Turkey: Unlicensed Electricity Generation Based On Wind/Solar Power Energy

Last Updated: 8 August 2016
Article by Alican Solmaz

1. INTRODUCTION

Turkey is at the crossroads of Europe and strategically and economically important regions. Given its strategic location, it constitutes an energy link between the consumer markets and source countries. The Turkish government predicts that energy demand will increase by at least 10% every year for the next twenty (20) years. The gap between Turkey's energy supply and demand is the key element which determines Turkey's energy policy and given such demand, energy has an important role influencing both internal and foreign policy. In general, as a country with rapidly growing economy and given its energy demand, Turkish electricity market is one of the fastest-growing in the world.

Turkey enacted the new Electricity Market Law1 in 2013. In addition to the Electricity Market Law, many long-awaited regulations entered into force in the last quarter of 2013 and in early 2014, such as Electricity Market License Regulation2, Electricity Market Connection and System Usage Regulation3 and Unlicensed Electricity Generation Regulation4.

Unlicensed electricity generation is an exclusive system based on the use of renewable energy resources which gives the electricity subscribers the opportunity to produce their own electricity and to sell the surplus in accordance with the conditions stipulated within the framework of the regulation.

The legal framework and its implementation including the application procedure, as well as a brief analysis thereof, are summarized below with respect to unlicensed electricity generation based on solar and wind power activities according to Turkish law.

2. LEGAL FRAMEWORK

Electricity Market Law is the primary legislation for the electricity market activities in Turkey and thus, the primary legal ground for the unlicensed electricity generation. Unlicensed electricity generation activities are regulated pursuant to Article 14 of the Electricity Market Law. According to this article, generation facilities based on wind and solar power resources, (i) which have the installed capacity of maximum one (1) MW, and (ii) which utilize all of their generated energy without supplying it to the grid and which utilize their generation and consumption at the same location, can conduct their activities without a license.

The secondary legislation for unlicensed electricity generation activity consists of two parts: Unlicensed Electricity Generation Regulation and the Communiqué on Unlicensed Electricity Generation5. Along with the Article 14 of the Electricity Market Law, Article 5 of the Unlicensed Electricity Generation Regulation and Article 4 of the Communiqué on Unlicensed Electricity Generation stipulate the same conditions with respect to the exemption requirements to obtain a license and establish a company in order to generate electricity and lists the generation facilities that benefit from such exemption.

Moreover, every person or legal entity is entitled to establish an unlicensed electricity generation facility provided that such person is an electricity subscriber. In relation to installation of capacity of maximum one (1) MW facilities mentioned in item (i) above, principally, only one (1) generation facility up to one (1) MW based on renewable energy sources can be established per each consumption point represented by an electricity subscriber. However, in the case the distribution system has sufficient capacity to cope with the uptake, more than one (1) generation facility based on renewable energy sources can be established for each consumption point providing that total capacity of all facilities shall not exceed one (1) MW.

Another important issue that should be taken into consideration about the Unlicensed Electricity Generation Regulation is that the power generation and consumption locations are required to be in the same distribution zone.

The purpose of the unlicensed electricity generation is to generate energy to meet only their own needs. However, if surplus energy is generated from wind and solar energy sources, it can be sold back to the grid/distribution company for ten (10) years, at the price of the Renewable Energy Sources Support Mechanism6, as set out in the Renewable Energy Law7. In addition, domestic equipment and material usage for solar and wind energy facilities is also incentivized by renewable energy support mechanism. In accordance with Article 6/B of Renewable Energy Law, the relevant authority makes an incentive pay in favor of the investor for the first five (5) years by calculating the amount with respect to feed-in-tariffs set under the Renewable Energy Law taking into consideration sold energy to the national grid system.

It should be noted that unlicensed electricity producers may not sell or supply the surplus energy by concluding bilateral agreements. Unlicensed producers may only sell the surplus energy to the grid/licensed distribution companies.

3. APPLICATION PROCEDURE

The application procedure of the unlicensed electricity generation is set out in the relevant legislation mentioned herein. The applicants must fill out the Unlicensed Generation Application Form which is attached to the Unlicensed Electricity Generation Regulation along with the land registration or rental contract of the facility area, a technical connection scheme and the receipt of the application fee. Depending on the project, the application shall be made directly to the relevant regional distribution company or to the relevant Organized Industrial Zone distribution license holder.

Applications shall be evaluated and concluded within the twenty (20) days of the following month when application has been made. Unlicensed electricity generation model is summarized hereunder as well:

4. BRIEF ANALYSIS

A brief analysis of the relevant legislation highlights some of the issues faced and criticized by the investors investing unlicensed electricity generation in Turkey.

One of the major issues lays behind the reason that there is a high demand from investors for unlicensed electricity generation in Turkey and its resulting connection problems due to the lack of connection possibilities.

Further, plant locations and obtaining the right of use of the relevant plant locations are another major problem in the unlicensed electricity generation system. Since the generation facility locations are expropriated by the Energy Market Regulatory Authority in the licensed electricity generation process, investors are not being concerned with the location or obtaining the right of use of the relevant location. However, investors are obtaining the right of usage of the generation facility locations on their own in the unlicensed electricity generation process. As a result of foregoing, the price of the lands reaches peak amounts affecting the financial feasibility of the project.

Another major issue is that there is uncertainty following the expiration of the feed-in-tariffs after the tenth (10) year.

Last, but not least, some investors also raise concern that there is no protective regulation in the applicable legislation in favor of the investors upon occurrence of a change in law decreasing the rates of incentive mechanism.

5. CONCLUSION

Besides all the difficulties stated above in the brief analysis, unlicensed electricity generation system is a huge step for the electricity market. Being less regulated compared to licensed electricity generation and with the incentives as well, it is aimed to lead investors to invest on unlicensed electricity generation facilities with high potential of profits. Giving the fact that Turkey has fast growing energy demand, this system helps and is hoped to continue to help in decreasing the importation of electricity as well as support the use of Turkey's vast potential in renewable energy sources. As the issues mentioned herein will be addressed in the near future, the unlicensed electricity generation based on wind and solar power energy will continue to grow and make its investors even more satisfied.

Footnotes

1. Electricity Market Law numbered 6446, published in the Official Gazette dated March 30, 2013 and numbered 28603.

2. Electricity Market License Regulation, published in the Official Gazette dated November 02, 2013 and numbered 28809.

3. Electricity Market Connection and System Usage Regulation, published in the Official Gazette dated January 28, 2014 and numbered 28896.

4. Regulation on Unlicensed Electricity Generation, published in the Official Gazette dated October 02, 2013 and numbered 28783.

5. Communiqué on the Application of the Regulation on Unlicensed Electricity Generation, published in the Official Gazette dated October 02, 2013 and numbered 28783.

6. Yenilenebilir Enerji Kaynakları Destekleme Mekanizması (YEKDEM).

7. Utilization of Renewable Energy Sources for the Generation of Electrical Energy Law numbered 5346, published in the Official Gazette dated May 18, 2005 and numbered 25819.

Originally published in Rüzgar Enerjisi Wind Energy Magazine, December 2015 - January 2016 / Issue 08/15 Tl.

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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