US and Turkey Extend Subsidies for Renewables

Source: WSJ

Source: WSJ

In the last day of work for 2015, the United States Congress passed a multiyear extension of tax credits for solar and wind energy. In particular, the new bill extends the 30 percent Investment Tax Credit (ITC) for solar installations that were due to expire on January 1, 2017 for another 5 years, while restoring tax credits for wind which had expired in 2014, giving a tremendous boost to both technologies. In May 2015, the US submitted their Indented Nationally Determined Contribution (INDC) to reduce greenhouse gas emissions by 26-31 percent below 2005 levels, with the tax credit extension becoming the first palpable policy measure to be introduced towards this direction just days after the Paris Agreement.

The renewable energy program was first implemented in 2006 and led to an increase of solar installations by 70 percent. The new scheme foresees the 30 percent solar tax credit to extend through 2019 and then decline gradually to 10 percent by 2022. After 2022, the credit will continue at 10 percent only for commercial installations. As for wind, the 30 percent tax credit will apply to projects that have come online since the start of 2015 and will continue through 2019, gradually declining and completely vanishing by 2020.

According to Bloomberg New Energy Finance (BNEF) this new scheme will add another 20 Gigawatts of solar and 19 Gigawatts of wind power generation to installed capacity. The scheme is expected to lead to $73 billion in investment and supply to 8 million American households. In the US, coal and natural gas continue to dominate the electricity mix as they remain the cheapest fuels for power generation, despite the fact that upfront costs for renewable have decreased substantially since 2005. In 2012, renewable energy accounted for 12.4 percent of total electricity production in the US.

Thanks to the tax credit scheme established in 2005, solar industry soared. In 2015 alone, nearly 1,500 megawatts of solar panels were installed in 214,000 households according to GTM Research. The extension will also benefit the labor market since it could add up to 220,000 jobs by 2020, according to SEIA.

Recently, Turkey also announced a series of new subsidies to support renewable energy production equipment, especially for wind. Turkey’s Economy Minister, Nihat Zeybekçi, said that “such investments will benefit from the same attractive incentive rates and time periods as investments in Turkey’s 5th Incentive Region. Investments will therefore be supported for seven years by also benefiting from VAT exemptions, customs tax exemptions, tax reductions, interest rate support, investment site allocation opportunities and easier social security payments”.

Turkey offers $ 7.3 cent/kWh for the wind and $ 13.3 cent/kWh for solar energy production plus a premium ranging from $ 0.3 cent/kWh to $ 1.2 cent/kWh dependent on the domestically manufactured component used by the generators. Turkeys renewable energy industry has boomed since 2010, when the Feed in Tariff scheme was revised, however compared to the US the country submitted a much more modest GHG emissions target in its INDC aiming at lowering GHG emissions by 21% below a business as usual scenario.

Given that Turkey has no oil or gas reserves of its own, importing up to 70 percent of its electricity, and with growing issues with Iran and Russia- two of its main exporters, the slow move to renewable energy is both timely and necessary. The country has plentiful renewable energy resources; namely wind, solar, geothermal and hydraulic and is now offering incentive packages to encourage market transition towards renewables.

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