Tariffs are a common method employed by governments worldwide to protect their domestic industries. Imported goods are taxed at fixed or variable rates when being processed at customs so that their prices are higher compared with the same kinds of domestic goods. Different tariff schedules, each containing a list of taxable items, have different formulas for calculating import duties. Ultimately, the goal is to make imports too costly for domestic consumers.
Recently, the government of Turkey has altered its formula for calculating the import duty on photovoltaic (PV) modules in order to encourage solar enterprises to establish local production lines and reduce the share of foreign products in the domestic solar market. Kilogram is now the measurement unit for the formula applied to PV modules instead of square meter that was used previously.
The development potential of Turkey’s solar market is enormous as the country gets plenty of sunshine all year round. The country receives an average of 2,737 hours of sunlight per year (or 7.5 hours per day), according to the data provided by its Ministry of Energy and Natural Resources. This translates to a total generation potential of 1,527kWh/m2 per year.
Hoping to reduce the dependence on fossil fuel imports, the Turkish government in the recent years has adopted renewable energies and introduced policies to stimulate the development of a domestic solar market. Consequently, Turkey’s cumulative installed PV capacity expanded steadily to 5,063MW in 2018. Also, the country’s Energy Market Regulatory Authority (Turkish: Enerji Piyasası Denetleme Kurulu, EPDK) established a net metering scheme to promote installations of 3-10kW rooftop PV systems on residential and commercial buildings. Formally rolled out in 2019, the scheme allows home and business owners to sell the supply of electricity from their rooftop systems to the grid.
The latest changes in the formula for calculating the import duty on PV modules were announced on April 14 and scheduled to come into effect within 30 days. Under the old formula that was in force from May 2017 to this April, the real price of an imported PV module was set at US$300/m2. It is now set at US$25/kg according to the new formula. The dollars-per-kilogram rate is expected to be more effective in discouraging imports and encouraging the growth of domestic solar enterprises.
Hakki Karacaoglan, CEO of German-based KRC Consulting, told PV Magazine that the current rate of the value-added tax (VAT) on imported modules was higher than in 2017. Back then, most modules shipped to Turkey were 270W in power output. Presently, the average output of imported modules is around 370W. In other words, the VAT on imported modules of the standard specifications has actually declined because the output has increased while the size stays relatively the same.
Based on Karacaoglan’s calculation, the VAT on imported modules has fallen from US$0.17/W to US$0.12/W. This drop could thus be a major factor behind the regulatory adjustment. Interestingly, the latest modules featuring higher conversion efficiency are actually heavier than the former standard models by about 3kg on average. The average weight of models that are currently mainstream (i.e., 270-320W) has come to around 19kg. This development might have also prompted the imposition of the new formula for the import duty.
Karacaoglan also pointed out that the Turkish government still has to clarify some of the recent changes in the regulations of module imports. In particular, there is some uncertainty on whether the Surveillance Certificate (Turkish: Gözetim Belgesi) will remain in effect. Domestic companies apply for this certificate to get duty reductions for modules shipped from countries other than China.
Nonetheless, the outlook of Turkey’s solar market is gradually turning more positive due to the government’s initiatives to improve the regulatory regime and support the development of renewable energies. Before, there was little motivation for the Turkish public to invest in rooftop PV systems because of the high upfront costs and the lack of funding assistance. However, the market environment is now much friendlier. The Institute for Energy Economics and Financial Analysis (IEEFA) released a study in December last year that found the payback period for residential PV systems in Turkey has shortened to 11 years from the previous 16 years. The contraction of the payback period has been attributed to the government’s efforts such as the removal of an 18% VAT on PV installations, the reduction of the renovation charge for rooftop PV installations, and the introduction of a subsidy for investing in solar.
(News source: TechNews. Photo credit: Pixabay.)