Energy

Contact: Gaye Spolitis; Erdem & Erdem (Turkey)

Introduction

The Turkish Electricity Market Regulatory Authority (“EMRA”) prepared a draft Exposure Draft(“Draft”) to amend the Regulation on the Unlicensed Electricity Generation (“Regulation”)[1] that was submitted for the public in November, 2015, for commentary and review from market players, investors, legal and business advisors. The Draft is an indication of the will from the regulator and a projection of a possible legislation; therefore, this short article highlights the main issues of consideration prior to the publication and entry into force of the Draft.

The main amendments proposed in the Draft amends connection principles, selection of connection points and technical application process, and a restriction on mergers and spin-offs of generation facilities.

The Connection Principles and Connection Application

The power generation facilities that are subject to the Regulation shall be connected to the distribution systems. Although the Regulation already establishes certain principles for connections of power distribution, the Draft introduces new provisions. According to the Draft, when the Turkish Electricity Transmission Corporation (“TEIAS”) allocates additional capacity to the substations already having maximum capacities[2], such extra capacities shall be announced by TEIAS in April, August and December of each year. The applications for extra capacity shall be evaluated by the related network operator after three months following the announcement by TEIAS of extra capacity allocation. However, in the event that substations have additional capacity (due to other reasons), then the network operator shall announce this extra capacity in its website for applications submitted three months after the announcement date.[3]

The Draft also sets forth certain rules on the types of connections, such as unlicensed generation facilities. These shall not be directly connected to substations, and shall not be allocated to any feeders.[4]

Pursuant to the Regulation, connection applications may be made by real or legal persons who are willing to generate electricity in generation facilities under the Regulation. The application shall be made directly to the relevant distribution company, or to the legal entity holding an organized industrial zone distribution license. The document confirming the granting of utilization rights of renewable energy sources must be accompanied with the other application documents. The Draft proposes additional documents in the application process.[5] These must stipulate that the connection applications shall be comprised of coordinated application outlines, displaying the application valuations of the facility’s plot, along with a “Technical Evaluation Form,” to be prepared by the Ministry of Energy and Natural Resources, Directorate of Renewable Energy (“YEGM”) evaluating the efficient use of applicant solar and wind power facilities.

In the event that the generation facility, which is subject to unlicensed generation, applies for solar or wind power generation license[6], YEGM shall then evaluate the relevant facility’s Technical Evaluation Form. If the evaluation is positive, then the applications shall be granted a license, accordingly. However, if the unlicensed generation application, and the licensed generation application are in conflict, then YEGM shall reject the unlicensed generation application. If the applicant’s consumption amount for the last one year is higher than the other applications, such facility may change their subscription regarding their power consumption facility. In such a case, yearly electric energy consumption amount of the new power consumption facility, which shall be associated with the generation facility having a Call Letter, shall not exceed the consumption amount constituting the basis of the application.[7]

The procedures and principles regarding the connection applications and utilization of surplus energy of the generation facilities having installed power of up to 10 kW, which are directly connected to their own power consumption facilities, as well as the standard form of the “Call Letter,” shall be determined by the EMRA.[8] The generation facilities having an installed power up to 10 kW shall be exclusively provided with 5 MW of connection capacity by TEIAS, for each substation. If a facility reaches capacity, TEIAS’s opinion shall be required for additional consumption. Such additional capacity shall be allocated in accordance with TEIAS’s findings. [9]

Selection of the Connection Point

According to the Regulation[10], the generation facility subject to application shall be connected to (i) a network from a low voltage[11] level, if its installed power is equal or less than 11 kW, and (ii) a network from a low voltage or high voltage[12] level (depending on technical evaluation), if its installed power is more than 11 kW. The Regulation envisaged certain criteria for the connectivity rate of the said connection points. According to the Regulation, the connectivity rate of cogeneration facilities having an installed power exceeding 1000 kW shall be above 30, and the connectivity rate of other generation facilities shall be above 70. However, the Draft intends to dispose of such connectivity rate requirements by abolishing the relevant provision.

Mergers and Spin-offs of Unlicensed Generation Facilities

The Draft introduces several principles on structural changes in unlicensed generation facilities that are of critical importance to investors. According to the Draft[13], if the generation facility aims to merge with another unlicensed generation facility that is (i) fully owned by the applicant itself, or (ii) within the body of an unlicensed generation facility, which fully owns the applicant, such merger shall be consummated in accordance with the legislation in force. In order to complete the transaction as such, however, all facilities connected under the merger must each have “provisional acceptance.” The generation facility shall apply to the relevant network operator one month prior to the merger, and inform the operator of the transaction and the process ahead. All necessary actions to be taken under the transaction (merger) shall be conducted simultaneously by the parties to the merger at stake.

Moreover, if the unlicensed generation facility aims to partially or fully spin-off, such operation shall be completed in accordance with the requirements of the Regulation.[14] The generation facility shall apply to the relevant network operator, one month prior to the spin-off, and shall inform the operator of the transaction. It is, likewise, required as so required in mergers, that all actions to be taken shall occur simultaneously by the parties of the spin-off.

The Latest Announcement Regarding the Exposure Draft amending the Regulation on the Unlicensed Electricity Generation

On November 26, 2015, EMRA announced certain additional provisions to be added to the Draft amending the Regulation on the Unlicensed Electricity Generation. The announcement was published on EMRA’s site for the opinion of the market players, investors and experts.

According to the latest proposed amendment added to the Exposure Draft, each renewable generation facility shall be allocated no more than 1MV for a single transformer, regardless of the number of its consuming facilities[15].

Another novelty introduced with the latest amendment on the Exposure Draft is on the share transfers of the unlicensed generation facilities. The generation facility subject to the Regulation shall not transfer its shares within the period starting from the date of application for the Call Paper for the generation facility until the date of the “provisional acceptance” granted in favor of the applicant. Share transfers, apart from those mentioned, shall promptly be notified to the related network operator, at least one month prior to the share transfer. The parties to the share transfer shall provide the related network operator with the information and documents pertaining to the potential and final share structure of the generation facility, within ten business days as of the share transfer transaction[16].

Further, the below-mentioned persons and entities shall not engage in unlicensed electricity generation operations within the scope of the Regulation[17]:

• Direct or indirect shareholders of the distribution and procurement companies,
• Personnel employed within the body of the distribution and procurement companies and their direct or indirect shareholders,
• The legal persons of whom the above-mentioned real and legal persons are direct or indirect shareholders.

Conclusion

The publication of the Exposure Draft on EMRA’s website has created a stir among the market players and investors; particularly to those who plan to invest, or have already invested, in unlicensed projects, with connections already allocated, or in the process of allocation, by TEDAŞ. The Exposure Draft clearly aims to shift serious investors into the market to invest in “specialized solar generation regions,” and to participate in tenders for licensed generation, while strengthening the market position for small and medium sized investors to invest in generation facilities for roof-top or self-consumption.