Recent development

Recent amendments to the Electricity Market Law on June 4, 2016, introduced the general framework for the regulation of renewable energy resource areas ("RERA"). On October 9, 2016, the Ministry of Energy and Natural Resources (the "Ministry") issued the Renewable Energy Resource Areas Regulation (the "Regulation") superseding the previous one and providing the details on how the RERAs will be made accessible to investors.

RERAs are areas announced by the Renewable Energy General Directorate (the "Directorate") or determined through a tender process (as explained below) where renewable energy power plants will be constructed and connected to the grid. Investors investing in RERAs must use domestic equipment, and in return, they will benefit from the cooperation of the Ministry with the administrative procedures associated with the enterprise (such as obtaining permits and licenses); investors will also be granted a purchase guarantee provided under the RERA Usage Right Agreement.

The Regulation aims to efficiently utilize renewable energy resources, accelerate investment procedures, and reinforce technology transfers through domestically manufactured equipment requirements.

Determination of RERAs

RERAs in privately owned or state owned lands will be determined by the Directorate. Alternatively, the Ministry may chose to announce the connection areas and capacities, and determine the RERAs following the tender for the connection capacity allocation, as explained below, and, upon the suggestion of the successful bidder, determine the RERAs within the designated connection area and capacity. In both cases, the determined RERAs will be published in the Official Gazette.

Tender Procedure and Conclusion of a RERA Usage Right Agreement

After the RERA tender is announced in the Official Gazette, the bidders satisfying the criterion provided in the Directorate's tender specifications must submit their bids for the connection area and the entire connection capacity.

Certain key points regarding the tender process are as follows:

  • Bidders must either manufacture domestically the equipment for the generation facilities or utilize domestic equipment.
  • The tender will be held based on the energy price per kW/h. Accordingly, a maximum number of five bidders submitting the lowest price will have the right to proceed to the public auction stage. The lowest bid in the auction will be entitled to execute a RERA Usage Right Agreement with the Directorate.
  • In cases where the RERA is determined not by the Directorate in advance, but upon the successful bidder's suggestion, this bidder will submit its suggested RERAs that are within the connection area, for the entire connection capacity, within 90 calendar days.
  • Legal entity or joint venture bidders should satisfy the minimum Turkish shareholding ratio requirements determined under the tender specifications.
  • The winner must first obtain a preliminary license and then a generation license in order to commence electricity generation.
  • The electricity generated in the RERAs will be sold through the Renewable Energy Resources Support Mechanism (Yenilenebilir Enerji Kaynakları Destekleme Mekanizması, "YEKDEM") over the price agreed under the RERA Usage Right Agreement. After the lapse of the purchase term under the RERA Usage Right Agreement, the entity can participate in market activities.
  • Winners who undertook the domestic manufacturing of equipment must establish research and development ("R&D") center and conduct R&D activities within the scope of the tender specification terms and the Law in Support of the R&D Activities.

Conclusion

It is expected that the pre-determined purchase prices and terms provided under the RERA Usage Right Agreement and the accelerated investment procedures provided under the Regulation will generate great appeal for investors. This will increase the sustainable use of renewable energy for electricity generation.

Although an official announcement is yet to be made, it is expected that the first tender will take place in the last months of 2016, potentially for the already determined Karapınar RERA. The Regulation is an important step towards attaining Turkey's goals of strengthening renewable energy generation and usage, and of creating a welcoming atmosphere for investors.