The Legal Framework of Turkish Electricity Generation
Turkey's main regulation on electricity generation is the Electricity Market Law No. 6446 ("EML"). According to the EML, electricity; generation, transmission, distribution, and trade are subject to different level of regulations due to various structural market failures. The basic philosophy of the EML is to create a financially strong, stable, and transparent electricity market operating under private law in a competitive environment. Before the EML, concession agreements were used to participate in private enterprises for electricity generation1, whereas after the EML, market activities were subject to the condition of obtaining a license from the Energy Market Regulatory Authority ("EMRA"), the sectoral regulatory body. Accordingly, electricity generation activities in Turkey are currently carried out by both the public and private firms2. Transmission is carried out by Turkish Electricity Transmission Corporation ("TEİAS") which is a state-owned monopoly. On the other hand, Turkey is divided into twenty-one electricity distribution regions, and after the distribution privatizations were completed in 2013, the private sector companies carried out distribution activities as local monopolies.
To generate electricity, as a rule, a license from EMRA is required; however, it is also possible to generate electricity without a license in limited circumstances stipulated in the relevant legislation. Considering the limited transmission/distribution capacity, it is of utmost importance that the right to generate electricity is allocated competitively and transparently to those who will generate electricity most cost-effectively. In this article, we will discuss granting the right to "generate electricity" to those whose applications for electricity storage facilities are accepted, and some legal problems that arise from this new way of electricity generation.
Electricity Generation in Turkey
By 2023, Turkey's total installed electricity capacity has reached 109,348 MW. Of this capacity, 56.28% comprises renewable energy sources, and the remaining 43.72% comprises thermal power plants. In 2023, total electricity generation amounted to 324,793,851 MWh. Of this generation, 42.24% was from renewable energy sources, and the remaining 57.76% was from thermal power plants3.
Under the EML, companies wishing to obtain electricity generation license must first apply to the Energy Market Regulatory Authority ("EMRA"). Applications approved by EMRA are granted a pre-license, and during the pre-license process, all permits required before starting construction of an electricity generation facility must be obtained.4 Once pre-license process is completed, the project company re-apply to EMRA, this time, for a generation license, and those approved are granted an electricity generation license. After the construction of the electricity generation facility is completed and the acceptance of the generation facility is made by the competent committee of the Ministry, the electricity generation facilities can be connected to the grid. On the other hand, before the regulations regarding storage facilities were made, if there was more than one company generating electricity from the same type of energy source that wanted to connect to the grid from the same location, a tender was held to determine who would be connected. This tender was conducted as a competition based on the principle of offering the lowest price.
Electricity Storage
Electricity storage is the storage of energy for later use instead of consuming it at the time of generation. Electricity storage will provide benefits in many important areas, such as energy supply security, supply-demand balance, integration of unstable renewable energy sources into the electricity system, stability of the electricity grid, and backup energy in emergencies. Electricity storage systems balance energy supply and price stability by storing energy during periods of low demand and releasing it during periods of high demand. Considering the variable generation characteristics of renewable energy sources such as solar and wind energy, which cannot generate electricity continuously and fluctuate depending on weather conditions, storage systems increase the efficiency and reliability of renewable energy. While increasing energy security, electricity storage also supports grid stability, which ensures the uninterrupted operation of critical infrastructures and services5. Therefore, electricity storage systems are critical in future energy systems and promise economic and environmental benefits.
Global electricity storage capacity is expected to grow from 27 GWh in 2020 to 158 GWh in 20256. This growth is crucial for integrating renewable energy sources and increasing network resilience. Lithium-ion batteries dominate the energy storage market with a 73% share and are becoming more widespread as costs fall and energy density increases. The US, China, and Germany are the leading countries in energy storage capacity. The US has reached 1.2 GW capacity by the end of 2020, while China is targeting 100 GW capacity by 20307. Germany is increasing its investments in battery storage systems to support the energy transition.
Legal Status of Electricity Storage in Turkey
In Turkey, until 2021, there was no regulation on how electricity storage activities would be carried out and what procedures electricity storage activities would be subject to. In 2021, the Regulation on Storage Activities in the Electricity Market ("Storage Regulation") entered into force regarding electricity storage activities. Thus, the procedures and principles regarding establishing electricity storage units or facilities, their connection to the transmission or distribution system, and using these units or facilities in market activities were determined. Under the Regulation, storage activities will be carried out in four different ways as listed below:
- Electricity storage units integrated into the generation facility
- Electricity storage facilities integrated into the consumption facility
- Self-contained electricity storage facilities
- Electricity storage facilities that network operators can install
It should be noted that the storage activity is not regulated as a separate electricity market activity. As a natural consequence, it is not subject to a license but is defined as an activity to be carried out under other licensed market activities.
In the ongoing process, with the new regulation added to the EML in July 2022, it was decided that legal entities that undertake to establish an "electricity storage facility" will be granted a "pre-license" by the Authority for the establishment of an electricity generation facility based on wind and/or solar energy up to the installed capacity of the electricity storage facility they undertake to establish. In November 2022, the Electricity Market License Regulation ("License Regulation") was also amended, and the rules and procedures regarding amendment applications of license and pre-license to establish storage facilities were determined. Accordingly, the investor who commits to establishing a storage facility will be able to apply for a license to establish wind and solar power plants up to the capacity of the storage facility. Regarding the generation facility to be established with the storage facility, the electricity storage unit within the electricity generation facility with storage is considered an electricity storage unit integrated into the generation facility. The facility will be evaluated within the scope of a single pre-license or license. In this case, an enterprise that obtains a pre-license for electricity generation with storage service must also obtain the appropriate license to start generating activities. Notably, concerning storage facilities, the legislator has abandoned the tender system, which represents a competitive and transparent system for allocating electricity generation capacity.
Pre-license Applications for Electricity Generation Plants with Storage Facility
As a result of above-mentioned developments, the storage companies were facilitated in the process of obtaining a pre-license for electricity generation, and the permission process was differentiated for companies that would start generation for the first time. In this context, pre-license applications for electricity generation facilities with storage started in November 2022. According to the data published by EMRA, 5,869 applications were made until October 2023. Of these, 231 were returned, 1,912 were rejected, and 399 were accepted. While the number of applications in the evaluation phase is 256, are 3,071 projects in the application phase8. When we look at the total capacity of the pre-licenses in force and the projects in the evaluation and application stages, we see that the 750 GW9 level has been reached, which constitutes approximately 7 times larger than the total installed capacity of around 107 GW10.
Accordingly, Turkey's potential in the field of energy storage and the positive(?) effect of the relevant regulations can be seen easily. Undoubtedly, when the investments in question are realized, our country will be able to surpass the world giants in terms of storage capacity. However, the number of applications accepted within the total number of applications remained quite low. The sector is eagerly awaiting the positive outcome of the duly filed applications.
Suspension of the Pre-License Applications
A temporary article was added to the License Regulation in October 2023. Accordingly, until the Energy Market Board takes a new decision, pre-license applications for electricity generation facilities with storage are suspended11. Considering the high demand for pre-license applications for electricity generation facilities with storage, this constitutes an interesting alternative to the licensing route stipulated under the EML for electricity generation. The sector's interest is intensively shifting to this route. This is because, due to limited resources, companies can obtain the right to electricity generation, which is normally a right limited in number and which should be acquired through a tender, as a rule, through 'electricity storage facilities' that they undertake to establish. Although it is aimed to ensure the regular and sustainable growth of the energy storage sector with the mentioned-regulations, it is worth noting that these regulations bring along (will bring along) a number of legal problems. It is possible to list the first ones that come to mind as follows:
- Compliance of the suspension of applications with the EML,
- Considering that the rate of favorable decisions is very low in the total amount of applications, what are the rights of those who duly applied within the time limit, and whether their rights will be protected,
- Whether the system of prioritizing multiple applications for electricity generation at the same location in accordance with the EML and the relevant legislation and holding a tender, if necessary, has been completely abandoned,
- The priority should be given to the one with the lowest social cost among all applications, while priority is given to the application priority in electricity storage facility applications.
In a written statement made by the President of EMRA at the end of 2023, it was emphasized that "it is never possible for them to compromise on the principles of being lawful, fair and transparent in the pre-license evaluation processes and that they stand at an equal distance to all"12. Transparency, legal certainty, and fair and equal treatment obligations in the electricity market are among the issues we frequently underline in judicial processes and in our academic studies. Their importance is underlined one more time by the President.
Conclusion
One of the critical issues that have come to the forefront all over the world with the renewable energy transformation is undoubtedly electricity storage technologies, R&D studies for their development, and how storage facilities will be integrated into the electricity system. In this respect, it is essential to monitor the developments regarding electricity storage facilities from a regulatory perspective. As explained above, our country has had very important and exciting developments in recent years. As a result of these developments, we hope our country will break new ground in electricity storage and lead the world in this field. On the other hand, EMRA's decision to temporarily suspend applications for electricity generation facilities with storage reveals the inadequacy of the relevant regulations in the sector and the difficulties in managing the intense demand. One of the most important issues for investors is predictability. Therefore, it is of utmost importance to eliminate uncertainties such as when the applications will be reopened, what will happen to the applications duly submitted but have yet to be finalized, and whether the necessary capacity increases can be made on time. At this point, we hope that EMRA will clear these uncertainties quickly.
Footnotes
1 Constitutional Court decision dated 28.6.1995 and numbered E.1994/71, K.1995/23
2 Gökçe, Burak. Impact of Renewable Energy on the Power Market. M.Sc. Thesis, İstanbul Technical University, Energy Institute, 2018
3 The Republic of Turkey Energy Market Regulatory Authority (EMRA), 2023 Electricity Market Development Report, Department of Strategy Development, Ankara, 2024, p.22
4 Such as obtaining land-use rights, forestry permits, environmental permits, etc.
5 Deloitte Insights. "Energy Storage in the Electricity Network." Deloitte, 2023 https://www2.deloitte.com/us/en/insights/industry/power-and-utilities/energy-storage-electric-grid.html.
6 Bloomberg NEF, "Energy Storage Market Outlook," 2021
7 China Energy Storage Alliance, "China's Energy Storage Market Analysis," 2021
8 GENSED. 'Pre-licence Applications for Electricity Generation Facilities with Storage Stopped.' Solar Energy Industrialists and Industry Association (Last Accessed: 21 August 2024) https://www.gensed.org/basin/depolamal%C4%B1-elektrik-%C3%BCretim-tesisleri-i%CC%87%C3%A7in-%C3%B6nlisans-ba%C5%9Fvurular%C4%B1-durduruldu.
9 İbid.
10 Republic of Turkey Ministry of Energy and Natural Resources, "Energy News," accessed October 9, 2024, https://enerji.gov.tr/haber-detay?id=21234.
11 Regulation Amending the Electricity Market Licence Regulation.' Official Gazette, 14 October 2023. Accessed 20 May 20, 2024. https://www.resmigazete.gov.tr/eskiler/2023/10/20231014-2.htm.
12 EPDK Başkanı Yılmaz: Depolamalı RES ve GES Yatırım Süreçleri Sıkı Takip Ediliyor," Temiz Enerji, December 29, 2023, accessed October 9, 2024, https://temizenerji.org/2023/12/29/epdk-baskani-yilmaz-depolamali-res-ve-ges-yatirim-surecleri-siki-takip-ediliyor.
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