Expanding growth of renewables could protect consumers from high fuel bills in Türkiye: Study

ISTANBUL

Renewable energy is now much cheaper in Türkiye than fossil fuels that are responsible for about one-fifth of the inflation the country has experienced since May, and continuing the growth of renewables could protect consumers from high fuel bills, found a new study published Tuesday.

The world is experiencing a surge in the cost of living and corresponding inflation levels, mostly attributed to supply-side factors. Soaring prices of fossil fuel-based energy preceded and accompanied this return to inflation in countries across the world, according to Cambridge Econometrics.

The report titled "Fossil Fuel Prices and Inflation in Türkiye" found that the global energy crisis triggered by Russia's war in Ukraine and combined with the depreciation of the Turkish lira has led electricity prices up by 102%, gas by 145% and transport fuels by 182% in the last 12 months.

Energy prices were twice as volatile as consumer prices overall, while inflation currently stands at 83% and electricity prices have accounted for only 3% as a result of state subsidies, according to the report.

Türkiye has introduced targeted measures to shield households from soaring prices at a cost to the treasury of 300 billion Turkish lire ($16 billion), or 2% of the gross domestic product, while the measures are expected to increase in 2023, the report said.

However, the lifetime cost per megawatt-hour of new solar PV standing at $64 and onshore wind power at $44 is now less than half the cost per megawatt-hour of natural gas-fired generation, at $128, according to Cambridge Econometrics calculations.

The report's author, Carl Heinemann, said accelerating Türkiye's transition away from dependence on fossil fuel imports and to wind and solar was the right policy choice to protect households, industry, and the Turkish economy from volatile energy prices.

Renewables generate almost half of electricity in Türkiye

Türkiye has increased the share of renewables in electricity generation from a quarter in 2020 to nearly half in the first half of 2022, already making significant progress in deploying renewables.

Hydro is responsible for a large share of electricity generation from renewables, ranging between 17% and 31%, but the greatest growth in renewable electricity generation came from wind energy, as its share has grown from 1% to 11% over the past 12 years.

The share of solar in total electricity generation has also risen from almost zero to 5% in the last five years.

"Growing the already strong share of renewable energy and speeding up the roll-out of electrified transport and efficient heating in Türkiye could have a disinflationary effect and place less of a burden on the economy, households, and businesses, and create security of energy supply for the country," Heinemann said.

According to the report, continuing and expanding the support for renewables reduces Türkiye's dependence on energy imports and has the potential to reduce electricity prices in the long run as domestically produced renewables substitute for fossil fuel imports. It also should be supported with rapid electrification of transport and heating.

"Newly installed wind and solar capacity is half as expensive per megawatt-hour as gas power, so continuing and expanding support for wind and solar will also limit the need for expensive government interventions in times of high global prices," Heinemann said.