Turkey: Key Amendments To Regulation On Licensed And Unlicensed Electricity And New Regulation On Renewable Energy Zones

Introduction

Through amendments introduced since last year to the Electricity Market License Regulation ("Licensed Generation Regulation")1 and the Regulation on Unlicensed Electricity Generation on Electricity Market ("Unlicensed Generation Regulation")2 followed by the new Regulation on Renewable Energy Resource Areas ("Renewables Zone Regulation")3 a new legal road map on licensed and unlicensed energy investments is in the making. In this article, amendments to the legislation concerning energy investments and significant amendments are addressed.

Licensed Generation

Preliminary License

The term of the preliminary license was granted by the Electricity Market Regulatory Authority ("EMRA") providing that the maximum term shall not exceed thirty-six (36) months. According to the amended Article 9 (1) of the Licensed Generation Regulation, EMRA is authorized to grant a different term for preliminary license for generation facilities built under the Renewables Zone Regulation.

Applications for Preliminary License and Amendments

With the amendment to the Article 12 (c) of the Licensed Generation Regulation, it is no longer required to submit wind and sun measurement reports based on the data collected within last five (5) years for preliminary license applications for generation facilities built under the Renewables Zone Regulation.

Further, according to the amended Article 18 (d), the main service unit in charge shall now conclude the preliminary license amendments to increase installed capacity up to the 10%, provided that the increased installed capacity shall not exceed 10 MWm. According to the amended text of Article 18 (d), the security and capital obligations under the Licensed Generation Regulation shall no longer be applicable for such amendments.

Restrictions on Share Transfers

Pursuant to amended Article 57 of Licensed Generation Regulation, share transfer limitation shall not be applied to (i) changes causing the indirect shareholders included to preliminary license of the preliminary license holder legal entity to become direct shareholder and changes causing all direct shareholders to become indirect shareholders providing that the shareholding proportions remain the same, and (ii) changes occurred in the direct or indirect shareholder structure of the preliminary license holder legal entity included to privatization program in consequence of a sale or assignment of shares held by public authorities.

Unlicensed Generation

Exemption to Limitation of Installed Capacity

According to amended Article 7/6 under the Licensed Generation Regulation, in the event it is decided by Turkish Electricity Transmission Corporation (TEİAŞ) that any solar or wind power generation facility could generate uninterrupted power through technological enhancements, license applications for such generation facilities shall be excluded from the requirement of maximum installed capacity of 1 MW.

EMRA's Discretion in Cancelling Connection Agreements

Previously it was governed that the completion terms of the provisional approval process for generation facilities to connect to the network starts from the execution date of connection agreement. In the event of non-completion of such facilities due to any reason other than force majeure events, the connection agreements and water utilization rights would become null. However, under the amended Article 24, EMRA is granted a wide discretional power to nullify connection agreements on the grounds of "other occasions deemed appropriate by EMRA" as quoted from amended text of the Article 24.

Exemptions to Share Transfers

Except for the share transfers as a result of inheritance, it was prohibited to transfer of shares of unlicensed generation facilities equal or below 1MW between the date of application and the date of provisional approval. With the amendment under Article 31 (20) this share transfer restriction shall not apply in the exceptional (permitted) cases of (i) changes in the shareholding structure of publicly listed legal entities due to their publicly listed shares and changes in the shareholding structure of legal entities which have publicly listed shareholders due to the publicly listed shares of such shareholder(s), (ii) direct or indirect changes in the shareholding structure of the related legal entity due to exercise of pre-emptive rights of the existing shareholders of such legal entity and thus transfer of shares is facilitated, (iii) indirect changes in the shareholding structure of the related legal entity as a result of the changes of the shareholding structure of their foreign (abroad-based) shareholders, (iv) direct or indirect change in the shareholding structure of the related legal entity due to the public offering of their shares or public offering of the shares of the legal entities who are direct or indirect shareholders of such pre-license holder entities.

Mergers of Unlicensed Generation Facilities

With the amendment of Article 31 (18) of Unlicensed Generation Regulation now statutorily subjects the merger of generation facilities with (i) another unlicensed generation facility that is fully owned by the applicant generation facility, or within the body of (ii) an unlicensed generation facility that fully owns the applicant generation facility, conditional upon that all facilities involved in the merger shall have each received provisional acceptance.

Regulation on Renewable Energy Resource Areas ("Renewables Zone Regulation")

The Regulation on Renewable Energy Resource Areas ("Renewables Zone Regulation") governs the procedures and principles for identification, evaluation and utilization of renewable energy resource areas ("RESA").

General Directorate of Renewable Energy ("General Directorate") shall be the competent authority for the technical and administrative assessment for the identification of RESAs. Land sites identified by the Turkish Treasury and other public land sites as well as private property may be allocated for RESAs. The Ministry of Energy and Natural Resources ("Ministry") applies criteria such as type, potential and electricity costs per unit for the identification of RESAs and is the ultimate deciding authority to allocate RESA for a prospective investment.

The announcement of tender for the right of use in the identified RESAs for the assignment of connection capacity to investors shall be published in the Official Gazette and in the web site of the General Directorate.

Only those entities, who undertake to (i) locally manufacture equipment announced by the Ministry, (ii) use locally manufactured equipment and (iii) bear the conditions determined in the Electricity Market License Regulation in order to apply to engage in generation activities in a RESA provided that they submit all required information and documentation to the Ministry.

Legal entities that have fulfilled the criteria determined and announced by the Ministry are authorized to participate in the tenders for the assignment of connection capacity of a RESA. The tender shall be held as reverse auction starting from the maximum electricity purchase price set by the Ministry for kilowatt-hour per each RESA. Tender shall be awarded to a participant offering the lowest price. The entities awarded the tender shall then be invited to sign the right of use agreement.

Pre-license is an obligation for the investors to engage in electricity generation activities in RESAs. The term of the pre-license shall not exceed 24 months except for force majeure events. However licenses shall be granted for a maximum term of 30 years.

The generated electricity shall be sold during the term specified in the tender specifications over the price determined in the right to use agreement and shall be subject to Regulation on Certification and Support of Renewable Energy Resources ("YEKDEM Regulation"). The term for purchase of electricity mentioned in the tender specifications shall commence upon the execution of the right to use agreement. No additional incentives under Law on the Use of Renewable Energy Resources for Electricity Generation (No. 5346) shall be applicable to the electricity generation facilities constructed within the scope of right to use agreement.

Footnotes

1. Regulation on the Amendments to the Electricity Market License Regulation entered into force and published in the Official Gazette dated 22.10.2016 (No. 29865).

2. Regulation on the Amendments to the Regulation concerning Unlicensed Electricity Generation on Electricity Market entered into force and published in the Official Gazette dated 22.10.2016 (No. 29865).

3. The Regulation on Renewable Energy Resource Areas entered into force and published in the Official Gazette of October 9th, 2016 (No.29852).

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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