Turkey: The Renewable Energy Sector: All Powered Up

Faced with the threat of a serious electricity deficit that may occur in the near future, the Government appears to be encouraging the private sector to invest in the energy industry. Recent developments explicitly demonstrate the private sector's interest and appetite for investing in energy generation, especially for the construction of power generation plants employing renewable energy sources.

License Applications Regarding Wind-Powered Energy Generation Plants

In the past, the Energy Market Regulatory Authority (the "EMRA") refused any wind-energy based license applications as it was in the process of monitoring investment developments of current license holders. Apparently, the EMRA did not see much progress on pending investments. It responded by adopting a decision on 4 October 2007 to accept new license applications for wind-powered energy generation plants ("WPEPs") on 1 November 2007. On the morning of 2 November 2007, the EMRA awoke to the surprise of 746 applications for approval of WPEPs of 78.000 MW1. Considering the fact that the operational WPEPs were generating only 180 MW of established power, the number of applications received on that first effective day was extraordinary. Aside from the limited time to apply, it is possible that recent legislation amendments to the EMRA (which we outlined in our previous Newsletter issue) regarding the electricity generated from renewable sources, also had a remarkable effect on this significant number of applications. These applications revealed that the most favored locations to establish WPEPs were Izmir, Balikesir and Canakkale. Although some recent credible research has indicated that the turbine prices are significantly increasing due to global shortages and strong demand, it seems that this is not deterring the private sector's appetite for WPEP projects.

In order to improve the investment process regarding WPEP projects, the Ministry of Energy and Natural Sources drafted a regulation regarding the assessment of wind energy potential. Pursuant to this draft regulation, the Ministry aims to control the projects and inspect the WPEP construction period, so as to secure the realization of the WPEP projects.2

Sun Powered Energy Generation Plants in Turkey

New sun powered energy regulations did not enjoy the same enthusiastic response from the private sector as did WPEPs. Although the application date for sun-powered plants announced by the EMRA was 1 November 2007, no applications were submitted. As of the date of this article, there is only one generation license for a sun and biomass powered-energy generation plant, and applications for sun powered energy-generation plants are quite limited. 3

Rehabilitation of Hydro Electric Power Plants.

Another recent development in the energy sector is related to the rehabilitation and modernization of hydro electric power plants ("HEPPs") operated by the Electricity Generation Company ("EUAS") 4. 4Under this project, 16 HEPPs, currently generating a total of 2100 MW, will be rehabilitated to increase their efficiency. Financing is planned for the rehabilitation and modernization of five of the HEPPs through a credit facility of 130 million Euros from World Bank5.

Amendment of the Electricity Market License Regulation

The Electricity Market License Regulation (the "License Regulation") was amended6 on 29 September 2007. Pursuant to the amended License Regulation, all companies applying to the EMRA for a generation, auto-generation or auto-generation group license are required to provide the EMRA with an unlimited term irrevocable letter of guarantee. The EMRA states that the amount of the letter of guarantee is to be calculated based on the generation capacity of the plant.7 Upon approval of the license application, the applicant must fulfill the post-license requirements within 90 days. Failure to comply with these requirements may result in the EMRA forfeiting the letter of guarantee. Following fulfillment of the post-license requirements, the applicant must provide the EMRA with another letter of guarantee in an amount to be determined by the EMRA, based on the generation source type and the power output of the facility. The initial amount of the letter of guarantee submitted with the license application is to be deducted from the amount of the second letter of guarantee. If the license application is rejected by the EMRA, the letter of guarantee will be returned to the applicant.

Legal Framework Regarding Forested Areas

Most of the renewable energy generation facilities are established totally or partially within forested areas. Therefore, the legislation that governs forestry is especially relevant and critically important to the energy sector. Pursuant to the Forestry Law8, the Ministry of Environment and Forestry (the "MoE") may grant a utilization right over the forested areas to establish energy facilities. The details regarding the utilization right are set forth under the Regulation on Permits for Forested Areas9 (the "Regulation"). The constitutionality of the relevant provision of the Forestry Law has been challenged, and the Constitutional Court rejected the cancellation request stating that Article 17 is not contrary to the Constitution on 22 November 2007. In addition, a cancellation lawsuit had been initiated with respect to certain articles of the Regulation before the Council of State. Pursuant to the preliminary decision on 17 September 2007, the Council of State suspended the implementation of related articles of the Regulation until the Constitutional Court rules on the cancellation lawsuit. Therefore, the MoE is currently not able to grant permits in forested areas due to the Council of State's suspension of the implementation decision. As a result, construction permit implications for the establishment of facilities in forested areas will remain a major issue for some time until the final decision of the Council of State regarding the suspension decision.

The year 2008 will be an interesting period in terms of energy sector-related developments, which will definitely be an attractive opportunity for energy producers, private investors, and lenders.

Footnotes

1. TEBA Magazine dated 12 November 2007, No. 1333, pages 40-41.

2. Please see: http://www.eie.gov.tr/duyurular/YEK/ruzgar/ruzgar_yonetmelik_taslagi.html for the draft regulation regarding the assessement of the wind energy potential has been.

3. This is based on the generation license holders list announced in the EMRA's website.

4. TEBA Magazines dated 9 July 2007, No. 1315 pages 13-15, and dated 23 July 2007, No. 1317, page 10.

5. TEBA Magazine dated 9 July, No. 1315, pages 13-15.

6. Amended by the Regulation on Amendment of the Electricity Market License Regulation published in the Official Gazette dated 29 September 2007, No. 26658.

7. The EMRA's Decision No. 1291/25 published in the Official Gazette dated 10 October 2007 describes the method for determining the amount of the letter of guarantee.

8. Foresty Law No. 6831 published in the Official Gazette dated 8 September 1956, No. 9402.

9. Published in the Official Gazette dated 22 March 2007, No. 26470.

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