With an amendment regulation published in the Official Gazette dated March 23, 2016 and numbered 29662 (amendment regulation will shortly be referred to as the “AR”), the Energy Market Regulatory Authority (“EMRA”) has brought ground-breaking changes to the unlicensed electricity generation in Turkey, whose principles are set forth under the Regulation on Unlicensed Energy Generation in Electricity Market (published in the Official Gazette dated October 2, 2013 and numbered 28783) (this regulation will shortly be referred to as the “UER”). The amendments entered into force on March 23, 2016 and have made very substantial and crucial changes to the legal framework and practice in the unlicensed energy generation sector. The substantial changes brought by the AR to the UER mainly relate to (i) capacity allocation restrictions, (ii) transfer and restructuring restrictions and (iii) application and announcement mechanisms. These changes will be summarized in bullet points below.
Capacity Allocation Restrictions
- Per the new clause brought under UER Article 6/10, the maximum capacity allocation provided to each person/entity for wind/solar projects per each substation center has been set as 1 megawatt (“MW”). This restriction also covers the legal entities in which the relevant persons directly or indirectly hold shares or exert control.
- Previously, a person/entity was able to apply for an unlimited number of unlicensed (up to 1 MW) wind/solar energy projects in any given substation area. This allocation restriction prohibited the previous practice of developing multiple unlicensed projects (e.g. 10 projects of 1 MW – 10x1 MW unlicensed projects) in any given area.
- The previous practice was sometimes exercised in a manner that would render the electricity licensing meaningless, since the investors preferred to invest in unlicensed projects which have less formalities rather than the projects with electricity generation licenses. The previous practices arising from the old regulation also created intermediary groups who were simply applying for projects for solely selling them (without a will to invest) to other investors and benefit therefrom. It is expected that the amendments will terminate such market practices.
- Per UER’s new Provisional Article 9, the wind/solar projects for which a call letter has been obtained are deemed exempt from such allocation restriction.
- Per the provision brought under UER Article 6/12, capacity allocation in wind/solar projects has been made proportional to the consumption amount. According to this restriction, capacity allocation to be made to any generation facility can at the most be 30 times of the contractual power in the related consumption facility (i.e. if the contractual power in the related consumption facility is 10 kW, the maximum generation capacity can be 300 kW). This provision is brought to promote the self-generation concept aimed under unlicensed generation regime and scythe the excessively commercial uses of the system.
- Provision brought under UER Article 31/21 substantially restricts involvement of the distribution companies (as well as the entities under their control, their employees, shareholders and relatives of the real persons counted herein) in unlicensed energy generation. Accordingly the above-mentioned persons/entities have been limited with a 50 kW limit for unlicensed electricity generation from wind/solar sources. Since the distribution companies have a key role in all parts of the unlicensed energy generation processes, this provision is intended and expected to enhance competition, transparency and fair practices in the market.
- Provision brought under UER Article 7/11 grants a more preferred status to pre-license and license applications in detriment of the unlicensed energy applications in case the application areas match.
Transfer and Restructuring Restrictions
- Although generally restricting facility transfers before temporary acceptance of the facility, The UER’s scope has previously not been able to restrict the transfer of wind/solar projects through transfers of SPV shares. Many investors have taken over the projects at an early stage through acquisition of the SPVs.
- With a provision brought under UER Article 31/20, share transfers in the SPVs has been prohibited through a penalty of cancellation of call letters. Accordingly, transfers before temporary acceptance of the facility have been strictly prohibited with the only exception being the cases of inheritance.
- Per UER Article 31/18, restrictions have been brought in respect to the restructuring transactions (mergers and divisions) of the project SPVs.
- However, there is a lack of clarity in the UER as to the legal regime applicable to the projects which are exempt from allocation restrictions under UER Provisional Article 9. It is yet unclear whether the exempt multiple MW projects (i.e. 10x1 MW projects in the same substation area) may be transferred to third parties collectively. EMRA is expected to provide a council decision in this respect.
- Various provisions brought by amendments under UER Article 31 also provide for notification of the grid operator in case of share transfers and certain restructuring transactions.
Announcement and Application Mechanisms
- Amendments in UER Article 7 bring new documentation to be submitted in the initial unlicensed electricity generation project applications to the grid operators. These documents generally consist of (i) Technical Assessment Form from the General Directorate of Renewable Energy, (ii) application outline with coordinates and (iii) documents showing shareholding structure and control relations. The first two were previously required to be submitted at the TEDAŞ project approval stage instead of the first application.
- Amendments in UER Article 6 set forth that new capacities shall be announced in each April, August and December by TEİAŞ that capacities which have been previously full but now made available shall be announced in the first workday of the subsequent month. Furthermore, a 3-months period has been provided in between the date of announcement and start of the application period. These changes aim to increase transparency and provide a healthy preparation period.
- Amendments in UER Article 9/2 provide for TEDAŞ announcement of project approval applications and results.
- Amendments in UER Article 31/5 bring a strict regime for announcements of distribution companies on applications and assessment results. Per the amendments, a uniform format and content determined by the EMRA has been adopted for distribution companies’ announcements. The distribution companies shall be making these announcements on a monthly basis at the 25th day of each month.