Increasing renewable energy capacity helps to reduce inflation, Turkish study says

Increasing the capacity of solar and wind power generation is estimated to lower inflation by 7% points in Türkiye, shows a new study from Turkish think-tank Sustainable Economics and Finance Research Association (SEFiA) and APLUS Energy published Thursday.

The report titled ‘Increasing Electricity Prices and the Impact of Renewable Energy Sources on the Market’ evaluates the impacts of solar and wind power plants in Türkiye and the incentives given to renewable investments.

The calculations were based on the assumption that Türkiye’s total wind and solar capacity stood at 29.3 gigawatts (GW) by the end of 2021 and 35.9 GW as of June 2022.

If Türkiye’s solar and wind installed power increases to 36 GW from today’s level of 19 GW, despite the rising costs under the incentive scheme, the electricity price in the market would be 3.5% lower than the actual values for 2021 and 11.8% lower for the first six months of 2022.

‘The study shows that market electricity prices would be lower if higher renewable energy capacity was installed during the global energy crisis. As the purchase guarantees of previous YEKDEM power plants expire, the cost-reducing effect of renewable energy generation will come much to the fore,’ Volkan Yigit, Partner at APLUS Enery, a Turkish consulting firm.

In its efforts to increase and incentivize the investments for renewables, Turkey launched the support mechanism, Renewable Energy Resources Support Scheme, YEKDEM, in 2005. The mechanism provides investors a guarantee of purchase for a determined time.

SEFIA Director Bengisu Ozenc said increasing the share of renewables stands out as one of the key strategies in fighting inflation, especially in times of rising global commodity prices.

‘We have already seen a reflection of this approach in the recently introduced Inflation Reduction Act (IRA), which puts the energy transition at the center,’ she said.

‘In our study, we have shown that Turkey would be able to decrease its chronically high inflation by 7 percent points if the share of renewables were increased.’

Under the scenario in which generation from renewables would be higher, annual producer price index inflation, which was 144.6% as of July 2022, would be 129.2%, down by 15 points.

Annual consumer price index inflation, which was 79.6% in the same period, would be 72.39%, down by 7 points.

The increase of electricity generation from renewables in Türkiye would reduce the country’s imported fuel bill by $3.1 billion for 2021 and by 3.3 billion for the six months of 2022.

‘Considering that the negative effects of the exchange rate volatility would be limited and the public budget dynamics would be relieved thanks to the strengthening of energy independence. It can be said that the tax burden would decrease in the long run and the improved purchasing power would enhance the overall welfare of the society,’ Ozenc said.

According to Yigit, the increase in renewable energy capacity will result in multi-faceted benefits such as reduced dependence on imported fuels, ensured supply security and reduced carbon emissions.

‘Therefore, a comprehensive renewable energy strategy and ambitious targets are needed for seizing the advantages of reduced costs and increased benefits,’ he said.

Carbon emissions would be lower by 22.9 million tons of CO2 equivalent in 2021 and 13.4 million tons of CO2 equivalent emission reduction in 2022, especially by substituting carbon-intensive sources.

The total amount of reduction calculated for 18 months in the study corresponds to approximately 28% of the carbon emissions from electricity generation which was announced for 2020.

• Sustainable Economics and Finance Research Association (SEFiA)