Turkey: Energy Regulation And Markets Review: Turkey


Following the elections held in Turkey in November 2015, Mr Berat Albayrak was appointed as the new Energy and Natural Resources Minister. The new minister recently declared that in the long term Turkey aims to (1) increase its general energy storage capacity; (2) increase storage obligation rates for imports from 10 per cent to 20 per cent; (3) use different energy storage options; and (4) support investments in the energy sector, with a particular focus on renewable energy. In the past decade, Turkey increased its installed capacity from 39,800MW to 74,000MW and Turkey's energy consumption increased from 160 billion kWh to 264 billion kWh. Furthermore, as announced by the minister, Turkey is planning to make an investment of 15 quadrillion Turkish liras to strengthen the infrastructure of its electricity supply system network in the coming five years. As it did in 2015, so Turkey continues to take concrete steps to meet energy demands and to keep doubling the figures until 2023. In addition to relevant targets for electricity and natural gas, Turkey is also planning to enact a separate coal law, considering the specific needs of operating coal mines and the use of coal to meet energy demands. This shows that, while focusing on renewable energy investments, Turkey will continue to use coal as an energy resource in its energy strategies. All in all Turkey, aims to stop being an energy importer and start exporting energy in the coming years.

Turkey's strategy and targets for 2023 are:2

  1. increasing total installed power to 120,000MW;
  2. increasing the share of renewable energy sources from 25 to 30 per cent;
  3. maximising the use of hydropower;
  4. increasing wind-power installed capacity to 20,000MW;
  5. installing power plants with 600MW of geothermal and 3,000MW of solar energy;
  6. extending the length of electricity transmission lines to 60,717km;
  7. reaching a power distribution unit capacity of 158,460MVA;
  8. extending the use of smart grids;
  9. raising the natural gas storage capacity to 5 billion m3;
  10. establishing an energy exchange;
  11. commissioning at least two nuclear power plants;
  12. building a coal-fired power plant with a capacity of 18,500MW; and
  13. eliminating its petroleum and gas import costs, currently as high as US$56 billion.

Among these targets, establishment of an energy exchange will not only support market liberalisation but also ensure transparency and help maintain a healthy balance between supply and demand. Turkey enacted a new Electricity Market Law3 (EML) in 2013.4 The EML stipulates the creation of an electricity exchange market, which will be administered through a newly incorporated company, EPİAŞ.5 As detailed in Section VI, infra, EPİAŞ was established on 18 March 2015.

The Turkish electricity market is one of the fastest growing electricity markets in the world, with an approximately 9 per cent annual increase on average. Natural gas consumption in Turkey is increasing as well. According to the MENR,6 natural gas demand is expected to increase by 2.9 per cent per year until 2020. Because of insufficient petroleum and natural gas sources, Turkey is dependent on imports. Turkey imports petroleum mainly from Iran, Russia, Iraq, Saudi Arabia and Kazakhstan, and natural gas from Russia, Turkmenistan, Azerbaijan and Iran, in addition to its long-term liquefied natural gas (LNG) imports from Nigeria and Algeria.7

With the enactment of the Natural Gas Market Law8 (NGML) in 2001, BOTAŞ9 lost its monopoly in natural gas importation, distribution and sales. However, BOTAŞ maintains its key market position, as it owns and operates the natural gas transmission network and still imports approximately 80 per cent of the natural gas consumed in Turkey. After BOTAŞ's natural gas agreement with Russia expired in 2011, four privately owned companies – Enerco, BosphorusGaz, Avrasya Gaz and Shell Gaz – signed agreements with Gazprom and obtained import licences for importation of natural gas from Russia.

Turkey enacted a new Turkish Petroleum Law10 (TPL) in 2013, abolishing the former Petroleum Law. Then, the Turkish Petroleum Law Implementation Regulation11 entered into force in early 2014. An amendment law proposing substantive changes to the Natural as Market Law (the Draft Amendment Law) was prepared in 2012 and submitted to the Turkish Grand National Assembly (the Turkish Parliament) on 4 August 2014. However, at the time of writing, these amendments still have not been enacted.

In line with Turkey's substantial demand potential and its renewable energy targets, Turkey has also introduced the Regulation on Generating Electricity without a Licence;12 the Regulation on Documentation and Support of Renewable Energy;13 the Regulation on Technical Evaluation of Solar Energy Based Licence Applications;14 the Communiqué on Wind and Solar Measurements for Preliminary Licence Applications;15 the Contest Regulation on Pre-Licence Applications Regarding Generation Facility Based on Solar and Wind Energy;16 and the Regulation on Renewable Energy Resources for Electricity Generation.17


i The regulators

The MENR is responsible for preparing and implementing energy policies, plans and programmes in coordination with its affiliated institutions. The Energy Market Regulatory Authority (EMRA), is responsible for regulating and supervising the operation of the electricity, downstream petroleum and downstream natural gas markets.18 It exercises its powers through EMRA's board.19 With its competence to regulate and supervise the energy markets, EMRA has the following duties:20

  1. issuing licences;
  2. drafting, amending, enforcing and auditing performance standards, as well as distribution and customer services;
  3. setting out the pricing principles indicated in the law; and
  4. ensuring the development and implementation of an infrastructure.

The primary legislation for the electricity market is the EML and the Electricity Market Licence Regulation.21 While the Petroleum Market Law,22 the Liquefied Petroleum Gas Market Law23 and the Petroleum Market Licence Regulation24 govern downstream petroleum activities, the NGML and the Natural Gas Market Licence Regulation25 govern downstream natural gas activities. As for the upstream market, the TPL governs upstream oil and gas activities,26 and the Law on Transit Passage through Petroleum Pipelines27 (the Transit Law) governs the transit passage of oil and gas.

ii Regulated activities


To conduct any one of the following market activities, companies must obtain a licence from EMRA:

  1. generation;
  2. transmission;
  3. distribution;
  4. wholesale;
  5. retail;
  6. market operation;
  7. import; and
  8. export.

The EML abolished the 'auto-production licence' system, and the existing auto-producer licences have been automatically converted to generation licences. However, individuals or legal entities (1) generating electricity for their own needs, and (2) having facilities or equipment that are not operating in parallel to the transmission and distribution network, are not required to obtain a licence, as long as they remain disconnected from the transmission and distribution networks and do not engage in wholesale or retail activities.

The EML introduced the new 'supply licence', which combines wholesale and retail sale licences. The EML also introduced the 'preliminary licence' mechanism for generation licence applications. A preliminary licence is issued for a specified term, to those having applied (to EMRA) to conduct electricity generation activities.

Under the Regulation on Generating Electricity without a Licence, generation facilities with an installed capacity of up to 1MW of renewable energy resources are exempt from this licensing requirement. Moreover, if a company generates more electricity than it consumes, the surplus may be sold in the same distribution region in which it is generated, within the scope of the Renewable Energy Resources (RER) Support Mechanism. An amendment to the Regulation on Generating Electricity without a Licence came into force on 23 March 2016. Pursuant to this amendment, a maximum capacity of 1MW per transformer centre can be allocated to individuals or legal entities generating solar or wind energy (excluding rooftop installations), regardless of the number of consumption facilities owned by that individual or legal entity. When calculating the 1MW limit, both the individual or legal entity or entities in which such persons have direct or indirect control are considered as the same person.

Among other significant changes, the new amendments introduced share transfer restrictions. Accordingly, shareholders of companies that applied for grid connection for unlicensed electricity generation projects are prohibited from transferring any of their shares in these companies. The prohibition period applies from the date of application until the temporary acceptance date.

Downstream petroleum and natural gas

The following downstream petroleum market activities require a licence:

  1. refining;
  2. processing;
  3. lubricant oil production;
  4. storage;
  5. transmission;
  6. eligible consumer;
  7. bunker delivery;
  8. distribution;
  9. transportation; and
  10. dealership.

Under the NGML, the following activities require a licence:

  1. import;
  2. export;
  3. transmission;
  4. storage;
  5. wholesale;
  6. distribution; and
  7. sale, distribution and transmission of compressed natural gas.

iii Market restrictions


In the downstream petroleum market, a distributor's market share cannot exceed 45 per cent of the total domestic petroleum market and a distributor's sales via its own dealers (i.e., dealers owned by the distributor) cannot exceed 15 per cent of that distributor's total domestic market share.

Another restriction regarding distributors and dealers derives from the Competition Board interventions. Non-compete undertakings for indefinite terms or those exceeding five years can no longer be granted a block exemption from the prohibition of agreements, concerted practices or decisions that restrict competition in a specific market. According to the Competition Board's latest decisions, all personal or real rights related to dealership agreements (such as loan contracts, equipment contracts and long-term lease contracts and long-term usufructs) must be limited to five years.

Natural gas

Under the NGML, import companies cannot conclude new natural gas purchase agreements (except for LNG) with countries that currently have existing natural gas sale and purchase agreements with BOTAŞ. The barrier to market entry is actually even higher, because under EMRA's Board Decree No. 725 (Decree No. 725), EMRA must obtain BOTAŞ's opinion on whether or not such import activity will affect the performance of BOTAŞ's obligations arising out of its existing contracts (in BOTAŞ's capacity as a natural gas importer). In addition, Decree No. 725 requires consultation with BOTAŞ (in its capacity as a transmission system operator (TSO)) on the technical suitability of the proposed importation through BOTAŞ's transmission network.

The Draft Amendment Law abolishes the prohibition on import companies for concluding new natural gas purchase agreements with countries that currently have existing natural gas purchase agreements with BOTAŞ. This is a clear sign of the government's intention to further liberalise the Turkish natural gas market.

The NGML imposes storage-related obligations on applicants for import and wholesale licences. Import licence applicants must obtain commitments and guarantees from storage licence holders, regarding their capacity to store 10 per cent of annual gas imports in Turkey within five years. A similar obligation is imposed on wholesale licence applicants. Accordingly, wholesale licence holders must take the required storage-related measures within five years of the issuance of the licence.

Under the NGML, the MENR's opinion is not required for natural gas market licences. However, if the Draft Amendment Law is passed as is, then the NGML will have a provision whereby EMRA will have to obtain the MENR's opinion for granting import and export licences.

Under the NGML, no company can sell natural gas corresponding to more than 20 per cent of the estimated national consumption levels determined by EMRA. Moreover, importers cannot import more than 20 per cent of estimated national consumption. The Draft Amendment Law will not change these market share restrictions.

iv Transfers of control and assignments

In the electricity market, licence holders must obtain EMRA's approval for any of the following transactions:

  1. transferring of 10 per cent or more shares (5 per cent or more in publicly held companies) in licence holding companies;
  2. any transaction resulting in the change of control of a licence holding company;
  3. any transaction resulting in the change of ownership or usage right on licensed facilities;
  4. share pledges; and
  5. merger, in accordance with Article 59 of the Electricity Market Licence Regulation.

In the natural gas market, licence holders must obtain EMRA's approval for any of the following transactions:

  1. transferring of 10 per cent or more shares (5 per cent or more in publicly held companies);
  2. transferring of shares, resulting in any shareholder's shares exceeding 10 per cent or decreasing below 10 per cent;
  3. any transaction resulting in acquisition of the right to vote in the licence holder company;
  4. share pledges;
  5. creating or lifting privilege over shares or issuing a dividend right certificate; and
  6. merger, in accordance with Article 43 of the Natural Gas Market Licence Regulation.


1 Okan Demirkan is a partner and Melis Öget Koc and Zeynep Buharalı are associates at Kolcuoğlu Demirkan Koçaklı Attorneys at Law.

2 Invest in Turkey, Energy: www.invest.gov.tr/en-US/sectors/Pages/Energy.aspx.

3 Entered into force on 30 March 2013

4 In addition to the EML, many long-awaited regulations entered into force in the last quarter of 2013 and in early 2014, such as the Electricity Market Licence Regulation, the Electricity Market Distribution Regulation and the Electricity Market Connection and Use of the System Regulation.

5 Enerji Piyasaları İşletme Anonim Şirketi.

6 The Ministry of Energy and Natural Resources.

7 Turkey also imports spot LNG.

8 Entered into force on 2 May 2001.

9 The Petroleum Pipeline Corporation, BOTAŞ is a state-owned company.

10 Entered into force on 11 June 2013.

11 Entered into force on 22 January 2014.

12 Entered into force on 2 October 2013.

13 Entered into force on 1 October 2013.

14 Entered into force on 1 June 2013.

15 Entered into force on 17 June 2013.

16 Entered into force on 6 December 2013.

17 Entered into force on 27 November 2013.

18 The General Directorate of Petroleum Affairs is the regulatory authority responsible for upstream market.

19 The Energy Market Regulatory Board.

20 Invest in Turkey, The Energy Sector: A Quick Tour for the Investor: www.invest.gov.tr/en-US/infocenter/publications/Documents/ENERGY.INDUSTRY.PDF.

21 Entered into force on 2 November 2013.

22 Entered into force on 20 December 2003.

23 Entered into force on 13 March 2005.

24 Entered into force on 17 June 2004.

25 Entered into force on 7 September 2002.

26 Under the TPL, the definition of 'petroleum' includes both crude oil and natural gas.

27 Entered into force on 29 June 2000.

To view the full article please click here.

© Kolcuoğlu Demirkan Koçaklı Attorneys at Law 2015

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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