Electricity generation, transmission, distribution, and trade are considered public services by court decisions. The liberal economy policies enforced following the entry into force of the 1982 Constitution also find their place in the electricity market. Accordingly, providing the public services via civil law contracts was made possible with the amendments to the Turkish Constitution in 1999.
The Electricity Market Law no. 4628 was later introduced in 2001, and services in the electricity market were provided by private persons for the first time. On the other hand, due to the monopoly nature of electricity markets, these markets are highly regulated and subject to supervision. In order to fulfil such regulation duties, the Electricity Market Regulatory Authority was founded in 2001, and afterwards, its mandated areas of activity expanded to other types of energy branches as well, thus, it was rechristened as the Energy Market Regulatory Authority [the “EMRA”]. The EMRA, which has a public legal entity separate from the central government and is administratively and financially autonomous; establishes regulatory procedures and audits the electricity, natural gas, petroleum and LPG markets.
Due to the delicate and vital function of the electricity market, all those who wishes to operate in this market, whether a private person or a public entity, must obtain a license under the Electricity Market Law numbered 6446 [the “EML”] [available in Turkish only]. The EML, however, also permits unlicensed electricity generation if specific conditions are met. This article will deal with licensed and unlicensed electricity generation in general.
Licensed Electricity Generation
As per the definition in the EML, a license is a permit granted to legal entities, enabling them to operate within the market. Accordingly, public and private sector generation companies and organized industrial zone legal entities may carry out generation alongside the following activities within the scope of their licenses:
- Sale of electricity or generation capacity to supply companies, free consumers and persons with whom it has established private direct lines;
- Trade of electricity or generation capacity;
- Purchase of electricity or generation capacity in order to secure the electricity or generation capacity it is obliged to supply, provided that the annual amount of electricity generated that is stated in its license for a calendar year does not exceed the rate determined by the EMRA.
Depending on the nature of the activity, a license is given for a minimum of 10 and a maximum of 49 years. If the generation company wishes to carry out this activity in more than one facility, it must obtain a separate pre-license for each facility.
Pre-licenses are permits given for a set amount of time to obtain necessary documentation such as approvals, licenses, and permits necessary to start investments on the generation facility. Holders of pre-licenses may apply to the EMRA for a license as long as they carry out their obligations under the pre-license. The private companies in the electricity market must be incorporated as limited liability or joint stock companies, and in case of joint stock companies, the shares must be in registered form. It should be noted, some activities of the companies in this market require approval from the EMRA.
Although as a rule the license cannot be transferred, it is possible to transfer the license through merger or spin-off and through other exceptions under the Turkish Commercial Code no. 6102 and with prior permission of the EMRA. For instance, with the EMRA's permission, the legal entity holding the license may transfer it to another legal entity that intends to continue to conduct the operations under the license. Furthermore, with EMRA's permission, the licensee's legal entity may conduct a merger within the same body or within the body of another legal entity, or it may perform a full or partial demerger.
With several exceptions, the applicant legal entity is not allowed to transfer its shares throughout the license obtaining process. For legal entities holding a license; the transfer of shares representing 10% or more of the capital of the company -or the transfer of shares representing 5% or more if the company is publicly held- and other transactions that create the same result are subject to the EMRA's approval. In other cases, where the permission from the EMRA is not required to transfer the shares of the legal entity holding a license, the EMRA must be notified, and a submission for a license amendment must be made if necessary.
Unlicensed Electricity Generation
In accordance with the Regulation on Unlicensed Electricity Production in Electricity Markets [the "Unlicensed Electricity Generation Regulation"] [available in Turkish only], it is possible to generate electricity without having to apply for a license or pre-license or incorporate a company. Accordingly, consumers may generate their own electricity in their own generation facilities in close proximity to the point of consumption. Surplus generated that is limited to the last year’s electricity consumption may be sold in the general system.
With the unlicensed electricity generation introduced, especially aiming to encourage renewable energy production, 1.9% of the electricity supply in 2020 was met from unlicensed generation facilities where 92% of such electricity was generated through solar energy. Again, to further encourage renewable energy production, the installed power limit of the generation facility, which was initially one megawatt, was increased to 5 megawatts in 2019.
That being said, the recent amendments dated 11 August 2022 to the Unlicensed Electricity Generation Regulation, stipulate that the amount of surplus energy that can be sold may not exceed the total consumption of the consumer. The excess energy generated over the facility's last year consumption will not be sold but will be given away to the Renewable Energy Resources Support Mechanism free of charge.
In order to generate electricity without a license, an application must first be submitted to the grid operator. The application is then reviewed over the documents submitted and is examined technical wise. The person who prevails from such review and examination by receiving an alternative connection opinion are given a call letter to the connection agreement. The construction phase starts after the connection agreement is signed, and the Ministry of Energy and Natural Resources completes the temporary acceptance processes. The generation facility will only start to be constructed once such procedure is completed and the system usage contract has been signed.
By Yasemin Keskin, Senior Associate, and M.R. Cafer Koc, Legal Intern, Guleryuz & Partners