporting this outlook, we highlight multiple factors which will result in substantial growth in Turkey’s wind power sector – both in the near-term and beyond. The wind sector has experienced accelerated development over 2020 despite significant risks and challenges associated with the Covid-19 pandemic as well as persistent weakened macroeconomic conditions, including the depreciation of the Turkish Lira over the last couple of years. According to the Turkish Electricity Transmission Corporation (TEİAŞ), nearly 740MW of wind capacity additions have come online between January 2020 and September 2020, and we forecast nearly 1,150MW of total wind power to come online throughout 2020. Several factors have allowed the wind power sector to advance in the near-term, and will continue to encourage development over the coming years. Among these we highlight:
- A sizeable project pipeline: According to the TÜREB’s July 2020 Turkish Wind Energy Statistic Report, 2,451MW of wind power capacity were under construction as of July 2020 – the highest capacity since reports first began in January 2013. In addition, 96 wind power projects, totalling 4,536MW of additional wind capacity are in the pre-licensed planning stage. While we expect that not all of these projects will be finalised and developed, the large project pipeline signals strong interest in the market even amid the challenging economic conditions, and supports our robust growth forecast over the coming years.
- Mature domestic wind power equipment manufacturing supply chain: Turkey’s domestic wind power manufacturing landscape has taken shape in recent years, with the country’s minimum content rules and local content bonuses boosting the establishment and use of domestic wind power components. Turkey is currently home to 12 wind power equipment manufacturing facilities that produce a range of the largest components, including towers and blades. As such, the country ranks as the fifth largest wind equipment manufacture in the European region – according to the October 2020 report from WindEurope. Additionally, there are dozens of other manufacturing sites that produce the smaller wind power project components. The ability to obtain nearly all wind power project components from domestic sources reduces costs given the local content bonuses. Additionally, the source of domestic equipment also allows companies in the wind power sector to be more insulated from the lira volatility compared with if they were required to import equipment from abroad.
- Strong government support: The Turkish Government remains committed to diversifying its power mix in order to produce more than 60% to 70% of its electricity from domestic sources and reduce its dependence on imported thermal feedstock. As such, we expect the Turkish government will continue to support the sector through policies or financial mechanisms. Most recently in September 2020, the Turkish Government announced a six-month extension of the deadline for the Renewable Energy Resources Support Scheme (YEKDEM)’s entry-into-service date. The mechanism was originally planned to end at the end of 2020, but has been extended largely because requests from the non-hydro renewables industry due to impacts of Covid-19 on the sector. As a result, power plants, including wind power projects, that enter into operation before June 30 2021 will be able to benefit from the feed-in tariffs.
We expect the wind power sector will be the leading growth driver in Turkey’s non-hydro renewables sector over the decade, given the sector’s strong growth outlook. We forecast the wind power sector will add roughly 11,000MW between year-end 2019 and 2029 – the highest capacity growth of any non-hydro renewables subsector. That said, we also expect robust growth within the solar power sector, resulting from a mix of small-scale and utility-scale solar systems, as well as the geothermal power sector. The solar and geothermal power sectors are set to add just under 7,000MW and 1,050MW, respectively.
While we hold a strong positive long-term growth outlook for Turkey’s wind power sector, we note heightened risks in the near-term due to currency depreciation and heightened political and economic uncertainty. The Covid-19 pandemic continues to present downside risks to our near-term forecasts as risks remain for both project planning and construction delays due to cases among workers. We also note additional risks related to the potential for disruptions throughout the wind value chain. Economic and political volatility, and continued uncertainty surrounding the replacement for the YEKDEM mechanism, also continue to present a downside to our forecasts within Turkey’s entire non-hydro renewables sectors, primarily to our medium-term forecasts. Owing to financial headwinds exacerbated by the economic impacts of Covid-19, risks could rise for large-scale borrowing and spending on major non-hydro renewables projects.
This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. The original article can be accessed by clicking here