Turkey: The New Law on Renewable Energy Resources

The Law on Utilization of Renewable Energy Resources for the Purpose of Generating Electrical Energy1 ("Law") was adopted on 18 May 2005. This article provides as overview of the general provisions of the Law, as well as other supporting legislation regarding renewable energy resources. However, the legislation on biofuel will not be taken into account.2

Renewable energy resources ("RER") is not a brand-new topic, as the Electricity Market Law3 ("EML"), which was enacted in March 2001 and the Electricity Market License Regulation4 ("Regulation") demonstrate. According to the EML, the Energy Market Regulatory Authority ("EMRA") is authorized to take the necessary measures to encourage the utilization of RER. Financial incentives for RER are specified in the Regulation. Legal entities applying to obtain a license for generation of electricity based on RER are required to pay merely 1% of the total licensing fee and are exempted from annual license fees for the first eight years following the facility completion date as inserted in the respective licenses. Moreover, the Regulation stipulates that legal entities, which generate electricity from RER, may purchase electricity from private sector wholesale companies under certain conditions. Finally, it provides that the Turkish Electricity Transmission Company and/or legal entities with a distribution license shall assign priority to system connection of generation facilities based on RER.

According to the European Council Decision of 23 January 2006 on the principles, priorities and conditions contained in the Accession Partnership with Turkey,5 one of the short-term priorities identified for Turkey relates to "[s]tart alignment on the acquis on energy efficiency and renewable energy sources and develop administrative capacity in these sectors". Therefore, the new Law contains new incentives for RER development.

Objective and Scope of the Law

The purpose of the Law is to expand the utilization of RER for generating electricity in a dependable and economic manner, to increase the diversification of energy resources, to protect the environment and to develop the related manufacturing sector for the realization of these objectives. The Law encompasses wind, solar, geothermal, biomass, biogas, wave, current and tidal energy resources, canal and river type hydroelectric generation facilities and hydroelectric generation facilities with a reservoir area of less than fifteen square kilometers.

RER Certificate ("Certificate")

The Law provides that legal entities generating electricity from RER will be granted by EMRA a Certificate entitling the holders to benefit from the incentives under the Law. The procedures and principles regarding the issuance of this Certificate are specified in a regulation, was published in the Official Gazette on 4 October 2005.6

Principles of Implementation

The Law provides for a purchase obligation for retail sales companies with regards to electricity generated from RER. The purchase obligation ratio is the proportion of the previous year’s sales of the company to the total amount of energy of the company. The amount of RER certified electricity will be published annually by EMRA. If there is a sufficient amount of RER certified electricity within the market, then the purchase obligation ratio may not be lower than 8% of the sales in the previous calendar year. Public distribution companies holding a retail sales license are exempted from the purchase obligation until 1 January 2007.

Until the end of the year 2010, the price for electrical energy generated from RER, which is to be purchased in accordance with the provisions of the Law, shall be the average wholesale electricity price of the previous year determined by EMRA. The Law gives the Council of Ministers the authority to increase this price up to 20% at the beginning of each year. After 2011, the above price mechanism shall not be applicable to RER certified energy plants operating for more than seven years. The price is set by bilateral market agreements and the purchase obligation for retail sales companies applies.

Moreover, the Law contains incentives in terms of the investment periods of energy projects. For instance, investments in energy generation facilities, procurement of electro-mechanic systems within Turkey, investments on research, development and production regarding solar energy units and investments on research and development concerning biomass energy, may benefit from incentives determined by the Council of Ministers. Additionally, in the municipalities and governorates with sufficient geothermal resources, the need for heat energy shall be met mainly by geothermal or solar thermal resources. Finally, the Law provides implementations related to the acquisition of land for the purpose of generating electricity based on RER, such as a 50% reduction.

Sanctions

In the event of violation of the principles of implementation of the Law, legal entities holding retail sales licenses shall be charged an administrative fine of 250.000 YTL by EMRA and warned to eliminate the violation within sixty days. With regards to repetition of violations, the Law provides for more serious financial sanctions and cancellation of the license to perform activities in the energy sector.

The Law’s enumeration of RER lacks flexibility in terms of technical developments in the future and, thus, for instance, it may be argued that EMRA should have been authorized to add other types of RER. Finally, in its 2005 Progress Report concerning Turkey,7 the European Commission criticized the Law for not setting a target for electricity generated from RER by 2010, as foreseen by the relevant EU law.8

Despite some deficiencies, the Law, which is basically modeled after Germany’s Renewable Energy Act,9 is welcome news. It is a first step towards the implementation of the relevant acquis and has the potential to strengthen the role of RER for Turkey’s energy supplies and, thus, to decrease the dependence on energy imports from other countries. According to the latest statistics from the Organization for Economic Co-operation and Development for Turkey, RER contributed 13.2% to the total primary energy supply of 82.46 MTOE10 in 2004.11 Due to Turkey’s geographic conditions, and the steady increase of the energy requirement as a result of the growth in both population and industrialization, electricity production from many RER is expected to grow significantly. This will attract new investments within Turkey.

Footnotes

1. Law No. 5346, published in the Official Gazette dated 18 May 2005 and numbered 25819.

2. See Petroleum Market Law No. 5015, published in the Official Gazette dated 20 December 2003 and numbered 25322; Petroleum Market License Regulation, published in the Official Gazette on 17 June 2004 and numbered 25495; Regulation on Technical Criteria for Petroleum Market, published in the Official Gazette on 10 September 2004 and numbered 25579.

3.Law No. 4628, published in the Official Gazette dated 3 March 2001 and numbered 24335.

4.Published in the Official Gazette dated 4 August 2002 and numbered 24836; see moreover Electricity Market Grid Regulation, published in the Official Gazette dated 22 June 2003 and numbered 25001; Regulation on Balancing and Settlement, published in the Official Gazette dated 21 December 2004 and numbered 25677; Communiqué Regarding the Principles and Procedures of Financial Settlement, published in the Official Gazette dated 4 November 2003 and numbered 25279.

5.OJ 2006 L 22/34.

6.Numbered 25956.

7.COM (2005) 251 final.

8.See for the relevant EU law: http://eur-lex.europa.eu/en/index.htm.

9.Erneuerbare-Energien-Gesetz (EEG) vom 21. Juli 2004 (BGBl. I S. 1918), geändert durch Artikel 3 Absatz 35 des Gesetzes vom 7. Juli 2005 (BGBl. I S. 1970).

10.Million tons of oil equivalent.

11.See http://www.oecd.org.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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