Renewable Energy is the Cure for Inflation

A new report by APLUS Energy and the Sustainable Economics and Finance Research Association (SEFiA) reveals that the increase in renewable energy installed capacity results in lower inflation by lowering electricity bills. 

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 Turkey and the incentives given to these investments. According to the report, beyond lowering the inflation by a considerable percentage point, increased renewable capacity would also ease imported fuel costs and carbon emissions.

The study aims to analyze electricity prices in the free market –in 2021 and the first half of 2022– if the projects, developed within the scope of YEKDEM (Renewable Energy Resources Support Mechanism) or YEKA (Renewable Energy Resource Areas) were realized, and higher level of unlicensed power plants were installed. 

In this respect, higher wind and solar energy capacity is assumed compared to today’s levels where total wind and solar capacity was 29.3 GW at the beginning of 2021, and 35.9 GW as of June 2022. Under an increased renewables scenario, change in market clearing price (PTF) in the electricity market and unit cost of YEKDEM, the change in inflation, the avoided cost of imported coal and gas, and emission savings are particularly evaluated.

If Turkey’s solar and wind installed power increased to 36 GW from its 19 GW level today:

  • The clearing price of electricity in the free market would be lower: It has been calculated that the total system costs are lower than the actual figures. Despite the rising YEKDEM costs, the electricity price in the free market is 3.5% lower than the realized values ​​for 2021 and 11.8% for the first six months of 2022.
  • Inflation would be lower: Under the scenario in which renewable energy production is higher, annual PPI (Producer Price Index) inflation, which was 144.61% as of July 2022, would be 129.22% (down by 15 points), and annual CPI (Consumer Price Index) inflation, which was 79.60% in the same period, would be 72.39% (down by 7 points).
  • Coal and gas imports would be lower: It has been calculated that with the increasing renewable energy generation, the country’s imported fuel bill would decrease by 3.1 billion USD for 2021, and by 3.3 billion USD for the first six months of 2022, i.e. during the energy crisis.
  • Carbon emissions would be lower: It has been observed that 22.9 million tons of CO2 equivalent emission reduction will be achieved 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 announced for 2020.

Wind and solar pose the best protection strategy from the global energy crisis 

Volkan Yiğit, APLUS Energy, Partner “The study shows that free 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. In addition to this, renewable energy will result 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”

Bengisu Özenç, SEFiA, Director: “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) by Biden, which puts the energy transition at the center. 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. In addition to this, 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.

Click here to access the Turkish version of the report.