Ozan Karaduman and Tugçe Avcisert of
Mehmet Gün & Partners explore the likely impact of a
new law on the Turkish electricity market, and the effect on
the use of renewable energy
A new law regulating the Turkish electricity market
– Electricity Market Law No 6446 (EML) – was
enacted on March 14 2013. The new EML repeals and replaces all
provisions of the previous EML, Electricity Market Law No 4628
of March 3 2001.
The primary objective of the new EML is to establish a
financially robust, stable, competitive and transparent
electricity energy market as well as an independent regulatory
and auditing mechanism.
The Turkish Minister of Energy and Natural Resources, Taner
Yildiz, underlined his aim to increase the private sector's
share in the electricity market to 75%; this compares to a
decade ago when the private sector represented a mere 38% of
the electricity market. This has since increased to 61%.
"The concept of carbon
credits will be introduced to the Turkish public"
The Minister's declaration is a reflection of the important
role that the electricity market plays in realising the
government's objective to make Turkey one of the world's top 10
economies by 2023. It is a fact that Turkey will need to
increase its industrial output dramatically to achieve this
goal. This will require a significant increase in electricity
Turkey will need to boost its electricity generation in
order to develop its economy and respond to the increasing
needs of households. There is no doubt that the new EML is
expected to create a thriving environment which attracts
investment into electricity generation.
This article explains the most important aspects of the new
EML and its anticipated impact on the Turkish electricity
market with a special focus on renewable energy.
More functional market operation
In order to conduct market operating activities in a more
effective way, a new corporation, the Energy Markets Operating
Corporation (Epias), has been introduced under the new law,
with operations due to commence on September 30 2013. The new
corporation has been welcomed by the sector and is considered a
step forward for the liberalisation of the market. Epias will
establish a stock exchange where a reference price may be
determined, the generators foresee the prices for a longer
term, and electricity will be bought and sold. The market also
expects Epias to pave the path for the issuance of derivatives
depending on power purchase contracts.
Epias will also manage the organised wholesale electricity
market, which is now the duty of the Turkish Electricity
Transmission Joint Stock Company. As a result of this change,
the Company will focus its efforts on regulating and developing
the country's electricity system and improving interconnection
with the transmission structures of neighbouring countries. In
contrast, Epias will be in charge of the financial settlement
of operations conducted in the markets.
Under the new regulations:
- Epias will conduct studies regarding the establishment of
new markets within organised wholesale electricity markets
towards the growth of the market. These studies will be
presented to the Energy Market Regulatory Authority
- Epias will also be required to perform activities to
establish new markets in the organised wholesale
- In cases that are deemed appropriate by the Ministry of
Energy and Natural Resources, Epias may attend as a party or
associate or become a member of the international electricity
markets especially constituted for the operation of the
organised wholesale electricity markets.
- Epias will determine the market operating tariffs within
the framework of the procedures and principles specified by
- Where the EPDK requires it, Epias may conduct studies for
the establishment of the organised wholesale markets directed
towards the energy markets, other than the electricity
market, and upon the authorisation of the EPDK. As a result,
Epias will create a stock exchange not only concerning the
electricity market, but also concerning other markets such as
natural gas and oil.
- One of the key questions arising from the introduction of
the Epias was whether the energy stock exchange would be an
independent institution or a structure of the Istanbul Stock
Exchange (BIST). According to the new EML, the direct and
indirect share capital of public institutions ,and companies
with public capital will not exceed 15% within the Epias,
excluding the BIST. However, the Board of Ministers will be
entitled to increase such rates to 30%. Some authorities
claim that Epias will be independent, with the BIST as a
significant shareholder; however Epias is expected to involve
public and private companies as shareholders.
- Epias is also expected to operate an emissions trading
platform which, if realised, would be an incentive for the
establishment of generation facilities using renewable energy
resources. Establishing this platform will introduce the
concept of carbon credits to the Turkish public, which will
eventually increase public awareness of the effects of carbon
emissions to global warming.
The pre-licence system
Another significant concept brought in by the new EML is the
pre-licence mechanism: a two-tier system established to
facilitate all administrative and bureaucratic requirements.
Under the previous EML, in order to make certain applications,
companies were required to wait until generation licences were
granted to them by the EPDK, ultimately delaying the process
for generator companies to become operative. The pre-licence
procedure has been introduced to solve this problem. When a
company applies for a licence, it will first be granted a
pre-licence with a maximum period of 24 months. With this
pre-licence, the applicant company will have the right to make
applications for various administrative permits, licences and
related documents as well as to acquire the property rights and
usage rights on the land plot where the facility will be built.
If the necessary permits cannot be obtained over a period of 24
months, or the obligations specified by the EPDK cannot be
fulfilled, the applicant will not be granted an electricity
generation licence. The EPDK has the right to extend the
pre-licence period by half. In the event of force majeure, the
period of the pre-licence will also be extended.
Although the 24-month pre-licence period has been criticised by
the market for being too short, the law has not been amended to
reflect this view. This demonstrates the enthusiasm of the
government for new electricity generation projects to be
realised as quickly and efficiently as possible. The same
enthusiasm must be felt by the administrative bodies who will
provide the permits required for the completion of a generation
facility in order for the pre-licence holders to obtain all the
required permits in the given time.
"The 24-month pre-licence
period has been criticised by the market"
Another highly debated provision is the prohibition of share
transfers from applicant companies during the pre-licence
period. Except in cases of succession or bankruptcy, any
transaction which would result in a change in the shareholding
structure of a pre-licence holder will cause the pre-licence to
be nullified. The main purpose of this restriction is to
prevent any kind of licence trading which, up until now, has
been a serious problem in the development of generation
Types of licence
Under the new EML, wholesale and retail sale licences have
been combined under one licence type known as supply licences.
Wholesale and retail companies will be granted supply licences
by the EPDK at no charge.
Supply companies will be permitted to sell electricity to
eligible consumers regardless of the place of domicile of the
consumer. Considering that the government is said to have plans
to make every consumer eligible, this mechanism sounds very
promising in terms of liberalising the market. If the
government's plans are realised, a regular consumer in Istanbul
will have the opportunity to purchase electricity from a supply
licence company in Izmir or any other place in Turkey. This
would ultimately increase competition in the marketplace and
trigger a decrease in electricity prices. The introduction of
supply licences has created some concerns among distribution
companies, who believe that supply companies making retail
sales will tend to enter into a cherry picking process by
targeting the areas where demand is higher and payment track
records are better. This would consequently lead to the supply
companies established by the distribution companies (last
source suppliers or assigned suppliers as explained below)
being forced to deal with areas where illegal use of
electricity (using electricity without making a payment) are
higher and demand rates are lower.
The companies that obtain supply licences will be able to
import and export electricity with countries that have
fulfilled the international interconnection condition for
wholesale and/or retail sale. The sanction of the Ministry of
Energy and Natural Resources and approval from the EPDK must be
obtained in order for supply companies to enter into an import
or export deal.
Another new concept, the last source supplier, which was
initially discussed as an incentive for the natural gas market,
has also been adopted for the electricity market. Last source
suppliers are supply companies that have been established with
the same shareholding structure as authorised distributor
companies. For each distribution zone, there will be a last
source supplier who will be obliged to supply electricity to
those eligible consumers who do not obtain electricity from
another source. The last source suppliers will also be obliged
to sell electricity to non-eligible consumers in their
Tariffs for electricity provided by the last source supplier
will be determined by the EPDK.
The new EML revoked the so-called auto producer licence and
there can be no further applications for auto producer
licences. Any applications made for such purposes will be
evaluated as generation licences.
Amendments specific to renewable energy
An important change for the renewable energy sector is the
use of contest principles when there is more than one
application for the same area in the wind and solar energy
licensing process. As per the new EML, the applicant who offers
the highest contribution per kWh for a period of 20 years will
win the contest. The law aims to grant licences to the
applicants who can invest the maximum amount, and encourage
applicants to use their land productively. The new EML changed
the contest type foreseen for solar energy under Law on
Renewable Energy No 5346, which set out a mechanism where the
winner of the contest was the applicant who accepted the lowest
price for the electricity it generated.
The applicant company which obtains the licence will be able
to make the contribution payment within three years. This
brings about the question of whether the payment can be made in
instalments, but it will be regulated by secondary legislation
to be issued by the EPDK.
One of the most welcomed amendments brought about by the new
EML relates to unlicensed power generation. Under the previous
EML, power plants using renewable energy resources with a
maximum capacity of 500KW could generate electricity without
obtaining a licence. The maximum limit was constantly
criticised for being extremely low. The new EML responded to
the feedback from the market and increased the maximum capacity
to 1MW. The Board of Ministers is entitled to increase the
maximum capacity up to 5MW depending on the type of renewable
energy resource. This will enable the Board of Ministers to set
different maximum capacities for different renewable energy
resources and give further incentives for the use of a specific
renewable energy resource if the need arises.
The new EML also introduced a new provision concerning
unlicensed power generation. Regardless of capacity, if a power
plant generating electricity from renewable energy resources is
isolated from the transmission and distribution grid, it will
be exempt from the requirement of obtaining a production
licence. This will enable industrial facilities to establish
renewable energy power plants with a capacity of more than 1
megawatt, without going through the licence procedure, and to
procure their own electricity through that power plant.
The new EML allows several separate buildings to unify
themselves and obtain a single generation licence for the
production facilities installed on top of buildings if those
production facilities use renewable energy resources, and the
type of the renewable energy resource used by all buildings is
the same. This new provision is in parallel with the previous
declarations by the government and the EPDK, that all buildings
in the available areas in Turkey must have solar panels on
their roofs. This will encourage groups of households to unify
and make agreements with renewable energy equipment companies
for the installation of production facilities on the rooftops
of their buildings. Those agreements, will of course, have
better conditions than those offered to single households, and
indeed may make installation of renewable energy production
facilities a viable and productive option for households to
procure the electricity they need and to sell the additional
electricity they produce. If realised, this will increase the
electricity supply and will consequently lead to a decrease in
Turkey's dependency on foreign imports of fossil fuels to
generate its electricity.
Incentives under the law
Under the New EML, the period of certain incentives has been
extended and new incentives have been presented to legal
entities holding generation licences, which will begin
operating for the first time until the end of 2015.
The incentive period related to the system utilisation fee
has also been extended until the end of 2015. This fee for
electricity generation facilities will be reduced by 50% for a
period of five years starting from the date the facility starts
Another extension has been granted in relation to the stamp tax
incentive. Transactions conducted and papers prepared regarding
generation facilities will be exempt from stamp tax within the
investment period. This regulation is expected to facilitate
the necessary supply capacity in the short term.
"The new law will play a key
role in the next decade for investors in Turkey"
An incentive which was foreseen for generation facilities
using renewable resources has been extended to generation
facilities using coal and lignite coal. The new EML makes it
easier for those facilities to obtain rights of use for land
where the transmission lines will be installed even if the land
is forest or green land belonging to the State. Moreover, a
reduction of 85% will be applied to the fees to be paid by
those facilities to the State for the rights of use over the
relevant land plots.
Furthermore, revenue accruing from any mergers, acquisitions
or de-mergers concluded before December 31 2017 and within the
scope of privatisation of electricity distribution companies
and generation facilities and/or companies, will be exempt from
corporation tax. In addition, price equalisation mechanisms
have been extended until the end of 2015.
A final word
The previous EML was drafted to start the liberalisation
process of the Turkish electricity market and, although it was
often criticised, it served to fulfil its purpose. The new EML
intends to bring the semi-liberalised Turkish electricity
market to a fully-liberalised status. As the most significant
legislative document regulating one of the most important
sectors in Turkey, the new EML will surely play a key role in
the next decade for investors in Turkey. The new EML is already
being criticised as not being investor-friendly enough; this is
to be expected, as the law also protects the rights of the
end-consumers. That being said, it is certainly a huge step
forward for the Turkish electricity market.
Mehmet Gün & Partners
Esentepe Mah. Kore Sehitleri Cad.
No:17 Sisli 34394 Istanbul
T: +90 212 354 00 00
F: +90 212 274 20 95
A Ozan Karaduman is a senior associate in the
corporate and commercial department of Mehmet Gün
& Partners. He has been with the firm since 2007
and his practice focuses on M&A and preparation and
negotiation of contracts, as well as telecommunication
and energy law projects. He is a graduate of
Galatasaray University in Istanbul and speaks English
and French. Karaduman is a member of the Audit Board of
the Galatasaray University Alumni Association.
Mehmet Gün & Partners
Esentepe Mah. Kore Sehitleri Cad.
No:17 Sisli 34394 Istanbul
T: +90 212 354 00 00
F: +90 212 274 20 95
Tugçe Avcisert is an associate in the IP
department, life sciences practice group under the
regulated markets department and energy practice group
under the corporate and commercial department of Mehmet
Gün and Partners. She has been involved in many
projects on general corporate and commercial law
matters, trade mark and patent law disputes. She
provides services to corporate clients in a variety of
sectors, in particular pharmaceuticals and energy.
Avcisert graduated from Österreichisches St
Georgs-Kolleg, Istanbul, in 2006 and Koç
University Faculty of Law in 2011 with a dean's honour
degree, and she speaks English and German.
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