Photovoltaic solar power
plant investment optimization
model for economic external
balance: Model of Turkey
Mehmet Alag
€oz
1, Nihal Yokus¸
2and
Turgut Yokus¸
3Abstract
Through using a linear optimization model that interprets solar energy and current deficit param-eters, investment plans were performed for countries which have current deficit problem of energy source. The specifics of the study are due to the linear optimization model, which reveals the current deficit and solar energy together for the investment strategy. While the model is constituted, without affecting the existed current account, some parameters based on such as profit transfers for foreign investments, payments of interest for domestic investments, import rates for photovoltaic solar panels, solar energy electricity production values, electricity demand projection for the future and import resource rates for electricity production. In the framework of these constraints of the model, the effects of solar systems on domestic investment and foreign direct investments on current account balance are analyzed for the period of 2017– 2030 in Turkey. In the application of the model in Turkey to reduce the current deficit, this is concluded that the solar energy is a significant opportunity. In addition, the linear optimization model is considered as a reference for countries facing energy-related current deficit problems.
Keywords
Current deficit, optimization model, solar power energy
1
Department of Economics, Selcuk University, Konya, Turkey
2
Department of Mathematics, Karmanoglu Mehmetbey University, Karaman, Turkey
3
Department of Economics, Institute of Social Sciences, Selcuk University, Turkey Corresponding author:
Nihal Yokus¸, Kamil €Ozdag Faculty of Science Department of Mathematics, Karamanoglu Mehmetbey University, Yunus Emre Campus, 70100 Karaman, Turkey.
Email: nyokus@kmu.edu.tr
Energy & Environment 2019, Vol. 30(3) 522–541 ! The Author(s) 2018 Article reuse guidelines: sagepub.com/journals-permissions DOI: 10.1177/0958305X18802762 journals.sagepub.com/home/eae
Introduction
Dornbusch and Fischer1 stated that the ratio of the current deficit to the gross domestic product (GDP) is 4% and Freund2stated that a threshold value is 5% for this ratio and exceeding this rate is considered as an early signal for an economic crisis through them as many other economists (p. 114).3In Turkey, the average rate of the current account to GDP for the period of years 2007–2015 is 5.8% and the same ratio is approximately 0.63% excluding energy proportion4. These ratios demonstrate that the main reason for current deficit in Turkey is energy imports. Therefore, in order to reduce dependence on imported energy and to provide low-cost national sources–based energy production, the obligation of tending to the renewable energy sources has emerged for energy policy in Turkey (p. 151).5 Having wealthy in terms of renewable energy resources especially solar energy, using this source efficiently and productively in Turkey is regarded as an alternative solution to decrease the external dependence on energy. A critical question about decreasing the current deficit is whether the solar energy production makes a positive contribution or not. Even if it does, what would be the grade of this contribution.
Power generation by using solar energy is still a developing market with its subindustries, lower segments, equipment, and cell production. It is estimated that the formation of balances and reaching the maturity level in the industry can occur toward 2020. It is antic-ipated that the solar energy system equipment in manufacturing market will have a process similar to the consolidation that has occurred in computer and telecommunication industry in the last 20 years. Market consolidation process has been still continuing with shutdowns of various producers, company mergers, and purchases in every year (p. 14).6 The more solar energy photovoltaic (PV) technologies develop, the more solar energy costs are rapidly coming down to the levels of fossil-based energy costs.
Over the past years, significant improvements to PV panels have provided both techno-logical advancement and its performance output. Therefore, the cumulative PV capacity in the world has reached doubled, PV system costs have reduced by 23% in the last 35 years.7 Pillai8examines the effects of some factors such as the amount of solar system panel pro-ducer, decreasing in basic raw material prices, technological innovation, and investment costs at PV sector on decreasing PV panel costs for the period of 2005–2012 in China by using regression analysis. The results of the analysis indicate that factor efficiency provides decreasing at most 21% cost annually. Regarding the PV system cost improvements, anoth-er example is that 75% decreasing occurred in PV system costs in the panoth-eriod of 2000–2014.9 Decreases in costs showed its effects on guaranteed purchasing auctions in solar system electric kW/h. These developments demonstrate that the countries require to update the policies and strategies related to electricity generation with solar PV energy. When reached mid-2016, solar energy sources provided the lowest electricity prices at electricity buying auctions. The incentive-free solar energy purchasing auction agreement prices for per kW/h in the world for the period of 2013–2016 are demonstrated in Figure 1.10,11
Table 1 illustrates 2015 levelized cost of energy (LCOE) regarding the average resources in the world (p. 81).12When the prices illustrated in Table 1 and Figure 1 are compared each other, it is observed that solar energy system to generate electricity is more advantageous for countries that have proper solar potential.
As it is observed in Table 1, thanks to the improvements in solar energy and decreases of system costs, cost of power generation using solar energy has reached at lower levels com-pared to other power generation sources. The solar energy capacity of Turkey is annually
400.000 GWh and this is one and a half times more than the power consumption of Turkey in 2014 (p. 16).13Within this context; if a comparison is made between values related power generation with solar energy and strength of solar energy potential in Turkey, while Turkey has 65% more solar energy potential per square meter compared to Germany, Turkey has solar system capacity (0.3 GW) as 1% of Germany’s (40 GW) solar energy capacity.14It is a compulsory for Turkey to determine policies and strategies to generate power with solar energy concerning how to use and when to use its high potential.
In the study, it is revealed that whether it is possible to implement solar energy produc-tion to decrease current deficit of Turkey toward sustainable levels without damaging eco-nomic balances of Turkey. In this framework, it is aimed to determine to form a linear optimization model which gives the optimum result of foreign direct investments (FDI) and necessary domestic investments (DI) annually for lowering energy imports which are one of the most important reason of current deficit to sustainable rates (current account/GDP below 4%) in the long run (until 2030) with solar energy and state the solution. Thus, in terms of quantitative and economic balances, a baseline is formed for strategies based on
Table 1. Average electric production costs regarding resources in the world.
Resource Type Price ¢/kWh
Biomass 6 Geothermal 8 Hydraulic 5 Wind 6 Fossil fuels 4.5–14 Solar PVa 2.42 PV: photovoltaic.
Source: Compiled from Renewables 2016 Global Status Report.
a
September 2016 Dubai Purchasing Guarantee Agreement USD Cent price per kWh. 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00
2013 2014 2014 2015 2015 Mar-16 Apr-16 May-16 Aug-16 Sep-16
Figure 1. 2013–2016 World purchasing guaranteed solar energy system auction price changes. Source: https://cleantechnica.com/solar-power/
energy that will be implemented with the purpose of lowering current deficits to sustainable levels, decreasing energy dependence, contribution to economic growth, lower-ing energy costs.
In the next section, Turkey’s current deficit problem sourced electricity production is evaluated and the calculation details related to model constraints, coefficients, and constant numbers which are located in the right side of the coefficients are given. Analytical models that take part in the literature concerning energy, solar system, and current deficit are examined in the third section. The model is formed in the fourth section indicating the objective function and constraints. Assessments about the resolution of the model and results are given in the fifth section. The results acquired from the study and the future studies within developing the established model and common applications are evaluated in the last section.
Current deficit within import sourced electricity production in Turkey
It is observed that high economic growth rate in developing countries requires a high level of energy and in turn, this leads higher demands in electricity usage. Living standards increase with rising of GDP and GDP per capita which are one of the most important parameters, hence, they cause to rising electricity demand for industry, lighting, and household appli-ances. Increased electricity demand will elevate the current deficit of Turkey due to Turkey’s dependence on energy imports at 75%.15Energy usage that is intensely based on oil, natural gas, and imported coal is indicated as the most important factor to increase current deficit due to energy imports.
If it is assumed that Turkey’s power generation for the 2007–2015 is completely supplied with domestic energy resources, the average of current deficit rate to GDP corresponds around 3.9%16and this situation exceedingly meets the 4% threshold rate of current deficit to GDP according to Dornbusch and Fischer.1In addition, these data show that the more energy import sourced electricity production is decreased, the more sustainable current deficit which is considered as the risk and burden on the economy is coming down. Figure 2 illustrates that one of the main reason for current deficit is power generation originating energy imports.17
In Table 2, it is observed that 30% of Turkey’s energy import is originated from power generation as thousand tons of oil equivalents (TTOE).
In Table 3, the amount of solar energy investments is calculated in order to find the corresponding amount of the import power generation. The calculation is based on the information that 1600 GWh power can be annually produced by an established 1 GW solar energy power.18 Required solar energy capacity is calculated via dividing this value by the total net energy import data given in Table 2. The decrease of electricity import cost due to a 1 GW solar energy power is annually calculated afterward. This cost is in an interval between 110 million dollars and 210 million dollars for the period of 2007–2015. This large interval is the result of dollar-based price fluctuations of energy resource imports, annual climatic differences of power generation, and resource differences of energy investments.
In this context, a nine-year average value of a corresponding capacity of 1 GW solar energy investment satisfies 170 million dollars energy import.
Total power generation data and power generation data originating from imports are illustrated in Table 4. According to data in the table, an average value of 61% of import originating electricity obtained from the import of resources.
Low demand estimation projection for electricity generation of Ministry of Energy and Natural Resources for 2030 is shown in Table 5 below.19
2007 2008 2009 2010 2011 2012 2013 2014 2015 Current Deficit (CD)/GDP (%) -5.78 -5.42 -1.96 -6.19 -9.70 -6.17 -7.89 -5.82 -4.47 Exclusive Imported Electricity
Generaon Sources CD/GDP -4.55 -3.64 -0.52 -4.56 -7.45 -3.74 -5.62 -3.12 -2.88 -11 -9 -7 -5 -3 -1
Figure 2. Correlation between current deficit and imported electricity generation sources. Source: Compiled from TCMB and E_IGM: Enerji _Is¸leri Genel Mu¨du¨rlu¨gu¨: General Directorate of Energy Affairs.
Table 2. Energy import of Turkey in 2007–2015 (thousand tons of oil equiva-lents (TTOE)). Years Total net energy import (TTOE) Import energy usage in power generation (TTOE) Import rate of energy originated from power generation (%) 2007 77,697 20,145 26 2008 75,045 22,278 30 2009 72,256 21,555 30 2010 73,980 22,253 31 2011 81,856 24,968 31 2012 88,637 26,971 31 2013 87,965 27,092 31 2014 94,544 32,144 34 2015 100,007 27,416 27 Average 30
It is clearly observed in that the current deficit will decrease via decrease of import sourced power generation. Thus, solar energy investments are required. According to Ministry of Economy solar energy investment subsidy documents, it is detected that out-source finance (credit) were used for 70% rate of capital requirement of DIs and solar energy investments will cause 70% of imports.20 Being examined the payment tables of balances of Tu¨rkiye Cumhuriyet Merkez Bankası (TCMB), the profit transfers of FDI inflows in Turkey are the other important data to consider in the model. FDI profit transfers are considered for the period of 2000–2015 and the average profit transfer rate of FDIs is 7%. In the same period, the amount of FDI inflows in Turkey is around 10 billion dollars. These two values are considered as parameters in the model.
Table 3. Replacement values of import sourced electricity production with solar energy system in 2007–2015, Turkey.
Years 2007 2008 2009 2010 2011 2012 2013 2014 2015
Energy import of Turkey (billion dollars)
33.9 48.3 29.9 38.5 54.1 60.1 55.9 54.9 37.8
Originating from power generation (billion dollars)
8.814 14.49 8.97 11.94 16.77 18.63 17.33 18.7 10.2 Corresponding solar energy
power establishment (GW¼ billion dollars)
73.47 76.78 73.94 75.36 85.53 90.81 92.26 107.41 95.48
Decreasing cost of energy importer 1 GW solar energy (billion dollars)
0.12 0.19 0.12 0.16 0.20 0.21 0.19 0.18 0.11
Average (billion dollars) 0.17
Source: Calculated using the data obtained from E_IGM General Energy Balance Tables, Tu¨rkiye Cumhuriyet Merkez Bankası (TCMB) Energy Import Data and Solar Energy Power cost and power generation data.
Table 4. 2007–2015 Distribution of energy imports and total power generation in Turkey.
Years Electricity imports (TWh) Coal imports (TWh) Other resources (TWh) Natural gas (TWh) Total electricity originated from imports (TWh) Total power generation (TWh) Import rate (%) 2007 864 15.136 6.527 95.025 117.552 191.558 61 2008 789 15.858 7.519 98.685 122.851 198.418 62 2009 812 16.596 4.804 96.095 118.306 194.813 61 2010 1.144 19.104 2.180 98.144 120.572 211.208 57 2011 4.556 27.348 904 104.048 136.855 229.395 60 2012 5.827 33.324 1.639 104.499 145.289 239.497 61 2013 7.425 31.458 3.890 104.835 147.609 239.293 62 2014 7.953 40.223 3.099 120.576 171.851 251.963 68 2015 7.411 42.818 4.213 98.326 152.768 259.604 59
Literature review
In the literature, there is no study that regarding an optimization model for solar energy system planning strategy in decreasing the current deficit sourced energy. Therefore, the literature research is based on two parts as follows:
i. Energy originated current deficit issue
ii. Energy investment plans in the framework of optimization
Energy originated current deficit issue
Dornbusch and Fischer1indicate that 4% is the threshold rate of current deficit to GDP, for Freund,2this threshold is 5% and they claim that exceeding this threshold is a signal of a crisis. According to Labonte,21large current deficits in developing countries such as Mexico, Turkey, East Asia, Brazil, and Argentina are the most important indicators of financial and currency crises.
Karabulut and Danıs¸oglu22examine the current deficits that seem as if it is an issue for developing countries but it is also an issue for most of the strong economies such as the USA by using vector error correction (VEC) method that provides the possibility of examining long and short-term correlations. Authors found that increase in oil prices is naturally reducing the production and GDP, it is obviously concluded that there is a negative corre-lation between oil prices and GDP.
Aytemiz and S¸eng€onu¨l23 claim that increasing cost of energy import for the developing countries imported oil causes the current account deficit and they analyze the effect of energy prices on current account deficit in Turkey. They conclude that the changes in cur-rencies and energy prices have negative effects on current deficit.
Yanar and Kerimoglu24analyze the causality between some parameters such as whether the current deficit is a result of growth and growth causes to increase energy consumption or not. According to analysis, it is detected a long-term correlation between current deficit and economic growth by using Johansen cointegration test for the period of 1975–2009. Furthermore, they conclude that energy consumption growth increases the energy consump-tion with vector error correcconsump-tion model, it is also known as an effect on increasing the current deficit. Namely, they state that direction of causality is forming a strong relation from energy consumption toward to growth and they emphasize that a weak bilateral rela-tionship between growth and current deficit is occurred.
Es¸iyok25 shows decreasing saving rates as one of the reasons of recent current deficit increases in Turkey and states that Turkey is a foreign dependency in terms of energy resources and imports 99% of oil and natural gas. According to Es¸iyok, it is necessary to follow policies to decrease foreign dependency in energy in the medium and long-term and increasing domestic contribution in energy production. Also, heading alternative energy resources are required in terms of preventing foreign dependency on energy.
Soydal et al.26state that for reducing trade balance deficit and trending statement of the balance of payment positively, the energy requirement is needed to increase and the poten-tial in alternative energy possibilities such as the wind, solar, geothermal, bioenergy, hydro-electric should be used more than import energy sources.
G€oc¸er27 analyses the reasons for current deficits in Turkey and financing quality using VAR model and its sustainability using Johansen and VEC methods via 1996: M01-2012: M01 period data. The results of analysis show that 37% of current deficit originates from energy import, 26% of current deficit originates from foreign trade deficits except for energy, 24% of current deficit originates from foreign debt interest payments, 7% from FDI profit transfers, 6% of current deficit originate from profit transfers of portfolio investments.
Demir28 states that increasing production capacity of countries following social and economic improvements, enlarging and varying demand and anticipations of consumers will lead to increases also in energy consumption demand. Another important issue is to be highly foreign dependency for those developing countries because of shortages corre-sponding energy demand and not to produce alternatives notably renewable energy resour-ces to increase domestic energy supply. It is aimed to determine the property and way of correlation among energy imports, current deficit and industrial production using cointe-gration, Granger causality test, and error correction model. Obtained results show that the direction of causality in Turkey is in one way that is from industry production index and energy towards the current deficit.
Dogan29claims that in Turkey economy, after 2003, as a result of rapidly rising of energy import, using especially the petroleum and natural gas to produce electricity is an important effect for being dependent on outside sources and the required petroleum and natural gas in Turkey is imported. It is declined that required 93.9% of oil and 98.6% of natural gas are imported as of 2012. Power generation originated from these imported resources causes foreign dependency on energy and current deficits increase consequently.
Bayrak and Esen30 in their study which is about energy gap issue that energy consump-tion in Turkey increased from 14.480 TOE in 1980 to 31.693 TOE in 2011; but Turkey’s energy production level had not been increased correspondingly which reveals a significant problem as energy gap. It is stated that concerns are raised about increased energy import and foreign dependency will cause current deficits, macroeconomic imbalances, and econ-omy to be more fragile against external shocks.
Uysal et al.31state that one of the most important main reason of Turkey’s current deficit is energy imports. Through using the values of the growth in the period of 1980–2012, energy consumption and current deficit in the vector autoregressive (VAR) model, Johansen cointegration analysis has been applied and at the same time, effect–response analysis and variance decomposition research was performed on the variables. They find that growth, energy consumption, and current deficit variables move together in the long run.
€Ozsoy and Dinc¸32
state that energy usage of Turkey is mostly based on fossil resources and energy imports affect current deficit negatively because of being net energy importer. In addition, they defend that energy resources are required to diversify for energy supply safety of Turkey.
He et al.33calculate energy import elasticity of China using input–output linear program-ming. Because of reducing the domestic demand when the energy import decreases, the imported energy elasticity caused by lessening of the maximum imported energy has been determined. Dependency relations among important sectors are revealed by making some assumptions in the framework of different energy resources portfolio using data from China. In the study which sector Chinese government needs to make an investment is revealed considering economic balances and energy safety.
Huntington34 statistically examined the correlation between raw oil trade and current deficit for 91 countries. Including some conditions, increasing of oil imports is an important factor in the emergence of trade deficits of countries.
Vaona35 examines the correlation between renewable energy production and import dynamics for 26 countries using import equations. It is stated that increasing renewable energy production causes to decrease in import rise rates. Therefore, some interpretations were made about harmful effects of fossil and nuclear energy resources about health and environment and not only for contributions of renewable energy production on sustainabil-ity but also on energy dependence and foreign debt decreases.
Studies generally related to economics literature reveal statistically that current deficit is firstly originated from energy imports. Studies generally focus on general assessment. There is no sufficient study including alternatives and strategy improvements regarding how to decrease the current deficit. Even though in some studies there are suggestions including export increases, research and development expense increases, extending usage of renewable energy resources, no solution provided based on analytical and quantitative calculations. To sum up, in the problem of energy import originated current deficit, there is not enough study concerning how to subsidy this energy imports and in which conditions solar energy a solution would be.
Energy investment planning in the framework of optimization
Linear optimization models in the literature started with the basic formulation of George Dantzig linear optimization model in 1947.36After this date, different models are suggested for different complicated problems and models are strived to develop.
Kavrakoglu37forms a dynamic linear optimization model based on constraints such as firm costs, low capacity utilization, discounts on investment costs within the scope of National investment plan of optimum energy resources. This model has been applied to the energy sector of Turkey and it is used by Turkish Electricity Administration for planning.
Zeng et al.38classify system analysis and optimization models in the framework of meth-odology and applications in three groups as (i) optimization modeling of greenhouse gas emissions (GHG) emission mitigation; (ii) optimization modeling of energy systems plan-ning under uncertainty; and (iii) model-based decision support tools. Therefore, for the solutions of the models within these classifications, many large scaled energy system opti-mization models developed and these models are applied in most places in the World. These models are such as The Time-stepped Energy System Optimization Model (TESOM), the Brookhaven Energy System Optimization Model (BESOM), The Market Allocation Model (MARKAL), Multiple Energy System of Australia (MENSA), The Energy Flow Optimization Model (EFOM), Long-range Energy Alternatives Planning System (LEAP).
Application fields and models of these programs have been tried to make more flexible in time. MARKAL is a program that gives solution via linear program model based on some periods for optimum energy system planning. Fishbone and Abilock39enlarge this model in terms of issues such as technical structural properties, determining functions and parameters corresponding correlation constraints. BESOM is another program which is used for deter-mining optimum energy resources in accordance with minimum system cost investments and technologies. Wene and Ryde´n40 provide an orientation of energy planning for small resi-dential areas of the model based on global energy system model and power generation subsystem with two linear optimization model.
In another study, Gabriel et al.41use The National Energy Modeling System (NEMS) to calculate energy price and quantity equilibriums via large scaled analytical models in the energy sector and USA energy department. NEMS is composed of three submodules includ-ing energy demand, energy supply, and transition/transmission of energy. The equivalent oil prices and quantities and also results obtained in every module are transmitted to each other in NEMS and it includes optimum solution processes that have linear and nonlinear cor-related equations. In the study, the applicability of the model to large scaled models within nonlinear complementarity problem (NCP) or various other constraints are indicated.
Drozdz42 improves a linear optimization model regarding usage of geothermal energy and energy transitions. This model is enhanced for the geothermal energy to be used in the most efficient form via making comparisons with other types of energy.
Dudhani et al.43include renewable energy option to the model for optimization of power generation based on energy resources. The suggested model is energy–resource–distribution model based on linear optimization programming.
Van de Ven and Fouquet44examine the effects of energy originated shocks on the econ-omy. The author states that heading towards renewable energy resource usage is necessary to decrease the effects of energy-originated shocks in these countries.
Rizzo and Savino45offer a solution using a linear programming which considers efficien-cy and costs to decrease CO2emission. Within the scope of variables of the thermal
collec-tor, solar energy panel, fossil fuels and energy savings for heating, hot water and electricity requirements, the model is solved with investment costs, annual energy savings, and CO2
emission constraints. The suggested linear programming model is appropriate for sustain-able energy act plan at municipality levels.
Zhang et al.46optimize the timing of appropriate investments annually considering renew-able energy investments of China, CO2emission price, fossil-fueled energy costs, unit power
generation capacity, investment costs, electricity market prices, and support prices via Real Options Model (ROM). The backward dynamical programming algorithm and the Least Squares Monte Carlo (LSMC) methods were used for the model solution. The timing of PV investments of China is determined via changes of these parameters. In the study, timing to make PV investments for capacities above 1900 kWh is determined as the year of 2016.
Krzemien47compares MARKAL model with other models. The purpose of energy opti-mization programs is to provide optimum energy resource allocation based on criterions such as energy supply safety, GHG decreases, improvement of renewable energy technologies. To meet with these purposes, studies of composing the best energy form within the allocation of energy, technological equipment, the transition of energy are produced. Programs such as EFOM, MARKAL, The Integrated MARKAL–EFOM System (T_IMES), Energy and Power Evaluation Program (ENPEP), and Mobile-Integrated Dynamic Analysis System (MIDAS) are the ones that make optimizations of models formed for a specific purpose concerning energy with various constraints. MARKAL is a program based on linear optimization. It finds proper values for a linear objective function with one or more constraints. Therefore, it calculates annually the cost of energy production, the cost of investments, the cost of maintenance, variable costs, and environmental costs.
Yang et al.48make the planning of optimum allocation of energy resources for allocation of energy systems with energy saving, the efficiency of the environment and economic constraints via General Algebraic Modeling System (GAMS) optimization program.
GAMS49 is a high-level modeling system for analytical program models. GAMS enable solutions of large-scaled and high complexity model applications. In this framework, a
long-run programming (The Power Electricity Timetable: PET) is composed for Chile in order to power generation capacity based on renewable energy resources such as solar, wind, and hydraulic instead of high-priced fossil resources. The modules in the model enable making (i) electricity production and allocation enlargement studies, (ii) integration of renewable energy resources, (iii) energy price projection, (iv) electricity market analysis and simulation, (v) optimization and risk analysis under uncertainty.
Model: Sustainability of energy-originated current deficit of
Turkey with solar
Energy
In our study, it is aimed to form a linear optimization model that purposes to decrease of Turkey’s current deficit to sustainable levels via power generation with solar energy invest-ments. Within this framework data obtained from TCMB, Ministry of Energy and other reports, the amount of Turkey’s energy imports, the share of imported resources in power generation, the share of energy imports in current deficit, the unit price of power generation that occurs with solar energy system via world auctions are used.
A linear model will be established in accordance with the national solar energy strategy, balances of the import, which causes current deficit increases with FDI. Namely, that will not affect economic equilibrium, will contribute to the growth while decreasing Turkey’s current deficit to the sustainable levels. After the resolution of the model, a response is searched for the question that how much FDI and how much DI costs may decrease the current deficit to sustainable levels optimally. To sum up, it is aimed to establish and solve an optimization model that will reveal long-run investment plans for decreasing Turkey’s current deficits to sustainable levels (p. 140).50
The problem described above with its objective and constraints are indicated analytically. For instance, Xi1indicates the ith period annual solar energy FDI investment amount, Xi2
indicates ith period domestic solar energy investment amount. The model aims to determine investments annually that provide the maximum return in current deficit reduction. In this framework, while forming constraints between FDI inflows and DIs, data that provide some information obtained from solar energy investment subsidy documents for January 2015–February 2016 period from Ministry of Economy is given as follows: The system is composed via 30% of domestic resource usage, 70% of imported resources in terms of costs, an average cost of 1 GW solar energy is 1 billion dollars, domestic firms use currency originated credits 30% for equity and 70% for external source.20Figure 3 is shown below regarding the model (p.145).51
Xi1: ith Annual 1 GW Solar Investment Cost of FDI
Xi2: ith Annual 1 GW Solar Investment Cost of DI
The objective function regarding the model includes calculated assumptions as follows: For the first year, 70% of FDI inflows via solar energy investment moves to import, then reduction of current investment reveals with the substitution of imported energy because of energy production. Profits obtained by FDI will be transferred at 7% rate. For DIs, external resource originated currency loan will be used for the 70% imported part of the investment which includes 6% interest payment (10% of total investment is calculated as equal installment for
10 years), amount of imported fuel reduction is as much as 17% of 1 GW capacity PV solar energy investment (170 million dollars energy import reduction). Within this context, optimi-zation studies are arranged in order to provide solar energy investments to be presented which will reduce energy originated current deficit for the period 2017–2030.
Objective function
The objective function is formed based on beneficial existence duration of PV panels that is 25 years even though the investment plan duration is 14 years (data of the constraints are based on 2030).
Import reduction cost of power generation within solar energy
FDI annual profit transfer
Credit repayment to domestic investments for 10 years
Constraints of the model
Current deficit balance constraint: Xn i¼1 Xl j¼1 0:17 xi1;j ð Þ X n i¼1 xi1;1 ð Þ 0:07 2 4 FDI Solar Energy Investment Domestic Solar Energy Investment PV Imports PV Imports Profit Transfer Interest Payment Reduction of Current Deficit (Solar Energy Power Generation Reduction of Imports)
Figure 3. Formal illustration of the model. Source: Alag€oz (2016: 145).
Xn i¼1 xi1;2 ð Þ 0:10 þX n i¼10 xi10;2 ð Þ 0:10 # þ 0:3 xi;l 0:7 xi;2 0i (2) n¼ 1; 2; 3 . . . 14; 1 ¼ 1; 2; x0;1¼ 0; x0;2¼ 0
(2) Annual current deficit standstill constraint.
In other words, domestic solar energy investments only guarantee that the amount of investment will be implemented only as much as the cost of solar energy power generation that closes current deficit and for the part of FDIs except the imported parts.
Solar energy capacity target constraint of state: X2 i¼1 xi;1þ xi;2 ð Þ 1:8 (3) X3 i¼1 xi;1þ xi;2 ð Þ 3 (4) X7 i¼1 xi;1þ xi;2 ð Þ 5 (5) X14 i¼1 xi;1þ xi;2 ð Þ 10 (6)
Equations (3), (), (5), and (6) are target constraints. Target constraints revealed by Ministry of Energy and Natural Resources are 1.8 GW for 2018, 3 GW for 2019, 5 GW for 2023, 10 GW for 2030.19
Estimated power generation originated import (EPGOI) constraint:
This constraint ensures that PV investments will not exceed the amount of imported fossil based production in total electricity generation in the future. The constraint is to ensure that the PV capacity is not used from the existing and potential capacity of other domestic and renewable energy sources, while making investment plans to meet imported annual fossil based production capacity with PV investments.
Xn i¼1
xi;1þ xi;2
ð Þ EPGOIi n¼ 1; 2 . . . 14 (7)
(7) Import originated power generation is estimated based on the amount of 2007–2015 import originated power generation. Then the value of electric is transmitted into 1 GW solar energy investment. Every period is positioned as a constraint for the later period. For 2017, this constraint is not to exceed 2018 estimation (EPGOI).
FDI inflow constraint:
Based on the period of 2000–2015, average FDI inflows of Turkey, 10 billion dollars for 2017, in other words, for all years, the maximum level of FDI is assessed as smaller or equal to 10 GW.
Constraint of fulfillment of increases in electricity production estimate with solar energy system:
xi;1þ xi;2 EAEGIi i¼ 1:2 . . . 14 (9)
(9) The Constraint of the corresponding (estimated annual electricity generation increases: (EAEGI) power generation increases with solar energy for the period of 2017– 2030. These values (EAEGI) are converted to monetary values of 1 GW of PV electricity generation ($1 billion) for the years to come in the last column of Table 5. It guarantees that the power generation obtained from annual FDI or domestic solar energy investments is bigger than or equal to annual increase estimates.
Positivity constraint:
xi;1; xi;2 0XRn i¼ 1; 2 . . . 14 (10)
Assumptions of the model
Annual productivity reduction, technological improvements regarding the future and panel productivity increases concerning cost reductions are constant.
Table 5. Low demand estimation of electricity generation projection in 2017–2035, Turkey.
Years Estimation of total power generation (TWh) Increase rate (%) Total power generation imports (TWh) Required 1 GW solar energy cost
EPGOI (billion dollars)
2016 278.160 5.2 163.401 102.16 2017 293.150 5.32 171.634 107.27 2018 307.720 4.97 180.216 112.64 2019 322.620 4.84 189.227 118.27 2020 338.060 4.79 198.688 124.18 2021 352.960 4.41 206.636 129.15 2022 368.200 4.32 214.901 134.31 2023 383.940 4.27 223.497 139.69 2024 400.650 4.35 232.437 145.27 2025 417.960 4.32 241.735 151.08 2026 435.910 4.29 251.404 157.13 2027 454.510 4.27 261.460 163.41 2028 473.790 4.24 271.919 169.95 2029 493.780 4.22 282.796 176.75 2030 514.500 4.20 294.107 183.82 2031 534.980 3.98 305.872 191.17
EPGOI: estimated power generation originated import.
For the imported fuel resources that affect the current deficit, dollar-based previous year averages of increase and decreases are constant.
It is assumed that no preventing regulations will be imposed in terms of political stability and Ministry of Energy will make necessary infrastructure investments that solar energy system requires.
Solution and assessment of the model
The LP model in this study is modeled using GAMS 24.7.4 modeling language. The model consists of an objective function, 56 constraint equations, and 28 variables and is solved in 0.17 seconds via CPLEX solver. Table 6 illustrates summary data regarding the solution. Solar energy investments through 14 years will provide 595.609 billion dollars of current deficit reduction through 25 years existence of the beneficial solar energy system investments. Within this investment, an investment plan for 14 years (2017–2030) has been put forward. The model concludes that 191.171 billion dollars of investment is necessary including 34.262 billion dollars of FDI and 159.909 billion dollars of DI. Until 2030, it is planned to make these investments without increasing current deficit. Within this context, 133.820 billion dollars cost for PV panel will be imported for 191.171 billion dollars cost solar energy investment. Energy import originated current deficit through 14 years is corresponded via energy import decreases provided by 10.279 billion dollars of FDI solar energy system investments and 123.541 billion dollars of power generation.
When Table 7 that consists of details regarding the solution is interpreted, FDI invest-ments (equation (8)) realize its constraints at maximum level until 2019. This case is orig-inated from FDI (equation (9)) necessity for first years to absolutely correspond with current deficit constraint (equation (2)) and the necessity to correspond with power gener-ation increase constraint. FDI coefficient in the objective function is zero after 2020 because this coefficient is smaller compared to DI coefficient in the model.
For instance, an annual return column, the data of 2020 show that current deficit will be reduced even though no investment will occur in 2021. GDP estimation column is obtained by using 4% average increase of GDP in the period of 2005–2015 and implying this to the 720 billion GDP data of 2015 and sustaining it until 2030. The estimated current deficit is calculated by using the average 5.8% data from the period of 2005–2015 and implying this ratio to the estimated GDP data. Current Deficit/GDP ratio researched in the model is
Table 6. Solution summary table of current deficit balanced solar energy system investment model.
Objective function optimum solution Billion dollars
Total return for 25 years 595.609
Total FDI solar energy system investments for 14 years 34.262 Total domestic solar energy system investments for 14 years 156.909 Total (domesticþ FDI) solar energy system for 14 years 191.171
calculated via subtraction of annual current deficit reduction from estimated current deficit data and implying it to estimated GDP. The results can be observed in Table 7.
In the last column of Table 7, the result obtained indicating current deficit/GDP rate can be reduced from 5.8% to 4.29% under model assumptions related to FDI and DIs. According to the result of the model, 26% of 75.21 billion dollars cost of current deficit namely by 19.604 billion dollars cost of the total current deficit can be reduced in 2030. Therefore, in case of import rate reductions of solar energy PV panel systems from 70% to 30% in 2030, the ratio of current deficit to GDP can be reduced to 3.59% and it is observed that current deficit reduction via solar energy power generation corresponds 38% of the
Table 7. Current deficit balanced solar energy system investment solution.
Years Type of Investment Investment Cost for 1 GW (Billion dollars) Annual Current Deficit Reduction (Billion dollars) Estimated GDP (Billion dollars) Estimated Current Deficit (Billion dollars) Current Deficit/GDP Expected from the Model (%) 2017 FDI 10.000 1.300 778.75 45.17 5.63 DI 4.286 2018 FDI 10.000 2.730 809.90 46.97 5.46 DI 6.143 2019 FDI 10.000 4.303 842.30 48.85 5.29 DI 8.186 2020 FDI 4.262 5.287 875.99 50.81 5.20 DI 7.974 2021 FDI 0.000 5.816 911.03 52.84 5.16 DI 7.553 2022 FDI 0.000 6.398 947.47 54.95 5.12 DI 8.309 2023 FDI 0.000 7.038 985.37 57.15 5.09 DI 9.139 2024 FDI 0.000 7.741 1,024.78 59.44 5.04 DI 10.053 2025 FDI 0.000 8.515 1,065.78 61.82 5.00 DI 11.059 2026 FDI 0.000 9.367 1,108.41 64.29 4.95 DI 12.165 2027 FDI 0.000 10.775 1,152.74 66.86 4.87 DI 13.993 2028 FDI 0.000 12.957 1,198.85 69.53 4.72 DI 16.270 2029 FDI 0.000 16.153 1,246.81 72.31 4.50 DI 19.067 2030 FDI 0.000 19.604 1,296.68 75.21 4.29 DI 22.712 2030a 28.689 1,296.68 75.21 3.59
FDI: foreign direct investments; DI: domestic investments.
a
total current deficit in 2030. With this result, the necessity of current deficit/GDP ratio as 4% declared by Dornbusch and Fischer1is provided.
Conclusion
In general, a linear optimization model is formed and solved that can be taken as reference by countries that struggle with current deficit issue while composing investment plans. Moreover, countries that deal with energy import originated current deficit problem can obtain solutions including their own one or more renewable energy resources as a model with their own parameters. Besides, although, the GHG reduction constraint is especially not included in the model, due to making the maximization of solar energy system invest-ments, the aim of greenhouse gas reduction has been carried out.
The results regarding Turkey application can be indicated as follows: solar energy reveals as an opportunity for Turkey in terms of current deficit issue and energy safety (foreign dependency). The solutions imply that 75% of total solar energy capacity will be used till 2030 via 205,600 GWh energy production and 191 GW capacity. It is obtained within the model that the current deficit/GDP rate can be reduced from 5.8% to 4.29% at the end of 2030. In case of import reduction from 70% to 30% for PV panels, current deficit/GDP ratio can fall to 3.59%. In consideration of these results, for accomplishing the investment plans determined for the period of 2017–2030, it is necessary to implement their own requirement policies such as (i) The planning and implementation of the energy transmission infrastructure to meet solar energy investment needs, (ii) increasing the number of Specialized Energy Industry Region established by the law (currently three regions in Turkey), (iii) reduction of import rate of PV panel system by giving incentives for domestic production of PV cells, (iv) electricity production with solar energy in exchange for the license, granting various concessions for FDIs to manufacture PV cells in Turkey, (v) con-struction plans of cities and organized industrial zones should be composed in the way that the constructions will not prevent the sunlight of the each other’s roofs, (vi) encouraging the solar energy roof systems for consumers.
In future studies, this linear programming model can be expanded by including param-eters and constraints such as import rate constraint of energy investment equipment within current deficit, equity capital rate of investors, cost improvements in PV panel technologies (learning curves), other renewable energy sources, seasonal fluctuations of energy sources, contributions to economic growth. Solution method of the model probably changes because of complexity increase.
Declaration of conflicting interests
The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The authors received no financial support for the research, authorship, and/or publication of this article.
ORCID iD
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Mehmet Alag€oz is a professor in Selc¸uk University, Faculty of Economics and Administrative Sciences. He has various studies about energy economics, balance of pay-ments, and international trade. Recently, he has focused on studying the effects of energy investments on current deficit. Especially, he studies about public-private partnership which is an important method in Turkey regarding financing mechanisms of energy investments and macroeconomic equilibrium. In this context; his study entitled as Private Partnerships Investments and External Debt Payment Projection has been published in September, 2018. Nihal Yokus¸ is an associate professor and works in Karamanoglu Mehmetbey University, Kamil €Ozdag Faculty of Science Department of Mathematics. Even though she specializes in analysis department of mathematics, she executes mutual projects and studies about mathematical financial analysis and optimization in economics science with economists. Turgut Yokus¸ received his undergraduate degree in industrial engineering and received his graduate degree in Karamanoglu Mehmetbey University department of economics. He is a current Phd student in Selcuk University. He has studies about energy economics, public-private partnerships, balance of payments, currency determinants, optimization, and math-ematical modelling.
