Turkey: Regulation On Renewable Energy Resource Areas Entered Into Force

Introduction

The Regulation on Renewable Energy Resources ("Regulation") that regulates the procedures and principles for identification, evaluation, and utilization of renewable energy resource areas that is prepared with the intention to support the development of generation facilities, and to finalize the investments on renewable energy resources in due time with the contribution of state incentives, entered into force and published in Official Gazette dated October 9th, 2016 and numbered 29852. The Regulation on Determination, Evaluation, Protection and Utilization of Renewable Energy Resource Areas in relation to Electricity Generation published in the Official Gazette dated 27 November 2013 and numbered 28834 is repealed with the entrance into force of this Regulation. This newsletter article examines the provisions of the Regulation in question.

Principles and criteria concerning the determination and grading of RESAs

Pursuant to Article No. 5 of the Regulation, renewable energy resource areas ("RESAs") can be developed by the examinations of the General Directorate of Renewable Energy ("General Directorate"), and by the examinations performed upon the competition of connection capacity allocation for RESAs. The technical and administrative examinations on the determination of RESAs are conducted by the General Directorate. RESAs can be developed on the lands allocated that are public, treasury and private properties. In consequence of a preliminary examination, if appropriate, the related area will be announced as a "Candidate RESA". The relevant area, following the completion of all technical analyses and measurements that are regulated in Article 5 of the Regulation, will be announced in the Official Gazette as the final RESA no later than 1 year. The Ministry of Energy and Natural Resources ("Ministry") evaluates RESAs by criteria, such as type, potential and unit electricity cost of the resource, and decides which RESAs will be opened primarily for investment.

The announcement of tender for the Right of Use for RESAs shall be published in the Official Gazette and on the web site of the General Directorate. Article 6 of the Regulation determines the required information to be published in the announcement.

Receipt of Applications for Right of Use of RESA

According to Article No. 7 of the Regulation, the legal entities who undertake to produce domestic equipment determined by the Ministry, and to use domestically produced goods, and to fulfill the conditions determined for pre-license applications under the Electricity Market License Regulation are authorized to make application to conduct generation activities on RESAs provided that they submit all required information and documentation by the Ministry. Additionally, it is regulated that if the application is made by more than one legal entity, such entities must apply as a joint venture.

Organization of Committee and Examination of Applications

Applications are examined by a committee ("Committee") to be established. According to Article 9 of the Regulation, detailed documentation examination must be completed within 20 calendar days starting from the application date that is determined in the announcement, and this period can only be extended by the Ministry for another 20 calendar days of the same period. Additional notification is made to applicants' notified addresses at least 5 calendar days prior to the tender date. Pursuant to the same Article, the Committee may decide that the tender can be suspended or cancelled in its own discretion, and in such event, the competitor legal entities will not be entitled to claim any losses or damages.

Competition Procedure and Finalization

According to Article No. 10, which is titled as "RESA Right of Use competition procedure and RESA Right of Use competition finalization," legal entities that have fulfilled the criteria determined and announced by the Ministry are authorized to participate in the competition to be made for assignment of connection capacity of a RESA. Tenders shall be held as reverse auctions starting from the maximum electricity purchase price set by the Ministry for kilowatt-hours per each RESA. Respectively, reverse auction procedures commence and competition continues till the offering of the lowest price and tender shall be awarded to that participant offering. In a reverse auction, legal entities' price offers are valid and binding without the obligation of signature. Guarantee letters, except for the most advantageous first three price offers, are returned within 3 business days following the tender date. The winner of the tender shall then be invited to sign the Right of Use Agreement. The Ministry is entitled to terminate the competition at any point at its own discretion.

Signing and Performing of the Right of Use Agreement

According to Article 11 of the Regulation, it is regulated that the legal entity, which is invited to sign the Right of Use Agreement, shall sign the Right of Use Agreement within 30 calendar days upon the receipt of notification of the invitation. In the event that the first lowest price bidder signs the agreement, the second and third lowest bidders' guarantee letters are returned within 3 calendar days as of the signature date. If the first lowest price bidder fails to sign the Right of Use Agreement within this 30 days' period, with the approval of the Ministry, the second lowest bidder and the third lowest bidder are invited to sign the Right of Use Agreement, respectively. The winner of the tender is obliged to complete the establishment of the relevant legal entity, as it is guaranteed, in accordance with the shareholding structure that is submitted in the application prior to the signing of the Right of Use Agreement.

Pre-license Process

The pre-license process is regulated under Article 12 of the Regulation. According to this Article, obtaining a pre-license and generation license is obligatory in order to conduct electricity generation activities in the announced RESAs. The legal entity that signed the Right of Use Agreement should complete a pre-license application within 45 days as of the signature date. Otherwise, the Right of Use Agreement will be terminated and the guarantee letter will be recorded as revenue. The pre-license period is determined in the Tender Specifications. Within the pre-license period, all required tasks must be achieved, and all required permits must be obtained within the context of the Electricity Market License Regulation and, respectively, a license application must be submitted.

Within the context of 'allocation in consideration of domestic production' ("ACDP") and 'allocation in consideration of the utilization of domestic goods' ("ACUD"), there are certain liabilities for pre-license holder legal entities. The construction deadline of the facility, to be utilized in the electricity generation within the scopes of the ACDP and ACUD, in which the equipment is to be manufactured ("Factory") as it is described in the Tender Specification, shall be determined in the Tender Specification. Sanctions such as the termination of the Right of Use Agreement for RESAs are regulated in Article 12 of the Regulation upon the occurrence of any delay in Factory's construction work plan. Additionally, pursuant to the same Article, in the event of any failure in the fulfillment of the undertakings stipulated under the Right of Use Agreement for RESAs, the relevant legal entity, and other legal entities whose shareholders are the shareholder of such entities, are not allowed to participate in other competitions organized by the Ministry for 2 years. Within the scope of the ACUD, in the event that completion of the Factory construction is made on time, 25% of the guarantee amount will be returned.

License Process

Pre-license holder legal entities that have fulfilled their obligations under the Electricity Market License Regulation, and which have completed the construction of Factory, will apply to the Energy Market Regulatory Authority in order to obtain a license. Pursuant to Article 13 of the Regulation, the license term for RESAs within the context of ACUDs and ACDPs, is 30 years, and at the end of this term, general procedures will be applied in accordance with general terms of the related institutions in which the right of use is obtained.

The construction period of electricity generation facilities and facility capacity to be commissioned is stated in the work plan that is presented and accepted by the General Directorate. The construction period of the electricity generation facility will be stated in the Tender Specification, provided that such period does not exceed 36 months.

Sale of Electrical Energy

Article 14 of the Regulation contains regulations as to the sale of electrical energy generated in RESAs. The generated electricity in RESAs will be subject to and sold under the Regulation on Certification and Support of Renewable Energy Resources ("YEKDEM Regulation") for the period determined in the Specifications, and at the prices determined in the RESA Rights of Use Agreements. The purchase period defined in the Tender Specifications starts from the execution of the Right of Use Agreement. Additional domestic product incentives under Law No. 5346 is not applicable to the electricity generation facilities constructed under the Right of Use Agreements. No term extension may be applied except for force majeure events. Price increases cannot be applied for any reason.

Research and Development ("R&D") Operations

Additionally, in the Regulation, R&D and Certification regulations, with regard to the legal entities producing domestic equipment to be used in the electricity generation facility based on renewable energy resources, and/or to the legal entities applying within the context of a RESA Right of Use Agreement are included.

Force Majeure

Within the context of a RESA Right of Use Agreement, force majeure events are limited within Article 17 of the Regulation, and in the event that the force majeure events continue more than one year, or it is understood that its effects would not cease within one year, the General Directorate is entitled to terminate the RESA Right of Use Agreement through the documentation to be serviced by the competent authorities regarding the current situation. In such event, the guarantee letter will be returned to the legal entity; however, the related legal entity is not granted the right to demand to be compensated under any title, such as harm, loss, and etc.

Protection and Usage of RESAs

Finally, Articles 18 and 19 of the Regulation bring regulations as to the protection of RESAs and development of infrastructure investments in these areas. The Regulation entered into force on October 9th, 2016 on the same date as its publication in the Official Gazette.

Conclusion

Another expectation of the investors, according to the Regulation, is that the definitions concerning local products, equipment technology criteria in the tender specifications, determination and supervision of local products must be explanatory and clear.

When the subject Regulation is reviewed within the aspect of competitive market conditions, in the event that the tenders are allocated between various several large-scaled companies, it brings the concerns of the monopolization of the market, as well as the failure to ensure competitive market standards. According to another view, in order to increase the rates of realization of the projects, the projects should be allocated between several large-scaled investors that meet some specific criteria. Intensifying the Regulation with a mechanism supporting the competitive market conditions can whet investors' appetites to invest in such projects.

The lack of criteria on the distribution of licenses, such as capacity and scale, draws attention as one of the deficiencies of this Regulation. Despite the insurance of this structure, it would make a positive impact on competitive market conditions to allocate some small-scaled projects to investors that have lower potential as to electricity generation.

Prior observation of the effects on the market of the execution of the Regulation will be inaccurate at this stage. The restriction that the electricity produced in the RESAs cannot be sold outside the scope of the YEKDEM Regulation, may create adverse effect on the market. Adoption of the build – operate – transfer model so that the electricity can be sold to the third parties may possibly create a competitive market.

The facts that the Committee is entitled to terminate the tender, and the Ministry is entitled to terminate the Right of Use Agreement for RESAs, increase the risks of the investors, while, on the other hand, damage the transparency in the market. Even if there are some imperfections and deficiencies as to several aspects in the Regulation, on the other hand, the Regulation promises a prompt increase in the capacity of electricity generation by means of local production, productive utilization of resources, and finalization of the investments.

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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