Now it is worldwide known that Turkey has become one of the fastest growing electricity markets in the world, paralleling its economic growth over the last ten years.

Economic expansion, rising per capita income, positive demographic trends and the rapid pace of urbanization have been the main drivers of energy demand, which is estimated to increase by around 6 percent per annum until 2023. The current 74 GW installed electricity capacity is expected to reach 120 GW by 2023 to satisfy the increasing demand in the country, with further investments to be commissioned by the private sector. As part of its efforts to offer sustainable and reliable energy to consumers, Turkey offers investors favorable incentives, such as feed-in-tariffs, purchase guarantees, connection priorities, license exemptions, etc., depending on the type and capacity of the energy generation facility.

In the last decade, the Turkish government has made significant reforms in the provision of energy, moving forward the participation of private entities, and thus creating a more competitive electricity market.

Encouraging policies backed by favorable feed-in tariffs are expected to increase the shares of the renewable energy in the national grid in the coming years. The Turkish government has made it a priority to increase the share of renewable sources in the country's total installed power to a remarkable 30 percent by 2023.

Tariff Incentives for the Renewable Energy

The Renewable Energy Law that was adopted at the end of 2010 was deliberately drafted to include several incentives for the investors to promote the development of such kind of energy generation in Turkey. By 2020 Turkey would like to generate 20.000MW of its energy from renewable resources. In order to do so Turkish authorities decided to re-arrange the price mechanism to reflect the new incentives for the investors. The new tariffs include the following rates of feed in tariffs for the renewable energy resources; USD$ 7.3 cent for the hydroelectricity, USD$ 7.3 cent for the wind, USD$ 10.5 cent for the geo-thermal, USD$ 13.3 cent for the biomass and USD$ 13.3 cent for the solar energy production. For the holders of the renewable energy license facilities which had obtained their licenses before December 31, 2015 the aforementioned tariffs will be in place for 10 years.

Non-Tariff Incentives for the Renewable Energy

Moreover, in order to shift the onus from foreign imports to domestic production, Turkish authorities provided non-tariff incentives as well. If the production of the equipment that will be utilized in the renewable energy facilities are produced in Turkey subsidies will be granted to the producers. The hydroelectricity facilities will be granted USD$ 1.3 cent/kWh if the turbines are locally produced and USD$ 1.0 cent/kWh if the generator and the power electronics are locally produced. The wind energy generation facilities will be granted USD$ 0.8 cent/kWh for the local wing production, USD$ 1.0 cent/kWh for the locally produced generator and the power electronics, USD$ 0.6 cent/kWh for the local turbine tower and USD$ 1.3 cent/kWh for the locally produced mechanical parts for the rotor and nacelle groups. The photovoltaic based solar energy facilities will be granted USD$ 0.8 cent/kWh for the domestic PV panel integration and solar structural mechanical manufacturing, USD$ 1.3 cent/kWh for the locally produced PV modules, USD$ 3.5 cent/kWh for the locally produced PV module forming cells, USD$ 0.6 cent/kWh for the domestically produced inverter and USD$ 0.5 cent/kWh for the equipment that focuses sun rays on PV modules.

Electricity Market Law

The objective of the Electricity Market Law numbered 6446 published in the Turkish Official Gazette on the date of March 30, 2016 numbered 28603 ("Law") is to ensure a financially sound, stable and transparent electricity market that operates in accordance with the provisions of private law in a competitive environment, and an independent regulation and audit in the market for the purpose of electricity supply to the consumers in an efficient, good-quality, sustainable, low-cost and environment-friendly manner. The law shall cover the activities of generation, transmission, distribution, wholesale or retail, import and export, and market operations of electricity and the rights and obligations of all real and legal persons engaged in these activities.

The activities executable in the Electricity Market in Turkey after obtaining the compulsory license are as follows:

  1. Generation activity
  2. Transmission activity
  3. Distribution activity
  4. Wholesale activity
  5. Retail activity
  6. Market operation activity
  7. Import activity
  8. Export activity

In this article, we are going to focus on the licenses regarding the Generation Activity.

Generation Activity and Generation License

Generation activities in Turkey shall be executed by public and private generation companies under their licenses and by legal personalities of organized industrial zones.

A generation company shall be allowed to engage in the following activities within the scope of its license:

  1. Sale of electricity or capacity to the supplier companies, eligible consumers and those to which it installs private direct lines;
  2. Electricity or capacity trade;
  3. Purchase of electricity or capacity to provide the electricity and capacity that it is obliged to supply without exceeding the rate determined by the Board, of the annual electricity generation amount inserted into its license for one calendar year.

Electricity generation that a legal person holding a generation license carries out at its own facility to meet the needs of the consumption facility it owns, leases or acquires by leasing or by taking over its usufruct shall not be regarded as sales to the final consumer, provided that it consumes the mentioned energy before it is conveyed to a transmission or distribution system. Electricity purchased to be consumed at such consumption facilities shall not be taken into account in calculating the ratio.

Activities executable without license

Activities exempted from the obligations of obtaining license and incorporating are as follows:

  1. Generation facilities not connected to emergency generator groups or transmission or distribution systems
  2. Generation facilities with the installed power based on maximum 1 (one) megawatt renewable energy sources
  3. Electricity generation facilities of municipalities installed to dispose the sludge of solid waste facilities and of treatment plants
  4. Those of micro-cogeneration facilities and cogeneration facilities having the productivity value to be determined by the Ministry, and in the category to be determined by the Board
  5. Generation facilities using the entire amount of energy generated without feeding to a transmission or distribution system and having its generation and consumption at the same measurement point, and based upon the renewable energy sources

If the surplus electricity generated from renewable energy sources by a person exempted from the liability to obtain a license is fed into the system, it shall be purchased by the last resort supplier of electricity in exchange for prices set based on source types in Law No. 5346 of 10/05/2005 on the Utilization of Renewable Energy Sources with the Purpose of Electricity Generation.

Apart from the exemptions determined by the Board through a bylaw, no share transfer during the period between the application date and the temporary approval of the entire generation facility covered by the application shall be allowed for any energy generation facility based on wind and solar energy within the scope of point (b) of the first paragraph. In the event that share transfer is realized, the invitation letter for the relevant legal person on a connection agreement shall be cancelled.

Direct and indirect shareholders of the distribution and incumbent supply companies, legal persons under the control of such companies, persons employed in the direct and indirect partnerships of these legal persons, and the legal persons under the control of these persons shall not be allowed to apply for a generation activity based on wind or solar energy to be conducted within the distribution zone of the relevant distribution company or the distribution region of which the relevant distribution company is a shareholder.

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.