Renewable energy is the cure for inflation.

APLUS Energy and Sustainable Economics and Finance Research Association (SEFiA) jointly procured a report proposing that the increase in renewable energy installed capacity will improve consumer inflation by lowering electricity bills.

The Rising Electricity Prices and the Market Impact of Renewable Energy Sources  report evaluates the market impact of renewable energy power plants and the incentives provided to these plants in Turkey. The report also shows an increase in renewable energy capacity will significantly reduce imported fuel costs and carbon emissions, in addition to lowering inflation.

The study aims to measure the formation of the electricity prices in the free market in 2021 and only in the first half of 2022 if (i) all projects developed under YEKDEM (Renewable Energy Support Scheme) or YEKA (Renewable Energy Resources Zones) are realised and (ii) more unlicensed power plants are put into practice. Assuming that more wind and solar energy will be used compared to today (total wind and solar capacity of 29.3 GW at the beginning of 2021 and 35.9 GW by June 2022), the study analyzed how the market clearing price and YEKDEM unit cost would change, how inflation would follow, how much gas and imported coal costs could be reduced and how much reduction in carbon emissions would be achieved.

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If Turkiye’s solar and wind installed capacity would increase from 19 GW (today) to 36 GW:

  • The price of electricity in the free market would have been lower: The calculations show that the system costs are lower compared to the actual figures. The price of electricity in the free market, despite the increased level of YEKDEM costs, are 3.5% lower than the actual values for 2021 and 11.8% lower in the first six months of 2022. 
  • Inflation would be lower: In a scenario with higher renewable energy generation, the estimates illustrate that the annual PPI inflation of 144.61% as of July 2022 would be 129.22%, while annual CPI inflation of 79.60% in the same period would be 72.39%.
  • Less energy would be imported: Increased renewable energy generation primarily substitutes high-cost gas and imported coal production. For 2021, the country’s imported fuel bill was estimated to fall by USD 3.1 billion, and for the first six months of 2022, when the energy crisis deepened, by USD 3.3 billion.
  • Carbon emissions would be reduced: Especially through the substitution of carbon-intensive resources, 22.9 million tons of CO2 equivalent in 2021 and 13.4 million tons of CO2 equivalent in 2022 would be reduced. 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.

Domestic and clean resources such as wind and solar are the best alternatives to avoid the global energy crisis.

Volkan Yiğit, the Partner at APLUS: The study shows that free market electricity prices in the country would have been lower if higher renewable energy capacity had been installed at the time of the global energy crisis. As the feed-in tariffs for old YEKDEM plants expire, the cost-reducing impact of renewable energy generation will be even more visible. In addition to this contribution, renewable energy will bring multifaceted benefits such as reducing imported fuel dependency, ensuring security of supply and reducing carbon emissions. In this respect, a comprehensive renewable energy strategy and targets should be established in the market to both reduce costs and reap the multifaceted benefits.

Bengisu Özenç, SEFiA Director: In an environment of high inflation globally, increasing the share of renewable energy generation is an important strategy to control inflation, especially during periods of rising global commodity prices. We have already seen hints of this approach in the recently launched The Inflation Reduction Act (IRA) in the United States, which centres on the energy transition. In our study, we have shown that chronically high inflation in Turkey could be 7 points lower if the share of solar and wind increases. In addition, considering that the negative effects of the exchange rate will be limited and the dynamics of the public budget will be relieved thanks to the strengthening of energy independence with the return to solar and wind, it can be said that in the long run, the tax burden will decrease and the indirect increasing effects on purchasing power will increase social welfare.

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