and Dongfang Electric, have contributed an increasing share of total new installations. Together ...... Han, J., A. P. J. Mol, Y. Lu and L. Zhang (2009). âOnshore ...
Citation:
Erdoğdu, M. M., & Karaca, C. (2017). A Road Map for a Domestic Wind Turbine
Manufacturıng Industry in Turkey. In Renewable and Alternative Energy: Concepts, Methodologies, Tools, and Applications (pp. 46-80). IGI Global.
Chapter 2
A Road Map for a Domestic Wind Turbine Manufacturing Industry in Turkey M. Mustafa Erdoğdu Marmara University, Turkey Coşkun Karaca Cumhuriyet University, Turkey
ABSTRACT Climate change is now widely recognized as the major environmental problem facing the globe. This is due, in large part, to emissions of so called “greenhouse gases”, which mainly result from the production of energy using fossil fuels. In addition to environmental problems, some countries with limited fossil fuel reserves also suffer from energydependency. Turkey, for instance, now imports over 90 percent of its oil and natural gas at an annual cost of approximately $35 billion. Turkey’s dependence on imported energy portends negative effects on both national security and the economy. More investment in renewable energy has thus become vital. In this context, wind energy appears not only to be the most cost-efficient, medium term solution for energy dependency but also for global climate change mitigation. Wind energy has the potential to reduce environmental impacts because it does not generate either atmospheric contaminants or thermal pollution. It also makes economic sense because while the costs of most forms of energy are rising, the costs of wind energy are coming down. This article explores the way in which a strong domestic wind turbine manufacturing industry can be nurtured in Turkey. For this purpose, the paper focuses particularly on some key measures, such as investment subsidies, tax exemptions, corporate financing schemes, and information dissemination. 1. INTRODUCTION The last four decades of twentieth century have been marked by profound industrial growth, which has elevated the overall socio-economic position of many. However, the long-term and indirect negative impacts of this growth, such as climate change, global warming, loss of biodiversity, desertification and other environmental ills, are now increasingly being felt.i The world is getting hotter, weather patterns have become more volatile and more extreme, while the severity of weather-related disasters has escalated.
A Road Map for a Domestic Wind Turbine Manufacturing Industry in Turkey
The scientific consensus is that human-induced greenhouse gas (GHG) emissions are the primary cause of global warming and that carbon dioxide is the most important of the anthropogenic GHGs. Human activities are adding CO2 to the atmosphere far faster than natural processes can remove it. Emissions have been, and continue to be, driven by economic growth. There has been a strong correlation between CO2 emissions per head and GDP per head. The energy sector is by far the biggest source of these emissions. Thus, global climate change mitigation is one of the most significant agendas that the human race faces in the coming decades. Concern about climate change and rising concentrations of CO2 in the atmosphere has sitimulated the search for alternative energy resources. One approach is to switch from fuels with high carbon content per unit of energy, such as coal and oil, to ones with lower carbon content, such as natural gas, but there are limits to such substitutions. Another alternative is to shift away from fossil fuels to renewable energy resources (Benitez et al., 2008: 1973). If we are to tackle climate change successfully, it is clear that we need to move away from burning limited fossil fuel reserves and towards more sustainable and renewable sources of energy. Of the renewable options, wind power appears to be the most important and cost-efficient medium term solution to the problem of climate change and energy security. The generation of electricity by wind energy has the potential to reduce the environmental impacts caused by use of fossil fuels, because, unlike fossil fuels, wind energy does not generate atmospheric contaminants or thermal pollution. It also makes clear economic sense, because, while the costs of most forms of energy are rising, the costs of wind energy are coming down. All over the world nations are developing, which has inevitably resulted in a constantly increasing demand for energy. Hence, many countries and sub-national governments are looking not only to expand their domestic use of renewable energy, but also to develop accompanying local renewable energy technology manufacturing industries to serve that demand. Local wind technology manufacturing may be driven by policy support or by other factors, such as the regional advantages that come from labor and technological expertise which can facilitate learning networks. In this respect, this paper focuses exclusively on the policy mechanisms that governments have at their disposal to encourage wind manufacturing localization. The body of this article is organized as follows. The next section introduces key concepts and discusses the environmental and economic benefits of generating electricity from wind energy. The following section outlines and examines the policy challenges to creating a low-carbon economy and the policy issues involved in promoting wind energy. The fourth section seeks an answer to the question, “How can Turkey rapidly deploy and develop wind energy while also reducing the economic, social, and environmental risks?” The concluding section discusses some of the implications for the design of a policy for Turkey. 2. SUSTAINABLE DEVELOPMENT AND THE SOCIO-ECONOMIC BENEFITS OF WIND ENERGY The scientific evidence points to increasing risks of serious, irreversible impacts from climate change associated with the business-as-usual paths for emissions. Climate change threatens the basic elements of life for people around the world: access to water, food production, health, and use of land and the environment (Stern, 2006). Accelerating the development of new low-carbon technologies and promoting their global application are key challenges in stabilizing atmospheric GHG emissions (Dechezleprêtre et al., 2011). Sustainable development requires a sustainable supply of clean and affordable renewable energy sources that do not cause negative societal impacts. An energy policy for a 47
A Road Map for a Domestic Wind Turbine Manufacturing Industry in Turkey
sustainable future will need to be based on high levels of energy efficiency and greater use of renewable energy. As the importance given to environmental quality has increased in recent years, the energy sector, with its approximately 80 percent role in environmental pollution, has entered into a transformation process. Energy from fossil fuels has major negative impacts on the local environment and human health, however, conventional calculation methods do not include these costs (externalities) within fossil-fueled electricity costs and prices. These costs are imposed on the society and the environment, but are not accounted for by either the producers, or the consumers, of electricity (Parissis, 2011: 5). For example, the dumping of wastes (CO2, sulphure oxide, methane, etc.) can be free for power companies. However these wastes may create some costs for society such as diseases, acid rains and global warming. As countries strive to develop clean and secure energy systems, wind energy is emerging as a cornerstone of new energy systems. This is because wind-generated electricity is produced without emitting carbon dioxide, the greenhouse gas that is the major cause of global climate change. The lifecycle emissions (including manufacturing of components, construction, operation and decommissioning) from wind farms are about 1% of the emissions created by thermal generation (NZWEA, 2011). The view among many experts is that wind power would already be competitive in most places if conventional energy had not had the benefit of subsidies. In fact, if the costs of fossil fuels reflected the environmental damage they cause, they would actually be much more expensive. Consequently, harnessing the power of the wind has become the fastest growing source of global electricity generation. Figure 1 World Total Installed Capacity of Wind Power (MW)
* The figure is a forecast. Source: WWEA, 2011; WWEA, 2012.
As seen in Graph 1, there is a very high rate of growth pattern in wind industry worldwide. Indeed, during the last ten years wind energy capacity has increased by more than eight times, from 24.332 MW in 2001 to 196.630 MW in 2010 (WWEA, 2011: 6). This growth is partly because of advances in technology and has resulted in the growing reputation of wind power as one of the most cost-effective renewable energy source.
48
A Road Map for a Domestic Wind Turbine Manufacturing Industry in Turkey
Country
Total capacity by June 2012 67.7
Added Growth capacity rate half of 2012 2012 [%] 5.4 9%
Position 2011
Position 2011
Table 1 Top 20 Countries by Total Wind Energy Capacity (GW) (installed) Total capacity end of 2011
2010
2009
2008
2007
1
62.4
44.7
25.8
12.2
5.9
1
China
2
USA
49.8
2.8
6%
2
46.9
40.1
35.1
25.2
16.8
3
Germany
30.0
0.9
3%
3
29.1
27.2
25.7
23.8
22.2
4
Spain
22.0
0.4
2%
4
21.7
20.6
19.1
16.6
15.1
5
India
17.3
1.4
9%
5
16.1
13.0
11.8
9.5
7.8
6
Italy*
7.2
0.5
7%
7
6.7
5.7
4.8
3.7
2.7
7
France**
7.1
0.7
10%
6
6.8
5.6
4.5
3.4
2.4
8
U. Kingdom
6.8
0.8
12%
8
6.5
5.2
4.0
3.1
2.3
9
Canada
5.5
0.2
4%
9
5.3
4.0
3.3
2.3
1.8
10
Portual
4.3
0.0
0%
11
4.3
3.7
3.3
2.8
2.1
17
Turkey***
1.9
0.5
28%
17
1.8
1.2
0.7
0.3
0.2
Rest of the World
35.5
3.2
32.2
29.5
21.7
18.0
14.7
Total
254.0
16.5
237.5
199.7
159.8
120.9
94.0
Notes: * till end of May 2012 ** till end of April 2012 *** the figures for 2012 are forecast Source: WWEA, 2011; WWEA, 2012; EPDK, 2011.
Wind energy is being used extensively in Denmark, Germany, Spain, India and in some areas of the United States of America. Europe has the largest installed wind capacity in the world, with a total capacity of 86 GW (WWEA, 2011: 13-15). However, as seen in Table 1, current growth is being led by China and the US, which accounted for a combined over 65 percent of total growth. Although there are some minor disadvantages to wind energy production, such as bird casualty, noise emission and the visual impacts on landscapes,ii it can be said that with the latest technological improvements the advantages of wind energy far outweigh the disadvantages. 2. 1. Environmental and Health Benefits Electricity generated from fossil fuels has major negative impacts on the local environment and human health. By comparison, wind power would clearly appear to have a positive environmental impact, resulting from the elimination of carbon dioxide and sulfur releases. Thus, the most important gain of wind power utilization is the environmental benefit of displacing fossil fuel usage and the consequent reduction of the adverse environmental impacts caused by fossil fuel consumption (Erdoğdu, 2009: 136768). It is important to recognize that investments in wind energy capacity in a given year will continue to avoid fuel cost and carbon cost throughout the 20 to 25 year lifetime of the wind turbines. Measured gaseous pollutant emissions for various fuel types, such as CO2, CH4, NOx and SO2, are presented in Table 2. The figures shown in Table 2 are based on the life-cycle assessment technique, and indicate gaseous emissions emitted during the whole process.
49
A Road Map for a Domestic Wind Turbine Manufacturing Industry in Turkey
Table 2 Main gaseous pollutants (g/kWh) Fuel type
CO2
CH4
NOX
SO2
Nuclear
17
–
0.047
0.072
Geothermal
21
0.059
–
–
Hydropower
32
0.135
0.056
0.055
Wind Biomass, wood only Solar (PV cells)
38
0.169
0.055
0.071
–
–
0.35
0.087
319
0.883
0.408
0.494
Natural gas
386
1.076
0.351
0.125
Oil
760
4.216
0.622
0.314
Coal
838
4.716
0.696
0.351
burning
Source: Kone and Buke (2007: 5224).
The percentage reduction of environmental impacts of the electricity generation from wind turbines as compared to that produced by fossil fuels can be seen in Table 3. The analysis results shown in the table are obtained from a study carried out in Spain. According to this study, the use of electricity generated by wind provides more than 90 percent environmental benefit when compared to the use of electricity generated by fossil fuels. Table 3 Environmental Impacts of Wind Turbine vs. Fossil Fuels % reduction of environmental impact 98.99% 98.76% 96.73% 89.26% 94.06% 99.34% 92.68% 99.24% 99.28% 97.78%
Impact category Abiotic depletion Global warming (GWP100) Ozone layer depletion (ODP) Human toxicity Freshwater aquatic eco-toxicity Marine aquatic eco-toxicity Terrestrial eco-toxicity Photochemical oxidation Acidification Eutrophication Source: Martínez et al., 2009.
The impact of a wind farm on the local environment is usually minimal as most of the land within a wind farm site can still be used for agriculture and developers can avoid areas with high environmental or ecological values. The area occupied by wind turbines, roads and other structures in a wind farm is small – typically 1 to 3% of a wind farm site (NZWEA, 2011). 2. 2. Energy Security and Self-sufficency Benefits Wind energy represents a secure domestic source of energy that is not subject to the price fluctuations and supply uncertainties of imported petroleum and natural gas. Turkey is heavily dependent on imported energy. As seen in Table 4, in 2010 81.7 percent of the total energy supply was met by imports, while the rest was domestically produced. This dependence costs Turkey over 35 billion dollars a year.
50
A Road Map for a Domestic Wind Turbine Manufacturing Industry in Turkey
Table 4 Net Energy Imports in Turkey (Mtoe) 1990 0.0
2000 0.0
2007 0.0
2008 0.0
2009 0.0
2010
Exports
1973 0.0
0.0
2020 0.0
Imports
0.0
4.2
9.3
16.1
14.6
15.3
15.9
43.5
Exports
0.8
1.9
1.3
6.6
6.6
6.0
7.3
-
Imports
23.1 0.0
30.5 0.0
38.2 0.0
36.7
33.9
36.6
60.2
Exports
9.7 0.0
0.3
0.6
0.6
0.7
Imports
0.0
2.7
12.1
33.1
34.0
32.8
34.8
52.0
TOTAL NET IMPORTS 35.8% 52.6% Source: IEA (2010). Note: The figures for 2020 are forecast.
65.5%
82.5%
80.8%
78.6%
81.7%
69.7%
Coal Oil Gas
Regardless of short-term fluctuations, virtually all international studies of the petroleum industry show substantial demand-supply imbalances during the coming decade, particularly as China and India continue to add tens of millions of new cars to their motorways each year. Sooner or later, prices at the pump will rise considerably and permanently. Hence, it is wise to increase the proportion of electricity that is generated from wind and other renewable energy sources. It seems clearly to be the case, that deployment of wind energy increases both energy security and self-sufficiency. 2. 3. Economic Benefits Environmental, health and energy security benefits of using wind for electricty generation are well understood. Less well understood is how this would create economic benefits. The economic impacts include direct, indirect, and induced impacts. Direct impacts accrue from expenditures in the wind industry. Indirect impacts accrue from the supporting industries as a result of increased demand for their basic goods and services. Induced impacts result from reinvestment and spending by direct and indirect beneficiaries. In some cases, depending on the structure of the local economy, the indirect and induced impacts may be greater than the direct wind industry impacts (Lantz, 2008: 5). It has been estimated that a 10% increase in the wind energy share avoids GDP losses of between $29–$53 billion in the US and the EU, and between $49–$90 billion in the OECD (Awerbuch and Sauter, 2005). One of the significant economic benefits of wind power is that the fuel is free. Therefore, the total cost of producing wind energy throughout the 20 to 25-year lifetime of a wind turbine can be predicted with great certainty (EWEA, 2009: 32). Wind energy also has an advantage over traditional methods of creating energy, in that it is getting cheaper and cheaper to produce. The cost of producing wind energy has come down by at least eighty percent since the eighties. Cost reductions have been achieved by economies of scale and learning effects as installed capacity has grown. The levelised cost of electricity (LCOE) iii of wind has been further reduced as the result of higher capacity factors that have come from increasing turbine height and rotor diameter. It seems that there are still significant amount of room for additional cost reduction. The wind energy sector is making significant improvements not just in the capital cost and performance of its turbines, but also in the ongoing cost of operating and maintaining. A recent announcement by Bloomberg New Energy Finance (BNEF) made it clear that the costs of onshore wind farm operations and maintenance (O&M) continue to fall rapidly. The average operations and maintenance costs since 2008 saw a cumulative decrease of 38%, or just over 11% per year.iv Since O&M costs are only a small part of the overall costs in particular for onshore wind energy, the short-term cost reduction potential for wind is uncertain. Nevertheless, according to the International Renewable Energy Agency (IRENA, 2012), the LCOE of offshore wind could decline by between 8% and 10% by 2015. In the medium-to long51
A Road Map for a Domestic Wind Turbine Manufacturing Industry in Turkey
term, reductions in capital costs in the order of 10% to 30% could be achievable from learning-by-doing, improvements in the supply chain, increased manufacturing economies of scale, competition and more investment in R&D. Thus, wind energy is likely to be the cheapest way to produce energy in the long-term. Table 5 shows a comparison of costs between renewable energy and other energy sources. Table 5 Production Costs of Energy from Different Sources Energy technology Wind onshore Wind offshore Wave Geothermal Hydroelectric CSP Solar PV Tidal Conventional (mainly fossil) generation in US
Annualized cost (∼2007 $/kWh-delivered) Present (2005–2010) $0.04–0.07 $0.10–0.17 ≥$0.11 $0.04–0.07 $0.04 $0.11–0.15 >$0.20 >$0.11 $0.07 (social cost: $0.12)
Future (2020+) ≤$0.04 $0.08–0.13 $0.04 $0.04–0.07 $0.04 $0.08 $0.10 0.05–0.07 $0.08 (social cost: $0.14)
Source: Delucchi and Jacobson (2011: 1175)
The costs quoted in the table represent the upper and lower limits of the direct costs, which occur when obtaining 1kWh energy from renewable and fossil energy resources. However, these costs do not include indirect external costs. It should be kept in mind that cost comparisons are highly subject to fluctuations and that the continuous advances in wind power production technologies may serve to make this cost relationship even more favourable for wind energy in the near future as seen in table 6. Table 6 Estimates of future cost range of WSB electricity options Current ($/kWh)
Short term (2010/2020) ($/kWh)
Medium term (2030) ($/kWh)
Long term (2050) ($/kWh)
Wind
0.05–0.13
0.03–0.08
0.03–0.05
0.03–0.10
Solar-PV
0.25–1.25
0.25–0.40
0.15–0.30
0.06–0.25
Biomass
0.05–0.10
0.03–0.08
0.03–0.04
0.03–0.10
Source: De Vries et al. (2007:2598).
The estimated cost of wind power varies significantly, depending on the capacity factor, which in turn depends on the quality of the wind resource and the technical characteristics of the wind turbines (IRENA, 2012: 47). The installed capital costs for wind power systems vary significantly depending on the maturity of the market and the local cost structure. China and Denmark have the lowest installed capital costs for new onshore projects of between USD 1 300/kW and USD 1 384/kW in 2010. The capital costs of wind energy projects are dominated by the cost of the wind turbine itself (ex works). Wind turbines account for 64% to 84% of total installed costs onshore, with grid connection costs, construction costs, and other costs making up the balance. Operations and maintenance costs (O&M) can account for between 11% and 30% of an onshore wind projects levelised cost of electricity (LCOE). O&M costs for onshore wind 52
A Road Map for a Domestic Wind Turbine Manufacturing Industry in Turkey
farms in major wind markets averages between USD 0.01/kWh and USD 0.025/kWh (IRENA, 2012: i). The total cost per kW of installed wind power capacity differs significantly between countries. The average cost structure of a typical 2 MW wind turbine in Europe is shown below in Table 7. Table 7 Cost structure of a typical 2 MW wind turbine installed in Europe
Turbine (ex works) Grid connection Foundation Land rent Electric installation Consultancy Financial costs Road construction Control systems Total Source: EWEA (2009: 30).
Investment ($1.000/MW) 1.174 138 101 61 23 19 19 14 5 1.553
Share of Total Cost % 75.6 8.9 6.5 3.9 1.5 1.2 1.2 0.9 0.3 100
Figure 2. Calculated costs per kWh of wind generated power as a function of the wind regime 14.00
$1,390/kW
12.00
$1,780/kW
US cent/kWh
10.00 8.00 6.00 4.00 2.00 0.00
Low wind areas 1,500
1,700
1,900
Medium wind areas 2,100
2,300
2,500
Coastal areas 2,700
2,900
Number of full load hours per year* * Full load hours are the number of hours during which the turbine would have to run at full power in order to produce the energy delivered throughout a year (i.e. the capacity factor multiplied by 8,760). Source: (Krohn et al., 2009: 9).
It needs to be pointed out that latest technology larger turbines are very cost-effective. For example, whereas the average cost for 95 kW turbine is about 11.5 US cent /kWh this average cost decreases to around 6.6 US cent /kWh for a new 2000 kW machine (more than 40% improvement in constant 2006 prices). When the specific cost of energy is used as a basis (per kWh production cost) the estimated progress ratios are founded as ranging from 0.83 to 0.91 and it corresponds to 0.17 to 0.09 learning rates. This means that when a wind power has double total installed capacity, per kWh production cost for new turbine decreases by 9 and 17%.
53
A Road Map for a Domestic Wind Turbine Manufacturing Industry in Turkey
This data belongs to European Wind Energy Association member countries. However factors affecting the purchasing power parity and production costs of countries change wind turbine costs of some countries and so the costs of wind energy production changes. One of these countries is China and it has relatively lower industrial production costs than other countries. In recent years China makes investments in wind turbine production and wind energy and by the end of 2010 average turbine cost decreased to 3500 Yuan/kW,v which is almost half of the cost in European countries (Kang et. Al. , 2012). Majority of fossil fuels are extracted in politically instable regions and this makes fuel price unpredictable and volatile. Researchers state that conventional and cheap oil supplies begin to be used up and in order to increase the oil supply, lower quality resources should be exploited. Thus, it is expected that fossil fuel prices are likely to be much higher in the future (Murphy and Hall, 2011: 52). Wind power has not only a fuel price volatility reducing effect but also a balancing effect that will contain fossil fuel prices in a certain level. Another important economic benefit of wind energy is that its utilization leads to a decline in oil import expenses reducing the balance of payments deficit. Denmark is a good example in this respect. Denmark experienced massive unemployment combined with severe balance of payments deficits in the economic crisis of the 70s and 80s. However, an active Danish energy policy, with a focus on sustainable energy and employment, succeeded in stabilising the primary energy supply while maintaining economic growth and developing a growth in exports related to sustainable energy. The Danish export of green energy technologies has increased year by year and it is now a major factor in the Danish economy. From being a burden to the Danish economy, the energy sector today makes a positive contribution to the GDP (Lund, 2011). Such a contribution is not limited to the Danish economy. In 2010 the wind energy sector contributed to European Union’s GDP $40.74 billion both directly and indirectly. This amount corresponds to 0.26% of the EU’s total GDP for that year. The wind energy industry has also made a high contribution to taxes. In 2010 tax payments of wind energy companies reached to $4.51 billion. These taxes are mostly income and corporate taxes but they also include regional and local taxes, and property taxes. Since 2007 tax payments of wind industry have increased by over 50% (EWEA, 2012: 5-6). It is also important to recognize that production of wind turbines provides a possibility for exporting wind turbines and earning foreign currency in the future. Clearly, applying such a strategy would eventually help to reduce the foreign trade deficit. One of the most important benefits results from wind energy utilization and particularly wind turbine manufacturing is the creation of new jobs. Wind energy utilization creates many more jobs than centralized, non-renewable energy sources. As Mostafaeipour (2010: 1056) points out, since a number of activities (construction, operation and maintenance, legal and environmental studies) are best dealt with at local level, there will always be a positive co-relation between the location of the wind farm and the number of jobs it creates. Thus, preferring wind over fossil fuels for the energy production means creation of additional jobs and this would have not only economic but also social benefits. According to the New York State Energy Office, wind energy systems create 25–70 percent more jobs than conventional power plants producing the same amount of electricity. Several recent analyses show that the job creation potential related to new wind developments looks something like a pyramid: 70 percent of the potential job creation is in manufacturing the components, 17 percent in the installation, and 13 percent in operations and maintenancevi (Sterzinger and Svrcek, 2004: 46). The worldwide number of direct and indirect jobs created in the various branches of the wind sector almost tripled within five years from 235 000 in 2005 to 670 000 in 2010 (WWEA, 2011: 10).
54
A Road Map for a Domestic Wind Turbine Manufacturing Industry in Turkey
Table 8 and Table 9 below present the number of individuals employed as a result of wind turbine production in eight different countries and regions. These tables show the positive effects of 50 MW and 100 MW wind energy plants on the economy during their construction and operating periods. Some of these effects are induced investment and income effects, which occur during the procurement period and are due to an increase in the employment level resulting in an increase in salary income. Table 8 Economic Impacts from the Development of Wind Power Plants during the Construction Period
Estimated Number of Full-Time Equivalent Jobs Opportunities
Project Development & On-Site Labor Onsite Construction and Interconnection Labor Onsite Construction-Related Services
Project Size (MW) 50 MW 100 MW 55 66 51
60
3
6
Turbine & Supply Chain
162
308
Induced Impacts
68
123
Total Impacts
285
497
Product Development & On-site Labor Onsite Construction and Interconnection Labor Onsite Construction-Related Services
$3.152.379
$3.813.278
$2.981.290
$3.482.059
$171.089
$331.219
Turbine & Supply Chain
$5.882.700
$11.154.355
Induced Impacts
$2.180.537
$3.941.318
Total Impacts Project Development & On-site Labor Turbine & Supply Chain
$11.215.616 $3.524.961 $20.449.141
$18.908.951 $4.534.578 $38.867.961
Induced Impacts
$7.151.051
$12.925.514
Total Impacts $31.125.152 Note: Due to rounding, numbers in the tables may not sum accurately. Source: Ratliff et al., 2010, p. 14-15.
$56.328.053
Estimated Annual Wage and Salary Earnings
Economic Output from Wind Park Development
The estimated number of full-time equivalent jobs opportunities in Table 8 depicts some of the broader state-level effects, such as manufacturing and construction assets, not necessarily available locally. It does not include the job opportunities that could result from state education and training programs used to promote wind energy professional development and the increased economic resource base of the country. Construction of a 50-MW installation would support 55 job opportunities derived from project development and on-site requirements at a wind project, 51 of which are in construction. The total job opportunities, including turbine and supply chain and induced effects, would total 285. Estimated Annual Wage and Salary Earnings gives the projected wages and salary earnings during the construction and operation period. For example, a 50-MW installation would produce total wage and salary earnings of approximately $11.2 million during construction. The total Estimated Economic Output from Wind Park Development in Table 8 shows the total projected increase in economic activity due to wind project installation and operation. Total impacts are broken down into total project development and on-site labor, turbine and supply chain impacts, induced impacts during construction and annual on-site labor, local revenue and supply chain impacts and induced impacts during operation. To illustrate, a 50-MW installation is projected to generate approximately $31.1
55
A Road Map for a Domestic Wind Turbine Manufacturing Industry in Turkey
million in economic activity for the region during the construction period (Ratliff et al., 2010: 14-15). Table 9 Economic Impacts from the Development of Wind Power Plants during Operating Years (annual)
Estimated Number of Full-Time Equivalent Jobs Opportunities Annual Wage and Salary Earnings
Economic Output from Wind Park Development
Onsite Labor Impacts Local Revenue & Supply Chain Impacts
Project Size (MW) 50 MW 100 MW 2 6 5 9
Induced Impacts
11
21
Total Impacts
17
36
Onsite Labor
$141.898
$381.658
Local Revenue & Supply Chain
$166.636
$343.836
Induced Impacts
$344.616
$672.038
Total Impacts On-site Labor Local Revenue & Supply Chain
$653.151 $141.898 $1.979.307
$1.397.532 $381.658 $3.876.196
Induced Impacts
$1.130.167
$2.203.943
Total Impacts $3.251.373 $6.461.797 Note: Due to rounding, numbers in the tables may not sum accurately. Source: Ratliff et al., 2010, p.14-15.
Table 9 reflects the economic gains gathered from the process of operating a wind energy plant. During operating years, the wind park would produce two job opportunities on-site, with a total on-site, supply chain and induced impact of 17 job opportunities. Estimated annual wage and salary earnings are approximately $653.000 and the total economic activity generated is about $3.25 million. According to Table 8 and Table 9, a 50 MW wind energy plant would generate employment for 302 people during the construction and operating period, while the number of employed people increases to 533 during the construction and operating period of a 100 MW wind energy plant. However, the income that is obtained through domestic production of wind turbines and their components is much higher than the income obtained by employing workers during the construction and operating periods of these plants. The income amounts to the number of employed people during the operating period of the wind energy plants (17 people in a year on a 50 MW plant), while the number of employed people increases to ten thousand during the production process of the components which are used in these plants. The creation of new jobs has a dual effect on the national economy. Due to the additional jobs that are created, the country benefits from both the income tax collected and the allowances for unemployment that are avoided. The value added tax (VAT) from the equipment represents another benefit for the national economy (Parissis, 2011: 5). 3. POLICY CHALLENGES FOR THE PROMOTION OF WIND ENERGY Danish, German and Spanish wind turbine manufacturers have been playing a leading role in many global wind markets. However, the dominance of frontier countries is waning as developing countries, like China and India, with larger exploitable wind resources and higher demand for electricity, are gaining ground. Countries that were not part of the first group of innovators have used different strategies to foster the development of their own domestic wind turbine industry. These strategies have included establishing joint ventures for transferring turbine technology and creating 56
A Road Map for a Domestic Wind Turbine Manufacturing Industry in Turkey
incentives or mandates for overseas manufacturers to establish manufacturing facilities within their borders (Lewis and Wiser, 2007: 1844-45). Many countries aspire to create a locally owned, domestic renewable energy manufacturing industry with the goal of eventually exporting their products overseas and tapping into the expanding global market. However, financial and regulatory systems have evolved in order to promote the development and use of fossil fuels and these often discriminate against the use of renewable technologies. Thus, the next section will firstly seek to evaluate the policy challenges in creating a low carbon economy. 3. 1. Policy Challenges in Creating a Low-carbon Economy While most renewable fuels are free, renewable energy projects have high up-front costs. A number of factors combine to make many renewable energies more expensive than conventional energy. Distortions resulting from unequal tax burdens, existing subsidies and the failure to internalize all the costs and benefits of energy production and use, can erect high barriers to renewable energy (Sawin, 2004: 1). Current energy markets, as indicated by Mah and Hills (2009) are biased against renewable energies because of the “lock-in” effect of the established technologies.vii As the conventional energy technologies are already mature and have achieved economies of scale, it is often difficult to achieve a short-term transition to renewable energy sources. The big challenge for the wind energy industry has been to make the cost of clean energy competitive with heavily-subsidised conventional energy. Recent research from Bloomberg New Energy Finance reveals that governments are spending substantially more on subsidizing dirty forms of energy than on renewable energies. In fact, support for cleaner sources is dwarfed by the help the oil, coal, and other fossil fuel sectors receive. Government subsidies to renewable energy came to about $45 billion worldwide, compared to more than $550 billion spent to subsidize fossil fuels around the globe (BNEF, 2010). Cost barriers range from the cost of technologies themselves, the lack of access to affordable credit and the costs of connecting with the grid and transmission charges, which often penalize intermittent energy sources. Import duties on renewable technologies and components also act to make renewable energy more costly (Sawin, 2004: 1). For the most part, the barriers that exist in developing countries are similar to those in the industrial world. However, specific national characteristics, particularly within the developing world, can play an important role in determining barriers from one country to the next. Additional barriers in many developing countries include poor transport and communication infrastructure, lack of trained personnel, and low literacy rates. Moreover, the perceived risk of investing in renewable energy projects in developing countries is high, owing to uncertainties about political, regulatory, and market stability (Mendonça, 2007). The issues related to the intellectual property rights (IPRs) may also constitute a potential barrier to new technology deployment in recipient countries due to competition concerns. Many multinational firms withhold the key technical know-how of turbine component and put constraints on local employees to information disclosure (Li, 2010: 1161). 3. 2. Policies for the Promotion of Renewable Energies It is best to make a distinction between the use of renewable energy and the local production of renewable energy equipment and components. Although a general promotion of renewable energy may lead to domestic production of related equipment and components, there is not always a causal relationship. This is because market forces do not provide a level playing field for new industries, not to mention the “lock-in” effect of 57
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the established industries. In short, there needs to be a strong push for a new industry to emerge and prosper. Lewis and Wiser (2007: 1850) point out that policy measures are what national and subnational governments have at their disposal to encourage wind manufacturing localization and that an identification of these measures may assist policymakers as they examine ways to encourage domestic manufacturing of wind turbines or components. As revealed in several in depth studies, such as Sawin (2001) and Mizuno (2007), government policy has been central to successful wind energy technology development and diffusion at the technological frontiers of both Denmark and Germany. Mizuno (2007: 348) states that “the monetary value creation and rewarding policy, which creates favorable policy/institutional sensitivity factors (revenue sources, fiscal measures, costs of financing, purchase agreements) in projects finance mechanism, served the market development, hence technology inducement, most effectively in the case of wind energy.” The core objective of strategies to foster RES–E is the substitution of sustainable energy use for non-sustainable energy forms, and thus a wider deployment of (active) RES capacities. Therefore, the major focus must always be to trigger investment in new capacity. But the maintenance, upgrading, and improvement of existing capacities has also to be borne in mind. Objectives derived from this core objective are: (i) to stimulate technological progress; (ii) to trigger learning effects with respect to investment costs; to minimise administration and transaction costs; to maintain public acceptance regarding RES technologies (Haas et al., 2004: 838). Policy measures to support wind industry development can be grouped into two categories: direct and indirect measures. Direct measures refer to policies that specifically target local wind manufacturing industry development, while indirect measures are policies that support wind power development in general and, therefore, indirectly create an environment suitable for a local wind manufacturing industry (Lewis and Wiser, 2005). The next section will present and examine a range of direct measures. The main instruments for promoting renewables are feed-in tariffs, quota obligations, tenders and (energy) tax exemptions. In most cases countries decide for one of these instruments and connect this with other political instruments such as subsidy programs (which are sometimes financed by the revenue of energy taxes), soft loans, tax allowances, exemptions for renewables from energy taxes, information campaigns, etc (Reiche and Bechberger, 2004: 846). The debate on the promotion of RES focuses most on the comparison between pricedriven, (e.g. feed-in tarriffs, FITs) and capacity-driven (e.g. Tradable Green Certificatebased quotas, TGC) strategies, These two approaches aim at the same target, but start from different points: in the first case the price is set and the quantity is decided by the market; in the second case (which includes TGC-based quotas and bidding procedures) the quantity is set and the price is decided by the market (Haas et al., 2004: 839). 3. 2. 1. Direct Policies for the Promotion of Renewable Energies National support and policy mechanisms play a crucial role in promoting domestic wind industry (Li, 2010: 1161).There are a variety of policy alternatives which could directly favour domestic production of wind power technology. These alternatives and the countries in which they are employed are listed in Table 10.
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Table 10 Direct Support Policies for Wind Turbine Production Direct Policy Local Content Requirements Financial and Tax Incentives Favorable Customs Duties Export Credit Assistance Quality Certification R&D
Implementing Countries Spain, China, Brazil, Canadian States Canada, Australia, China, American States, Spain, Germany, Denmark Denmark, Germany, Australia, India, China Denmark, Germany Denmark, Germany, USA, Japan, India, China in different ways, all countries - especially Denmark, Germany, USA and Netherlands
Source: EMSAD, 2009.
3.2.1.1. Local Content Requirements, Preference or Incentives for Local Content One direct way to promote the development of a local wind manufacturing industry is by requiring the use of locally-manufactured technology in domestic wind turbine projects. A common form of this policy requires a certain percentage of local content for wind turbine systems installed in some, or all, projects within a country. Such policies force wind companies interested in selling to a domestic market to look for ways to shift their manufacturing base to that country or to outsource components used in their turbines to domestic companies. As Lewis and Wiser(2005) suggest, preference for local content and local manufacturing can be encouraged, without being mandated, through the use of incentives. This can include, awarding developers that select turbines made locally with low-interest loans for project financing, providing wind companies that relocate their manufacturing facilities locally with preferential tax incentives, or subsidies on wind power generated with locally-made machines. For example, China, which has currently the largest capacity installed, launched wind farm concession projects in 2003 to promote large-scale commercialization of wind farms with a guaranteed grid-connection tariff, determined by tendering process (Li, 2010: 1159). One of the conditions set for the eligibility of a project for concessions was local content requirement. According to this condition, at least 50% turbines should be made domestically (revised to 70% from the second stage of concession projects) in order to support and encourage the domestic wind turbine industry (Li et. al., 2007; Qin, 2006). 3.2.1.2. Favourable Customs Duties Another way to create incentives for local manufacturing is through the manipulation of customs duties to favour the import of turbine components over the import of entire turbines. This creates a favourable market for firms trying to manufacture or assemble wind turbines domestically by allowing them to pay a lower customs duty on imported components than companies that are importing full, foreign-manufactured turbines. This type of policy may be challenged in the future, however, as it could be seen as creating a trade barrier and therefore illegal for WTO member countries to use against other member countries (Lewis and Wiser, 2005). 3.2.1.3. Investment Subsidies Investment subsidy is a grant for the installation of capacity. As Mizuno, 2007: 349) points out, investment subsidies in its early years can be an effective means of kick-starting the market. For example, the Danish government put in place a system of fixed incentives in 1985 in order to favour early development by independent investors in cooperation with local communities. These lasted for almost 20 years.
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3.2.1.4. Financial Incentives Financial incentives come with stipulations, such as minimum investment amounts, qualifying system requirements and maximum limitations on the amount of the incentive. Incentive structures may be broadly classified in terms of their payment basis, or in terms of their payment timing. Payments may be based on installed system capacity, expected performance or actual performance. Financial incentives of various forms, whether based on electrical production, or capital investment, and whether paid as a direct cash incentive, or as a favorable loan program, can also be used to encourage renewable energy development. 3.2.1.5. Tax Incentives Tax incentives can take the form of a tax credit, a cash payment, an exemption from tax obligations, or a low VAT rating. Tax incentives can come in many forms and can also be used to support local manufacturing. These incentives may take the form of capital- or production-based income tax deductions or credits, accelerated depreciation, property tax incentives, sales or excise tax reductions and VAT reductions. In the 1990s, as Lewis and Wieser (2007: 1855) give an example, India’s market was driven in large part by a variety of tax incentives, including 100 percent depreciation of wind equipment in the first year of project installation combined with a 5-year tax holiday. China has VAT reductions and income tax exemptions on electricity from wind, and a number of other countries have also used, or continue to use, a variety of tax-based incentives. As with financial incentives, tax-based incentives are generally found to play a supplemental role to other policies. 3.2.1.6. Quality Certification and Testing Programs A fundamental way to promote the quality and credibility of an emerging wind power company’s turbines is through participation in a certification and testing program that meets international standards. For example, the turbine testing and certification requirements, which were originally targetted to support high-quality technology development, have played significant multiple roles in Denmark. They have been effective in: 1) eliminating the abuse of the government incentives; 2) deterring the entry of low quality firms into the industry by working as an institutional-technical barrier for business entry, while eliminating the existing low quality firms. Similarly, the quality assurance measures, such as turbine certification and project guidelines, contributed significantly to technological capability building and induced the elimination of low quality firms in India (Mizuno, 2007: 352). 3.2.1.7. R&D Support and Demonstration Programs Many studies have shown that the sustained public support of research on wind turbines can be crucial to the success of a domestic wind industry. R&D is often most effective when there is some degree of coordination between private wind firms and public institutions, such as national laboratories and universities. Particularly in the case of wind turbine technology, demonstration and commercialization programs can play a crucial role in testing the performance and reliability of new domestic products before these turbines go into commercial production (Lewis and Wiser, 2005). 3. 2. 2. Indirect Policies for the Promotion of Renewable Energy Success in a domestic market has been demonstrated to be an essential foundation for success in the international market-place and is the arena in which governments can most easily act to promote their own economic interests (Connor, 2004). Fundamental to growing a domestic wind power industry is a stable and sizeable domestic market for wind power. The policies discussed below aim to create a demand for wind power at the domestic level. 60
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3.2.2.1. Feed-in Tariffs A feed-in tariff (FIT) is an energy-supply policy focused on supporting the development of new renewable power generation. Feed-in tariffs (feed-in laws) offer renewable energy developers a guaranteed power sales price, coupled with a purchase obligation by electric utilities. Standardized interconnection requirements for renewable generators are also a common and important component of feed-in tariffs (Wiser, 2002: 2). Feed-in tariff systems are characterized by a specific price, normally set for a period of several years, which must be paid by electricity companies, usually distributors, to domestic producers of green electricity. The additional costs of these schemes are paid by the suppliers of conventional energy forms, in proportion to their sales volume, and are passed through to the power consumers by a way of a premium on the kWh end-user price. A variant of the feed-in tariff scheme is the fixed premium mechanism. Under this system the government sets a fixed premium or an environmental bonus, paid above the normal spot electricity price to wind energy generators. Feed-in tariffs often include "tariff degression", a mechanism through which the price (or tariff) ratchets down over time. This is done in order to track and encourage technological cost reductions. The goal of feed-in tariffs is ultimately to offer cost-based compensation to renewable energy producers, providing the price certainty and long-term contracts that help finance renewable energy investments (Krajačić, Duić, and Carvalho, 2010: 3). Feed-in tariffs are dependent on the level of the fixed price determining the amount of new renewable capacity that will actually be brought on-line. If the feed-in tariff is highly attractive when compared to renewable energy costs, substantial amounts of renewable energy might be developed. However, the level of the fixed price must be carefully set in order to ensure that the costs of the overall policy do not exceed the benefits. Conversely, If the feed-in tariff is not attractive little development might occur (Wiser, 2002: 9). Stepping FITs (e.g. by decreasing the FITs over time according to the expected learning curve and economies of scale and scope effects of both new renewable and conventional energy technologies, and/or the discriminating of the feed-in tariffs according to some technology performance indicators) can lead to comparable cost reductions with FITs (Haas et al., 2004: 838).viii Recent experience from around the world suggests that feed-in tariffs, or what are now called renewable tariffs, are the most effective and efficient support policy in establishing the rapid and sustained deployment of wind energy (Lauber, 2005; Couture and Gagnon, 2010; Haas et al., 2011). According to Krajačić, Duić, and Carvalho (2010: 3), feed-in tariffs have made Spain, Denmark and Germany three of the most successful countries in the public promotion of electricity from wind energy sources. However, as Reiche and Bechberger (2004: 847) suggest, it is questionable to suppose that there is a ‘‘natural’’ superiority of feed-in tariffs. Because some countries like Finland and Greece with feed-in tariffs are not very successful in the wind energy sector. This shows that success depends on the specific construction of the tool. 3.2.2.2. Utility Quota Obligation Utility Quota Obligation generally called as renewables portfolio standard (RPS), renewables obligations or quota policies. A standard requiring that a minimum percentage of generation sold or capacity installed is provided by renewable energy. Obligated utilities are required to ensure that the target is met (REN21, 2012). Under an RPS, a country or state requires all utilities or retail suppliers to purchase a certain amount of renewable energy. Many design variations of an RPS are possible and this policy may be used in conjunction with other policies, such as a tendering auction, or a public benefits fund. In its most common form, this policy requires that a fixed percentage of electricity in each retail suppliers’ portfolio be generated by renewable resources, though clearly the 61
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actual policy design can be tailored to meet specific domestic markets (Lewis and Wieser, 2007: 1854). Both feed-in tariffs and RPS are government-mandated policies designed to create a market for renewable energy. However, unlike the feed-in tariff, the RPS is a quantitybased policy that establishes a target quantity of renewable energy to be included in the electricity mix by a specific date. An RPS also specifies who is responsible for obtaining that renewable energy and defines the penalties for non-compliance. Trade within RES quotas are usually modelled with spot markets. However, as Haas et al., (2004: 838) suggests this seems to be inappropriate since long-term investments in RES power plants will be secured by long-term power purchase contracts in most cases. A well-designed RPS can be extremely effective in bringing new renewables on-line, while a poorly designed RPS can have little or no effect on new renewable development. As experience shows there are several design factors that seem to dictate the success of an RPS in spurring new renewable development. Some of the key factors present in a successful RPS include appropriate target levels, renewable targets that are long lasting and increase over time, strong and effective enforcement with appropriate penalty levels and output-based generation targets (Wiser, 2002: 3). 3.2.2.3. Tradable Renewable Energy Certificate (REC) Certificates provide a tool for trading and meeting renewable energy obligations among consumers and/or producers, and also a means for voluntary green power purchases. They operate by offering 'green certificates' for every kWh or MWh generated by a renewable producer. Under the green certificate system RES-E is sold at conventional power-market prices. In order to finance the additional cost of producing green electricity and to ensure that the desired green electricity is generated, all consumers (or in some countries producers) are obliged to purchase a certain number of green certificates from RES-E producers according to a fixed percentage, or quota, of their electricity consumption/production. Penalty payments for non-compliance are transferred either to renewable research development and demonstration funds or to the general government budget (Krajačić, Duić, and Carvalho, 2010). As Haas et al., (2004: 838) indicates, trade in certificates will not contribute to national CO2-reduction unless it is closely co-ordinated with an emission quota-system—even then it is the emission quota which gives the CO2reduction. 3.2.2.4. The Tendering System Another approach employed to promote electricity from renewable sources is the tender system developed in the UK. Tendering policies are a variation of feed-in tariffs and renewable portfolio standards, the key difference being that the price and the eligible projects are selected through a competitive bidding process (Krajačić, Duić, and Carvalho, 2010). Like feed-in tariffs, tendering policies guarantee to purchase the output of a qualifying renewable energy facility at a specified price for a specified period of time. The differences between these two policies are how the price is set and which renewable energy generators can participate. While the feed-in tariffs set a price and guarantee to purchase the renewable energy output from any eligible facility at that fixed price, a tendering policy uses competitive bidding to select the projects that offer the best price. These projects are then awarded power purchase agreements for their output. Through the competitive bidding process, renewable developers submit proposals to build new renewable generation facilities and indicate the price they would accept for their output. The lowest priced renewable energy projects are then selected with a guarantee to purchase all their output. As with feed-in tariffs, this guaranteed power purchase agreement helps reduce investor risk and also helps the project secure financing. Similarly, the amount of power acquired may depend upon the prices bid (i.e., the cheaper 62
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the bid prices, the more that can be purchased). However, this strategy can also be combined with a mandatory quantity requirements and with a ceiling on acceptable bid prices (Wiser, 2002: 5-6). The key to the success of tendering policies is their ability to reduce the costs over time of renewable energy development. However, government tendering programs have historically not provided long-term market stability, or profitability, due in part to the often uncertain, or long, lead times between tenders and the fierce competition among project developers to win the competitive process (Lewis and Wieser, 2007: 1854). 4. IMPERATIVES FOR CREATING A DOMESTIC WIND TURBINE MANUFACTURING INDUSTRY IN TURKEY: LESSONS FROM SEVERAL COUNTRIES As an energy dependent country, Turkey needs energy supply security and the country’s current energy mix is not suitable for sustainable development. Thus, Turkey today faces a formidable challenge: to transform the economy from being driven primarily by fossil fuel sources of energy to becoming an economy that can function effectively through renewable energy sources. Turkey’s geographical location has several advantages for the extensive use of most of these sources and, among these, wind energy appears to be the most cost-efficient medium-term energy alternative. Since Turkey’s energy demand and, consequent, import increases day by day, producing electricity from wind may provide huge benefits. In particular, by producing wind turbines using domestic components, Turkey may be able to reduce the production costs of windgenerated electricity. Low-cost production of turbines based on domestic components would also promote the wide-spread use of wind energy within Turkey. Such an investment would not only decrease Turkey’s energy dependency, but would also help the country to gradually gain competitive advantage in the wind industry, through low-cost production. Eventually, Turkey could earn important amount of foreign currency in this sector, which would help to decrease the current account deficit. Such a policy would create significant positive effects, primarily on environmental quality, employment, the balance of payment deficit and the budget deficit. Currently, Turkey does hardly have a domestic wind turbine manufacturing industry. It has, however, a good potential to create one, if its performance in the automotive industry is taken into account. There is already a large automotive industry supplier net, which is likely to accelerate the establishment of a domestic wind industry because the industry can utilize the supply chain. As of 2011, Turkey is the 6th largest motor vehicle producer in Europe and the 17th largest producer in the World. With a cluster of car-makers and parts suppliers, the Turkish automotive sector has become an integral part of the global network of production bases, exporting over $22,944,000,000 worth of motor vehicles and components in 2008 (OICA, 2012). Although being a late comer has its own disadvantages, it also has some advantages. It can learn from past experience, avoid some of the policy missteps of the past and has an opportunity to “leapfrog” directly to cleaner and more efficient technologies. According to the Renewables Global Status Report, there is a very high rate of growth in wind industry world-wide. Wind power added capacity during 2011 has been 40GW, which means 16.8 percent above a year ago, despite continuing world recession (REN21, 2012: 97). This situation shows the potentials that the industry may offer for the countries, which are serious to produce wind turbines for the global market. This paper suggest that if Turkey want to be a leading country in the future, should have a wind turbine manufacture industry with the ultimate aim of producing for the global market. Krohn (1998) underlines the point that countries with lower wage rates expect to be able to realize cost savings through domestic manufacturing of wind turbines, when compared to countries with higher wage rates. This cost reduction is potentially significant for those turbine components that are particularly labor intensive, like rotor blade manufacturing. According to Lewis and Wiser (2007: 1846), local manufacturing of wind turbines, or wind 63
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turbine components, can potentially reduce costs through 1) a reduction in labor costs; 2) a reduction in raw materials costs; and 3) a reduction in transportation costs. The improved servicing and response times that come from local manufacturers may further reduce costs and/or improve operations. When we talk about advantange of low wages, the countries that will most likely to benefit from this advantage are obviously China and India. This is mainly because these countries have such a large army of workers that wages can not go up as rapidly as it happenned in some small economies like Singapore and Hong Kong. But it is important to recognize that low wages is just a part of competitive advantage. It is evident that there are small countries with very high wages, such as Denmark, Switzerland, Belgium, and Nederland that are very competitive. There are also some late industrialized countries, such as South Korea and Taiwan, which are currently suffer from high wages but nevertheless are very competitive. Thus, it is imperative that we must recognize there are other factors, which make an economy highly competitive. It is well documented that the role of governance by the state was crucial to be very competitive in South Korea and Taiwan.ix The same situation can easiy be observed in China today. It would be wrong to state that China is growing fast because of low wages. Because there are countries with lower wages than China, but they have lagged behind in terms of average growth rate in the last two or three decades. Besides, the performans of China in terms of installed capacity of wind energy is very telling. As seen in Table 1, while China was no where near to catch up frontier countries in 2007, it managed to become the world number one in terms of installed capacity in 2010. Such an incredible leap forward can not be explained by market dynamics but by state targeting and careful governing of the market. We will briefly outline below how this could happen in China. Although China is different in many ways to be a pattern-setter for late comer countries like Turkey, we believe its example provides important lessons to benefit for late comers to catch up frontier economies. China has been taking considerable steps to shift to a low-carbon growth strategy based on the development of renewable energy sources. The country's 11th Five-year Plan (2006-2010) allocated a significant share of investments to green sectors, with an emphasis on renewable energy and energy efficiency (UNEP, 2012). Passed in 2005, China’s Renewable Energy Law has served as the principal framework for development of the sector. The law offered a variety of financial incentives, such as a national fund to foster renewable energy development, discounted lending and tax preferences for renewable energy projects, and a requirement that power grid operators purchase resources from registered renewable energy producers. The combination of investments and policy incentives has encouraged major advances in the development of both wind power and solar power (UNEP, 2012). The result has been spectacular. The additional generating capacity from wind power has exhibited an annual growth rate of more than 100 per cent from 2005 to 2011 and China led the world in added capacityx (REN21, 2012: 1004). To directly encourage local wind turbine manufacturing, Chinese state has implemented policies to encourage joint-ventures and technology transfers in large wind turbine technology and mandated the use of locally made wind turbines. The Ministry of Science and Technology has subsidized wind energy R&D expenditures at varied levels over time, beginning most notably in 1996 with the establishment of a renewable energy fund. Domestic wind turbine makers, such as Sinovel Wind, Goldwind Science and Technology, and Dongfang Electric, have contributed an increasing share of total new installations. Together they accounted for at least half of a market dominated by foreign firms until 2008 (UNEP, 2012).
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In developing countries, India is another illustrative example of fast wind energy development, both in terms of domestic capacity installation and international market consolidation. In 2008, cumulative installed capacity reached 9.6 GW, more than 40-fold relative to 2000. The national leader Suzlon is the world’s fifth largest turbine manufacturer and has also well established in the international wind market beyond India, operating in 20 countries around the world. Like China, the role of government was crucial for fast wind energy development in India (Li, 2010: 1161). Regardless of the motivations, benefits, and barriers to local wind turbine manufacturing, countries hoping to play a leading role in the wind manufacturing industry need to develop a stable and sizeable domestic market for wind power utilization. As David (2010) points out, most leading wind turbine manufacturers are from countries with significant domestic wind power development and most have been very successful in their home markets.xi In 2009, at least two Europe-based OEMs were among the top three suppliers of wind turbines in eight of the ten largest markets. Vestas (based in Denmark) and Enercon (Germany) supplied wind turbines to the largest number of markets. U.S.-based General Electric Co (GE) was the world’s second largest supplier in 2009, primarily due to its strong presence in the U.S. market (an estimated 84 percent of turbines supplied by GE were to the U.S. market). However, GE and many European OEMs lost global market share in 2009 as a result of the rapid growth of the Chinese market and the dominant positioning of China-based manufacturers in that market. Two of the five leading wind turbine suppliers in 2009 were China-based OEMs and five of the fifteen leading suppliers were based in China. These OEMs have had limited sales outside of China and their increase in market share to this point is almost exclusively the result of the growth in the domestic market, which accounted for an estimated 99.8% of turbines supplied by the five largest Chinese OEMs (BTM Consult, 2010). The most significant sector specific aspect of the wind industry derives from its strong relationship with government policy. Another important sector aspect relates to its infrastructure technology characteristics. Specifically, the quality and characteristics of local electricity grids and integration with them are important factors that greatly influence the technology transfer results (Mizuno, 2007: 364). The effectiveness of policies in promoting renewable energy will depend on their design, enforcement, how well they address national circumstances and the extent to which they are consistent and sustained (Sawin, 2004). The direct roles of industry structure-related regulation and industrial policy interventions on wind industry development were limited in the well-established, institutional environments of Europe. However, the governments did still play a significant role as cordinator and initiator of industry collaborations and networks at both international and national levels for industry-wide competitiveness building. Industrial policy measures, on the other hand, played multiple roles in the technology receiver developing countries, such as India and China. India, for instance, has used industrial policy measures, especially in the early years, to establish the wind energy industry. The supportive FDI policy, the favourable trade policy and its role in prohibiting foreign manufacturers from setting-up shop independently played important roles in industry formation by encouraging joint ventures and license agreements with foreign manufacturers. They also actively supported technology transfer through foreign collaboration. However the effectiveness of foreign collaboration has lessened over the years, as individual technology providers began taking control over technology transfer contents (Mizuno, 2007: 352). The acquisition of technology from overseas companies is one of the easiest ways for a new wind company to quickly obtain advanced technology and begin manufacturing turbines. An example is Vestas, which licensed its turbine technology to Gamesa, and now competes with it for sales in the global market. This is particularly true for technology 65
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transfers from developed to developing countries, where lower labor and material costs could potentially produce an identical, but less expensive, product. Consequently, new, developing country manufacturers often obtain technology from second, or third, tier international wind power companies, that have less to lose in terms of international competition and more to gain in fees accrued from the licence (Lewis and Wiser, 2007: 1847).Krohn (1998) suggests that stability and predictability are sine qua non conditions for attracting foreign investment and that a commitment for at least 5-10 years is essential. As Sawin (2004) points out, most of the renewable energy development experienced thus far has been driven by countries with feed-in, or pricing systems. At the same time, a combination of policies is required, including standards, education, stakeholder involvement and incentives, to bring down the initial cost of investment and reduce risk, whether real or perceived. 4. 1. Governing the Market: Institutionalizing Virtuous Cycle Creation Market mechanism is an effective tool and in general it works reasonably well. However, there can be serious failures in the provision of correct signals from free markets.xii One of the most important market failures for the subject of this paper is externalities. As Stewart and Gani (1991: 569) indicate, ‘[e]xternalities occur where market-priced transactions do not fully incorporate all the benefits and costs associated with transactions between economic agents.’ Stiglitz (1989: 198) notes that among the “commodities” for which markets are most imperfect are those associated with knowledge and information. There are always unappropriated spillovers of knowledge. For instance, investment in knowledge suggests a natural externality. The creation of new knowledge by one firm is assumed to have a positive external effect on the production possibilities of other firms because, as Romer (1986: 1003) put it, ‘knowledge cannot be perfectly patented or kept secret.’ The market is inherently short-sighted and tends to focus on immidiate returns, at the expense of long-term returns, such as sustainable development. However, some sectors or products are far more important to the economy’s future growth prospects than others. Such industries tend to generate major external benefits, which the market mechanism fails to take into account. These key industries or sectors are typically those which require a large commitment of time and capital in production. If production decisions are left to the fortunes of the free market, investment in industries with high potential externalities may not be undertaken. The vast majority of investment will instead be directed towards projects that yield quick returns. Justman and Teubal (1991: 1181) point out that ‘over and above “simple” or orthodox market failure, the growth process encounters more fundamental failures associated with discrete strategic choices among alternative development paths or types of structural change (“strategic” failures). These involve not only market failures, but also the possible failure of public and private decision-making mechanisms and institutions to coordinate among the infrastructure elements for new industries, at the junctures of structural change: physical infrastructure; technological capabilities; marketing infrastructure; and financial institutions’. Justman and Teubal rightly suggest that there is no reason to believe either the unaided market or the pre-existing body of institutions will be able to tackle this challenge appropriately. Given the inherent uncertainty concerning future demand, firms are more likely to stick with the existing and familiar product lines rather than venturing into new products or industries. Hence, non-market forces or mechanisms are needed to stimulate such shifts, to lead economic agents from shorter to longer-term investment and marketing strategies, to channel projects from currently profitable activities into investment in those likely to become profitable over time. As Sawyer (1996: 102) suggests, ‘[i]n a world where international trade is no longer governed by comparative advantage given by the endowments of nature but rather by the creation of competitive 66
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advantage, there is a need for an industrialized strategy which will aid the securing of competitive advantages.’ Market can not take into account externalities, because it cannot put a price tag on them. Hence, for long-term projects, such as speeding up economic development and catching up frontiers it is imperative to govern the market and create a virtuous cycle. The best suited for this role is the government, which is in a position to set the rules and establish necessary institutions. In practice, every successful market economy is overseen by regulatory institutions, regulating conduct in goods, services, labor, assets, and financial markets. As Rodrik (2000) suggests, it is important to recognize that regulatory institutions may need to extend beyond the standard list covering anti-trust, financial supervision, securities regulation and a few other operations. This is especially true in developing countries, where market failures may be more pervasive and the requisite market regulations more extensive. Recent models of co-ordination failure and capital market imperfections make it clear that strategic government interventions may often be required to get out of low-level traps and elicit desirable private investment responses. The key for success in an emerging industry is the creation of “right type of rents”, which would serve rapid development. This is achieved through new value creation and rewarding activities combined with the fortification of existing value activities in the market. If one looks closely at the most successful economies, such as China, South Korea, and Taiwan, can see the government as the conductor of the orchestra in this process. The extensive subsidization and government-led coordination of private investment in these economies played a crucial role in setting the stage for self-sustaining growth. Virtuous cycle creation within policy, market, industry, and technological development is critical for competitive wind energy technology development. This is because it effectively reduces the costs of power generation and increases the competitiveness of technology, which in turn reduces both the necessity for and amount of policy supports. Virtuous cycle creation dynamics determine the direction and speed of technological development and diffusion. The establishment of such a cycle has been successful in Denmark. The Danish government triggered new dynamics and reduced the negative effects by introducing new measures that created counteractive positive effects in the development process of the wind industry. The starting point of the cycle was the creation of market dynamics by market value creation and rewarding policy measures. These generate the ripping effects on technology and industry development by creating a strong synergy for technology improvement (Mizuno, 2007: 353). A similar virtuous circle creation has also been observed in Germany. As Jacobsson and Lauber (2006: 272) suggest, when the red–green coalition took over in 1998, its parliamentary party groups soon took measures to vastly increase the protected market space for solar and wind power. This institutional change accelerated wind power installation and brought an early take-off phase for solar cells as well. 4. 1. 1. Creating an Enabling Environment There is no doubt that an enabling environment is a necessary condition for initiating technology transfer. In order to exploit the full potential of wind and other renewable energies, it is crucial to build and strengthen the related frameworks and institutions. As Rodrik (2000) emphasizes, “incentives would not work or generate perverse results in the absence of adequate institutions.” Institutions are legal and regulatory aspects, norms and cognitive rules that regulate interactions between actors, define the value base of various segments in society, influence firms’ decisions and structure learning processes. According to Mizuno (2007: 368), “Enabling environments and the elements in each dimension can be largely divided into the ones that can be built by more generic policyand institutional-level activities and the ones that concern more firm- and technologyspecific activities. The balance between the two is dimension-specific; the technology67
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related dimensions such as the National Systems of Innovation, the Research and Technology Development, and the Human and Institutional Capacities, concern more deeply both firm-level and generic policy-level activities than the Macro-economic Policy Frameworks, the Sustainable Markets, and the National Legal Institutional dimensions, which are far more generic and hence can be dealt with the efforts to improve government policy and institutional settings.” As emphasised by Freeman and Louçã (2002) on economics of innovation, institutional change (and by implication its politics) is at the heart of the process. It includes alterations in science, technology and educational policies. For instance, in order to generate a range of competing designs, a prior investment in knowledge formation must take place and this usually involves a redirection of science and technology policy well in advance of the emergence of markets. Institutional alignment is also about the value base (as it influences demand patterns), market regulations, tax policies as well as much more detailed practices which are of a more immediate concern to specific firms. The specific nature of the institutional framework influences access to resources and availability of markets actors. Institutional change is often required to generate markets for the new technology. The change may involve the formation of common standards and a government subsidy. A ‘protected space’ for the new technology may serve as a ‘nursing market’, which may later give way to “bridging markets” so that learning processes can take place and the price/performance of the technology improves. Additionally, they may induce firms to enter, provide opportunities for the development of user–supplier relations and other networks, and, in general, generate a ‘space’ for a new industry to evolve in.xiii Entry of new firms is central to the transformation process. Each new entrant brings knowledge, capital and other resources into the industry. New entrants experiment with new combinations, fill ‘gaps’ (e.g. become a specialist supplier) or meet novel demands (e.g. develop new applications). A division of labour is formed and further knowledge formation is stimulated by specialisation and accumulated experience (Jacobsson and Lauber, 2006: 259). Development of the generic dimensions of enabling environments, as well as generic elements in the technology-related dimensions, can be supported by the government. The effective implementation of wind energy development requires synergy amongst different government institutions and administrations in charge of energy policy coordination, technology, finance, custom tariff, land use (spatial planning), agriculture, labour as well as academia and industry R&D. A comprehensive policy scheme is to be devised to mobilise all the stakeholders along the whole value chain of wind industry, otherwise the incoherent and uncoordinated actions will hamper the fast development and localisation of wind farms (Li, 2010: 1167). Mizuno (2007: 370) suggests that supports can be most effective in strengthening the human and institutional capacities, because this dimension involves all other dimensions and becomes the base for technology-specific capacity development. As Jacobsson and Lauber (2006: 259) describe, “a ‘take-off’ into a rapid growth phase may occur when investments have generated a large enough, and complete enough, system for it to be able to ‘change gear’ and begin to develop in a self-sustaining way”. Experiences cumulated in wind farm development will facilitate knowledge and technology acquisition and costs reduction thanks to the learning by doing procedure. 4. 1. 2. Promoting Human Capacity and Capability Building Every economic development activity ultimately depends on human capacity and capability. As Li (2010: 1168) suggests, human capital is more important than financial capacity formation since the economic growth theory suggests the accumulation of specialised human capital through learning-by -doing will ensure steadier industrial growth and generate more socioeconomic benefits than simply accumulating the financial 68
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capital in economic sector. Technology know-how dissemination needs to be encouraged by specialised technological learning along the entire supply chain (Li, 2010: 1168). In order for developing countries to catch up with advanced countries in terms of technological development, a substantial compensating effort is needed. There is no reason to believe that either the unaided market or the pre-existing body of institutions will be able to tackle this challenge appropriately. Technological capability in a country can be effectively achieved as a result of mediation by a development-oriented and able state bureaucracy. The state can coordinate and prioritise rapid technological development and be a very effective catalyser in this process. This can be done through the creation of a research and development infrastructure with appropriate and effective linkages to the production structure and should thereby lessen the dependence on other countries (Erdogdu, 2001). The role of government is quite significant in terms of building generic capacity and capability through policy and institutional support measures. To induce capacity and capability building, policy incentives need to simultaneously address various generic aspects of technology acquisition, capacity/capability building and the development of market and business environments. Building and re-shaping enabling environments in keeping with the evolution of the technology and industry is very important, but also difficult. The frontier countries have done this well over the years by clearing various obstacles one by one. The task of building and fortifying each dimension is more demanding for technology receivers due to the lack of certain capacities and capabilities (Mizuno, 2007: 368). The contextualized learning-by-doing process can provide significant contribution to the fundamental knowledge of wind technology (Li, 2010: 1166). Government subsidies for inservice technical training and science education can be provided to increase generic capacity/capability for different specific components/value activities and to offer a base for continuous learning and backward linkages at firm level. 4. 2. Diligent Policy Making: Appropriateness, Sequencing, and Timing
Technical, financial and institutional barriers to wind energy deployment must be addressed with appropriate policies. The effectiveness of policy measures is strongly related to appropriateness, sequencing and timing. The sequencing, combination of monetary value creation and rewarding policy incentives were the critical factors in the market size expansion within the frontier economies. According to Mizuno (2007: 352), the lack of political capacity and capability to make appropriate assessments and policy measures with appropriate timing was an important factor behind the less than satisfactory results in some countries, such as India. Mizuno (2007: 369) warns that even if the generic macro-economic and market-related dimensions were fortified in technology receiver countries, weak technology-related dimensions can reduce the effectiveness of the entire enabling environments by interrupting the transfer of more advanced or locally suitable technologies. 4. 3. The Process of Creating a Domestic Wind Industry in Turkey: Ways to Bridge Gaps
Turkey’s target is to ensure 30 percent of its energy production by using renewable resources by 2023. There is legislation in place guaranteeing the purchase of electricity generated from renewable sources at set feed-in tariffs, along with construction incentives, to advance the ambitious target of 20 GW of wind power by 2020. The resulting increases in variable power generation require upgrading of the electricity system, in terms of grid connections, transmission 69
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system reinforcement and grid management. TEIAS, the Turkish electricity transmission system operator, has prepared an investment plan to accommodate 15 GW of wind power and is working to ensure grid reliability and stability (DPT, 2009; IEA, 2010). In 2005, the Turkish government started to apply a minimum price system and guaranteed purchase of energy generated by wind. This incentive package was established by law no. 5346 on Utilization of Renewable Energy Resources for the Purpose of Generating Electrical Energy introduced additional incentives for domestic components and equipment used in wind energy plants. Accordingly, when the mechanical and electro-mechanical components of a power plant used in constructing wind plants are manufactured in Turkey, tariffs for the electricity generated in these facilities will be increased by between 0.6-1.4 Dollar cent/kW hour (Resmi Gazete, 2005). The recent purchase guarantee provided by law no. 5346 for the local production of wind power plant components are shown in Table 11. Table 11 Purchase Guarantee for the Production of Wind Power Plant Components The addition of domestic content (Dolar cent/kWh) 0.8
Domestic manufacturing Blade Power units
1
Turbine tower
0.6
Rotor mechanical parts
1.3
The price guarantee schema offered by law no. 5346 is an appropriate market pull mechanism, which is well understood and offers a clear price signal to investors. Moreover, the additional incentives and payments offered by the law for the production of local wind turbines and their components provide a clear opportunity for the emergence of a local wind industry. Regulations which have been implemented by the Law on Utilization of Renewable Energy Resources in 2005 for the Purpose of Generating Electrical Energy have played a significant role in increasing the demand for construction of wind plants in Turkey. The installed capacity doubled each year from 65 MW in 2006 to 1.274 MW in 2010. Currently, there are 41 commercial-scale wind farms in 28 Turkish provinces, equipped with approximately 799 wind turbines (TWEA, 2011). Turkey now ranks 17th in the world in terms of the number of wind turbine installations. Despite positive developments, there are still important problems inhibiting wind energy investments. Infrastructure is the most significant one among these problems. Strengthening infrastructure development in both the electricity grid system/interface and transportation urgently require more national and international resources in order to obtain larger benefits from future wind projects. In order to identify the existing market failures and formulate effective policy, further reinforcement of the capacity and capability of policy makers and collaborations with the industry players are necessary. As Mizuno (2007: 376) recommends for India, government policy makers should periodically contact industry players, as well as independent analysts, in order to gain fair industry data and to formulate and sequence the supply-push policy that supports the 70
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generic aspects of the learning mechanisms for each technology component. It is important to create stronger cost reduction demands to stimulate transfer and indigenization of higher value technologies. While maintaining robust market demands through performance-oriented incentives, the implementation of sunsetclause investment subsidies is recommended. The consistency and relevance of different policy and economic instruments are of crucial importance in facilitating the scale-up of investment in Turkey. A framework of consistent financial support, capital grants, clear consenting procedures and timely grid access will create the secure investment environment the industry requires to grow incrementally. One of the obvious next steps for the government is to set renewable portfolio standards (RPS) requiring utilities to procure a certain percentage of electricity from renewable sources in coming years. RPS mandates, along with consumer and industry demand for and local government procurement of green electricity, are gradually becoming more important drivers of the wind and solar industries than tax subsidies. Establishment of a national level revolving fund is another useful instrument, which has been tested with success in some countries. Wind turbines are large and heavy pieces of machinery and transport costs are a significant factor in international competition. This provides an opportunity for local production, particularly for the more labour intensive processes. As Krohn (1998) indicates, if a stable market of a reasonable size is being developed, local manufacturing of towers is often the first step towards a more permanent presence as a manufacturer. China, where power purchasing agreements and other institutional arrangements have been put on a permanent footing, is a case in point. However, newly established manufacturers, or joint ventures, cannot be expected to have a very large local value added before the elapse of a running-in period. The best initial approach for the establishment of the industry seems to be in focusing on wind power equipment transfer, rather than technologies. This transfer of hardware (equipment) is helpful in meeting localization criteria in the short term, while the transfer of software (knowledge and technology) is more important for the establishment of a successful domestic wind turbine industry in the long term. The construction costs of wind farms cannot be reduced significantly unless the core components are manufactured domestically. Quality assurance measures, such as turbine certification and project guidelines, have been effective in increasing technological capability building and eliminating low quality firms in the frontier countries. It is, therefore, suggested that the government put high-quality assurance measures with high-level governance into action as early as possible in order to reduce the number of low quality products. Increase in the use of domestically produced wind power systems can significantly reduce the construction costs of wind farms in Turkey. Due to the reduction in purchasing price, transportation costs and custom tariffs, domestic wind turbines will be cheaper than imported turbines. Domestic turbines are also likely to have advantages in better adaptation to Turkish circumstances, short delivery terms and convenient/cheaper after-service. In adition to strong political support, it will be crucial to provide incentives for innovation in the later periods to speed up the wind energy development in Turkey. 71
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5. CONCLUDING REMARKS
The overall objective of energy-related policies should be ensuring sufficient, reliable and affordable energy supplies to support economic and social development, while protecting the environment. Turkey’s fossil-based energy system has created not only pollution problems, but also raised concerns about energy security. Moreover, it has become a major source of the country’s widening current account deficit. Wind power appears to be the key energy option that could assist Turkey in both meeting its sustainability goals and solving its energy security problem. Due to the decreasing capital costs of wind power and the potentially increasing fossil fuel prices over the long-term, wind power is likely to become more competitive when compared to the conventional resources of electricity generation. Hence, it appears that utilization of wind energy with an ultimate aim of creating a locally owned, domestic wind turbine manufacturing industry would be the best medium-term option for Turkey. Since Turkey’s energy demand and imports increase day by day, producing electricity from wind may provide huge benefits for the country. Creation of a domestic wind turbine manufacturing industry in Turkey would not only help to create a low-carbon economy and cleaner environment, but also increase the security of energy supply by reducing the dependence on imported oil and gas supplies. Such a policy drive would eventually be expected to improve the balance of payments through exporting the domestically produced turbines overseas and tapping into the expanding global market for wind energy. An additional benefit of this option would be the creation of new employment within a rising industry. Wind energy utilization is very important both in creating a market for wind and initiating the rise of local manufacturers producing world-class turbines. Longterm certainty of policy and institutional supports are essential for sustainable market development. Government policy is central, in this respect, and it would seem a wise investment to strengthen the related frameworks, institutions and policies. Stability and continuity of governmental supports and clear demonstration of political will are critical, even if the policy mixture, itself, is changed over time. This paper outlines how the sequencing and combination of monetary value creation and rewarding policy incentives has been critical for successful results. Thus, diligence is clearly required in the design of supportive government policies. Moreover, it needs to be recognized that incentive-based promotion schemes alone are insufficient to create a sustainable RES–E market development; innovative regulation and institutions fostering institutional change and training and education of the relevant actors are also of high importance. The experiences of several countries show that, when designed properly, feed-in tariffs and RPS-based mechanisms can effectively spur the development of the wind energy sector. Feed-in tariffs are simpler to administer and enforce, may better ensure local industry infrastructure development, can set the stage for price reductions by nurturing cost reductions and may be more compatible with the current industry and regulatory structure in Turkey. Feed-in tariffs can foster more rapid development of wind energy infrastructure than RPS-based mechanisms and tendering policies. In a nascent market, a feed-in tariff can minimize contracting, development, financing and inter-connection hassles. Such ease of market entry is especially important at the initial stages of wind industry development for the less well-financed and smaller players in the wind energy 72
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business. RPS-based mechanisms may hold the best hope for price minimization, allow for the development and maintenance of specific wind energy targets and may also be more compatible with future electric industry structures. A tendering strategy is useful for reducing prices, but may require an established industry to achieve its economic efficiency goal. An RPS policy can possibly help to build the industry, but experience suggests that if market development is in its infancy, RPS will take more time to provide results than using a feed-in tariff. The turning point for Turkish wind energy utilization was the application of a minimum price system and the guaranteed purchasing of energy generated by wind. The replacement of this incentive package with law no. 6094 appears to be a further move forward. Even though the price guarantee offered by this law is insufficient, when compared to international prices, the additional incentives and payments offered to promote domestic production are praiseworthy. It is now expected that Turkish wind turbine suppliers will research the possibility of outsourcing some components from local companies and even consider producing some labour intensive large parts, like towers, in Turkey. However, it is important to recognize that there is currently increasing competition in the global wind turbine industry. If Turkey eventually wants to become a successful wind turbine maker and gain competitive advantage in international markets, needs to do much more than it is currently doing. Acknowledgements We would like to express our gratitude to Kris Myers and an anonymous referee, whose extensive comments have been invaluable in the evaluation of this paper.
ENDNOTES According to the findings of a recent UN report, every year climate change leaves over 300,000 people dead, 325 million people seriously affected, and economic losses of US$125 billion. Four billion people are vulnerable, and 500 million people are at extreme risk (GHF, 2009: 1). ii See for instance, Mabey and Paul (2007) and Deshmukh (2011). i
The LCOE is the primary metric for describing and comparing the underlying economics of power projects. For wind power, the LCOE represents the sum of all costs of a fully operational wind power system over the lifetime of the project with financial flows discounted to a common year. The principal components of the LCOE of wind power systems include capital costs, operation and maintenance costs and the expected annual energy production (IRENA, 2012: 42). iii
The announcement said the average price for full-service O&M offerings for onshore wind farms (including scheduled and unscheduled maintenance works and component replacement) fell to $28,245 per MW annually in 2012, from $45,456 per MW in 2008. iv
v
According to yuan-dolar parity 517 $/kW.
A recent UN Environment Program study assumes that for each megawatt of new capacity, 16 jobs will be created in turbine manufacture and supply of components. With rising economies of scale and optimized production processes, this is assumed to decline vi
73
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to 11 jobs per MW by 2030. An additional five jobs per MW will be generated in wind farm development, installation, and indirect employment. And operations and maintenance will contribute 0.33 jobs for every megawatt of cumulative capacity (UNEP, 2008: 108). Three major strands of lock-in effects are essential: Technology, market linkages and acombined organisational and individual experience pattern of managers. Each lock-in is an interdependent cause, effecting an organisational environment, which may result in fatal outcomes. This argument is suggested as a missing link, which helps toexplain the failure of incumbents’ innovation in decline (Oestreicher, 2012). vii
For comprehensive FIT policy design, implementation, and RPS policy interactions see Cory, Couture, and Kreycik (2009). viii
See particulary Amsden (1989) and Erdogdu (1999) for South Korea, Wade (1990) for Taiwan, and Riskin (2007) for China. ix
Despite its rapid increase, wind still represents only about 7 percent in the electricity generation in China (Li, 2010: 1157). x
For more on the factors that led to the development of the wind industry in Europe, see Lewis and Wiser (2005). xi
As Rodrik (2000) highlihts, markets fail when participants engage in fraudulent or anticompetitive behavior; they fail when transaction costs prevent the internalizing of technological and other non-pecuniary externalities; and they fail when incomplete information results in moral hazard and adverse selection. xii
See Bergek et al. (2008) for work on a functional approach to analyzing innovation system dynamics into a practical scheme of analysis for policy makers. xiii
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