The Law Amending Electricity Market Law and Other Laws numbered 7257 was published and entered into force on 2 December 2020 ("Omnibus Law"). The Omnibus Law introduced important changes in the Law No. 5346 on Utilization of Renewable Energy Sources for the Purpose of Generating Electrical Energy ("Renewable Energy Law"). Main amendments are as follows:
Changes in the Definitions:
The Omnibus Law changed the provision where the definitions are made in the Renewable Energy Law: The definition of "renewable energy sources" does not include "gas obtained from biomass" anymore. On the other hand, "the municipality waste including land-fill gas" is included in the definition of "biomass" (which is one of the renewable energy sources). Also, we understand that the Omnibus Law narrowed the scope of the agricultural and forest products that are within the scope of the "biomass". Accordingly, only the sources obtained from the process of agricultural products that do not have nutrition and bait value and the forestry products that are not industrial wood will be within the scope of the "biomass" definition. Finally, the wording "natural" within the definition of "geothermal sources" was removed from the beginning of the wording "water, steam and gas".
Feed-in Tariff Mechanism for New Renewable Energy Generation Facilities:
As per the amendment, we see no change in the amount and application of the feed-in tariffs that existed in the Renewable Energy Law for the legal entities holding generation licenses that started operations before 31 December 2020. The Amendment merely amends the expiry date of 31 December 2015 as 31 December 2020, which was already made by the Council of Ministers that was authorized to do so in the legislation before the enactment of the Omnibus Law. On the other hand, the amendment brought two provisions regulating the situation of the renewable generation facilities that will start their operations after 31 December 2020:
- First, it is set forth that the President is authorized to determine the feed-in tariffs that will apply for the facilities that commence generation after 31 December 2020. We understand that the President Decision already published on 18 September 2020 regarding the application of the feed-in tariff to renewable generation facilities that start their operations between 1 January 2021 and 30 June 2021 shall maintain its application as per this provision and these facilities will benefit from the same feed-in tariffs in Table I of the Renewable Energy Law until the end of 2030.
- Secondly, the Omnibus Law also introduced a new provision in order to regulate the renewable energy sources support ("RES") mechanism to be applied to the facilities that will start their operations after 30 June 2021. The law, instead of determining itself the feed-in tariff for the new renewable generation facilities, grants the President to determine the principles and procedures regarding the RES mechanism for the facilities that will start their operation after 30 June 2021. While the amendment grants the right to determine the feed-in tariffs to the President, it limits beforehand that the feed-in tariffs will be in Turkish Lira for the new generation facilities as opposed to the incentive applied to the generation facilities starting their operations until 30 June 2021. Accordingly, as the feed-tariff amount will be in Turkish Lira, its escalation method will be of great importance. The principles and procedures are expected to be published earliest possible by the market participants as it is crucial for them when planning their investment projects.
- Accordingly, we believe that whether a renewable generation facility that starts its operation partially before 30 June 2021 and partially after 30 June 2021 will be subject to two different tariffs (e. feed-in tariffs in Renewable Energy Law in USD for the part starting its operation before 30 June 2021 and the tariff to be determined by the President in Turkish Lira for the remaining part that starts its operation after 30 June 2021) or it will be subject to the feed-in tariff in USD as a whole may need further clarification.
Bonus Tariff regarding Local Components for New Renewable Energy Generation Facilities:
Similar to RES mechanism feed-in tariff explained above, the President Decision published on 18 September 2020 had already set forth that renewable generation facilities that will start their operations between 1 January 2020 and 30 June 2020 will also be able to benefit from the bonus tariffs provided in the Renewable Energy Law for locally manufactured components used in these generation facilities for a period of five years. With the Omnibus Law, such extension of period for local component tariff until 30 June 2021 that is set forth in the President Decision is also reflected in the Renewable Energy Law. Furthermore, similar to RES Mechanism, a new provision setting forth that the President will be entitled to determine the local component tariffs to be applied to the renewable generation facilities that start their operation after 30 June 2021 in Turkish Lira is included in the Renewable Energy Law. The same provision also sets forth that President will be entitled to determine the period and the prices to be applied for local components to unlicensed generation facility in Turkish lira, which had been removed from the law previously.
Removal of Deadline for Application to RES Mechanism:
The deadline of 31 October for application in order to benefit from RES mechanism each year is removed, and instead, Article 6/4 of the Renewable Energy Law now states that the Energy Market Regulatory Authority ("EMRA") will determine the application deadline. We believe this modification intends to compensate for pandemic's outcome which caused many entities to struggle to achieve the deadline this year. Accordingly, the secondary legislation which also sets forth that companies should apply until 31 October will have to be aligned following the enactment of the Omnibus Law.
Incentive Price for Unlicensed Generation Facilities:
- When unlicensed generation facility concept was launched, unlicensed facilities were also subject to the feed-in tariffs set forth in Table-I of the Renewable Energy Law for the relevant source used in unlicensed electricity generation facility for the generation amount exceeding the consumption. This was later amended for the unlicensed generation facility types with the Council of Ministers' Decision and President Decision No. 1044 published on 10 May 2019, which made amendments in the Council of Ministers' Decision. As per the President Decision, the surplus electricity of the unlicensed generation facilities listed in the President Decision that obtained the right to obtain a call letter after 10 May 2019, would be sold at the retail monochromic active energy price of the relevant subscription group for 10 years following the operation date of the facility instead of the feed-in tariff set forth in Table-I of the Renewable Energy Law. While the Table-I showing the feed-in tariffs as per the source did not include separate feed-in tariffs to be applied to the unlicensed generation facilities, the Omnibus Law included another line in Table-I for the unlicensed renewable generation facilities that obtained the right to obtain a call letter after 10 May 2019 (which is the publication date of the President Decision) and set forth that the feed-in tariff to be applied to those facilities will be the retail monochromic active energy price of the relevant subscription group. Accordingly, we understand that the Omnibus Law included and combined the President Decision in the Renewable Energy Law.
- Another important provision added in the Renewable Energy Law is regarding the status of the unlicensed generation facilities' surplus electricity after the expiry of the 10 year period, which was a largely discussed topic and which has a significant importance on the decision of the investors as to the unlicensed projects' feasibility, as the unlicensed generation legislation did not stipulate whether the surplus could be sold via bilateral agreements in the market or a new feed-in tariff would apply to them after the expiry of the 10 year period. We understand that the new feed-in tariff will be determined by the President for electricity surplus of the unlicensed generation facilities and the new feed-in tariff will not be higher than the market clearing price after the expiry of the 10 year period; and that the President may also determine that the unlicensed generation facilities may convert to licensed facilities upon the expiry of the 10 year period, provided that they pay 15% of hourly market clearing price for the duration of their licenses as RES mechanism contribution price. We believe that whether the Renewable Energy Law already provides these two options to unlicensed generation facilities or grants the President with the right to determine either or both of these possibilities at his discretion is open to interpretation as per the wording of the provision.
Change regarding the Incentive on State Properties' Usage:
A minor amendment in order to clarify the start date of the discount of 85 percent on the fees for permission, lease, right of easement and right of usage on the state properties for the renewable energy facilities was made with the Omnibus Law. Before the amendment, Article 8 of the Renewable Energy Law granting such incentive to the renewable energy determined the incentive period "as the first then years of the investment and operation period" without mentioning the start date as the license date; and the same incentive was also provided in the Electricity Market Law where the commencement date was stated as the license date. Accordingly, while, the practice was to start the incentive from the license dates in the renewable energy facilities in accordance with the provision of the Electricity Market Law, we understand that the lawmakers wanted to eliminate any doubt and dispute of interpretation between the two laws and removed the application of the same incentive from the Electricity Market Law, and clearly set forth the commencement date as the license date in the Renewable Energy Law.
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