Regulation of electricity utilities – power generation

Authorisation to construct and operate generation facilities

What authorisations are required to construct and operate generation facilities?

Market participants should obtain a generation licence from EMRA to construct and operate generation facilities (except for certain generation activities explained below). The EML introduces a preliminary licence for generation activities.

Before applying for a generation licence, investors are expected to fulfil certain requirements stated in the preliminary licences, such as obtaining the necessary decisions, permits and approvals (eg, environmental impact assessment decisions, technical interaction permit for wind energy applications, approval of zoning plans for preliminary projects) or completing certain transactions, such as property acquisition or establishment of usufruct rights. A preliminary licence can be given for a maximum period of 36 months (see question 2). For renewable energy, market participants should also obtain a renewable energy resource (RES) certificate from EMRA.

As per the EMLR, in both preliminary licence and licence applications regarding generation activity, applicants have to submit a letter of guarantee to EMRA for the amount determined based on the resource type by EMRA for each installed capacity in megawatts. The ceiling for letters of guarantee for preliminary licence applications is determined by EMRA, provided that it does not exceed 5 per cent of the investment value. The letter of guarantee amounts to be submitted during the licence application will also be determined by EMRA so as not to exceed 10 per cent of the investment value for generation licence applications.

In order to obtain a preliminary licence and a generation licence, an applicant must pay licence fees, the amount of which depend on the installed capacity of the generation facility, and must also pay annual licence fees depending on the generated electricity amount after obtaining the licence.

With respect to power plants based on domestic natural resources, the right to use such resources must be obtained. For instance, for hydroelectric power plants, private parties should sign an agreement on the right to use the water with the General Directorate of State Hydraulic Works (SHW) after obtaining the pre-licence from EMRA. For local mines and geothermal, market participants should sign a resource agreement for the use of the energy resource. Finally, for power plants based on solar and wind power, SPP or WPP contribution agreement with TEİAŞ should be signed. According to the EML, in licence applications to establish a power plant based on solar or wind power, applicants should submit a measurement of a certain period of time duly taken within the past eight years in the area where the power plant will be established and the EMLR regulates the processes and principles for such measurements. If the landowner where the solar and wind power plant is to be established applies for a licence, no other licence application can be made for the relevant land. If there is more than one licence application for a solar or wind power plant for the same region or the same transformer station or both, the companies wishing to establish a solar or wind power plant must participate in a contest to determine which one of them will connect to the system. The principles and procedures about the contest are regulated with the Regulation on the Contest regarding the Pre-licence Applications for Establishing Power Plants Based on Wind and Solar Power published in the Official Gazette, dated 13 May 2017, No. 30065 (Contest Regulation). As per the Contest Regulation, the applicants offer the electricity prices in a way that the highest price to be offered will be the incentivised price determined under the Law on Utilisation of Renewable Energy Resources for the Purpose of Generating Electrical Energy published in the Official Gazette, dated 17 May 2005, No. 25819 (Renewable Energy Law) for a period of 10 years.

The EML provides that some activities may be conducted as being exempt from the pre-licence and licence requirements. In line with the EML, the unlicensed generation activity was introduced with the Regulation on the Generation of Unlicensed Electricity in the Electricity Market published in the Official Gazette, dated 2 October 2013, No. 28783 and the Communiqué on the Generation of Unlicensed Electricity in the Electricity Market published in the Official Gazette, dated 2 October 2013, No. 28783. This regulation and communiqué were abolished and replaced by a regulation bearing the same name published in the Official Gazette dated 12 May 2019, No. 30772 (Unlicensed Electricity Regulation. The Unlicensed Electricity Regulation provides licence exemptions for the following categories:

  • emergency groups and generation facilities that are not connected to transmission and distribution systems;
  • generation facilities based on renewable energy sources with a maximum installed capacity of 1MW;
  • municipalities’ solid waste facilities and generation facilities established for the disposal of mud from treatment plants;
  • micro cogeneration facilities (defined by the EML as cogeneration facilities that have a total installed capacity of 100kW and below);
  • cogeneration facilities (defined as the EML as cogeneration facility as facilities that simultaneously generate both heat and electricity) that meet the efficiency figures to be determined by the Ministry;
  • renewable generation facilities that consume all the electricity that they generate, without feeding it into the transmission or distribution systems;
  • generation facilities owned by legal entities whose majority share capital is directly or indirectly owned by municipalities to be established on the water conveyance pipelines, sewage transport pipelines and the dams that are used for drinking water, which are operated by the municipalities; and
  • generation facilities based on renewable energy sources established and operated by the SHW, for the purpose of meeting the electricity needs of agricultural irrigation facilities subscribed in the name of the SHW, provided that installed capacity is limited with the agreement power of the agricultural irrigation facility stated in the connection agreement, or the sum of the agreement powers of the facilities stated in connection agreement if there are multiple agricultural irrigation facilities.

The Unlicensed Electricity Regulation permits the establishment of a generation facility or generation facilities of 5MW in total for each consumption facility, provided that the installed capacity does not exceed the agreement power set forth in the connection agreement, and that the consumption facility and the generation facility or facilities are located at the same measurement point. The Unlicensed Electricity Regulation prohibits share transfers in the companies establishing unlicensed generation facilities prior to the provisional acceptance of these generation facilities except in certain exceptions, such as foreign indirect share transfers.

To construct an unlicensed power plant, one should first apply to the relevant network operator (ie, distribution company authorised in the region where the power plant will be located or TEİAŞ) with certain documents, such as land usage right documents, environmental impact assessment documents or a single line diagram, depending on the energy resource. If the relevant network deems the application sufficient, a call letter to invite the applicant to sign the connection agreement is sent. Upon the issuance of this document, the applicants have 90 days to apply for project approval to the institution authorised by the Ministry and have 180 days for obtaining the approval. Investors sign a connection agreement with the network operator within 30 days following the fulfilment of all the requirement and submission of all the required documents. However, for an unlicensed power plant to become operational, the system usage agreement should also be signed after the provisional acceptance of the plant has been reached in accordance with the Unlicensed Electricity Regulation. Under the Unlicensed Electricity Regulation, the provisional acceptance of facilities must be made within three years for hydroelectric power plants connecting to the system from medium-voltage level, within two years for power plants based on sources other than hydroelectric power plants connecting to the system from medium voltage, and within one year for facilities connecting to the distribution system from low-voltage level. Failure to obtain provisional acceptance within these timescales will result in the termination of the technical interaction permit, connection agreement, allocated capacity, and permits regarding water usage rights, except in cases of force majeure and delays owing to reasons acceptable to EMRA.

Grid connection policies

What are the policies with respect to connection of generation to the transmission grid?

TEİAŞ has a legal monopoly regarding transmission activities. No other legal entity is allowed to construct and operate transmission networks. TEİAŞ must ensure that connection to the transmission system, and the system-use demands of real persons or legal entities, are met in a non-discriminatory manner.

According to the Electricity Market Connection and System Usage Regulation published in the Official Gazette, dated 28 January 2014, No. 28896 (Connection and System Usage Regulation), if any new transmission plant or transmission lines to connect such a plant to the system are required for the connection of the generation plants to the system and if TEİAŞ does not have necessary financing for such an investment, the investment can be made or financed by the company or companies that request connection to the new plant. The investment amount shall be paid back in equal instalments under agreements to be signed between TEİAŞ and the investor or investors. The term for repayment is a maximum of 10 years. As per Connection and System Usage Regulation, the investment amount is determined by TEİAŞ as per the methodology approved by EMRA. TEİAŞ considers such investment amount as the system usage fee required to be paid by the investor in advance, and does not take any system usage fee from such investor until the total system usage fees reach the total investment amount calculated by TEİAŞ.

Alternative energy sources

Does government policy or legislation encourage power generation based on alternative energy sources such as renewable energies or combined heat and power?

The Renewable Energy Law provides a renewable energy support mechanism that covers different incentives and benefits for renewable energy projects including feed-in tariffs. The Renewable Energy Law provides different feed-in tariffs (fixed minimum electricity sale prices) depending on the type of renewable energy projects, as follows:

  • Turkish lira equivalent of US$0.073 per kWh for hydroelectric power plants;
  • Turkish lira equivalent of US$0.073 per kWh for wind power plants;
  • Turkish lira equivalent of US$0.105 per kWh for geothermal power plants;
  • Turkish lira equivalent of US$0.133 per kWh for biomass power plants; and
  • Turkish lira equivalent of US$0.133 per kWh for solar power plants.

The above-mentioned feed-in tariffs will be applicable for the legal entities holding generation licences that started operations in the period between 18 May 2005 and 31 December 2020, and for a period of 10 years from the operation date of the first installed capacity inserted in the generation licence, in cases where the whole facility entered into operation, and from the date the facility entered into the RES Mechanism, if it entered into operation partially. (For generation facilities based on biomass obtained by processing waste tyres, the period starts from the date the facility entered into the RES Mechanism.) The Renewable Energy Law also authorises the president to determine the feed-in tariffs (in terms of tariffs amount, terms and the eligible energy sources) that will apply for the facilities that commence generation after 31 December 2020 (provided that the feed-in tariffs to be determined by the president does not exceed those stipulated by the Renewable Energy Law).

On the other hand, the feed-in tariff shall only apply from the prices set forth above in cases where there are no multiple applications wishing to obtain a generation licence for the same connection point or region for solar and wind power based generation facilities. If there are multiple applicants, the contest explained in question 3 shall apply, and the feed-in tariff price will be the price that the winner of the contest offered, which will be a lower price. Furthermore, if the price offered by the winner of the contest is negative, the winner will no longer benefit from the feed-in tariff and will have to sell its electricity in the market.

To benefit from the renewable energy support mechanism (RES Mechanism), legal entities holding renewable energy generation licences and the RES certificate should apply to EMRA by 31 October of the year before they wish to benefit. Generators included in the RES Mechanism remain in the concerned mechanism for the first year. After the above-mentioned 10-year period provided to renewable energy generation facilities expires, facilities generating renewable energy will not be able to participate in the RES Mechanism and will be only able to sell their electricity in the market at the market price or through bilateral agreements, just like the other market participants, at negotiated prices.

The Renewable Energy Law also features further incentives as bonus tariffs for licence holders that use locally produced mechanical or electro-mechanical equipment or both, or components of this kind in renewable energy facilities, for a five-year term provided that they commence generation activities between 18 May 2005 and 31 December 2020. Such bonus tariffs differ according to the type of the renewable energy and the component manufactured from US$0.004 to US$0.024kWh. The Renewable Energy Law also authorises the president to determine such bonus tariffs (in terms of tariff amount, terms and the eligible energy sources) that will apply for facilities that commence generation after such date. The Regulation on the Support of the Local Components in Facilities Generating Electricity from Renewable Energy Resources published in the Official Gazette, dated 24 June 2016, No. 29752 (Local Manufacture Regulation) stipulates the principles, standards and certification processes regarding locally manufactured mechanical and electro-mechanical components. The components used in the construction of the power plant, and the parts that constitute such components and the percentage of each part in these components are set forth in the Local Manufacture Regulation. The Local Manufacture Regulation provides that the bonus tariffs shall apply in proportion to the percentage of each locally manufactured part in the components, provided that the locally manufactured parts constitute at least 55 per cent of the relevant components.

The Renewable Energy Law limits the total generation of licensed solar energy companies up to 600MW for the solar-power-based generation facilities commenced until 31 December 2013, and authorises the president to determine the future limits. Note that all the pre-licence contests regarding solar generation licences (see question 3) for the initial 600MW total installed capacity limit have been completed. While the EML permitted capacity increases, modernisation, renewal investments and modifications under certain circumstances only for wind power plants, amendments made in the EML, published in the Official Gazette dated 28 February 2019, No. 30700, extended this possibility to all renewable generation facilities. On the other hand, if generation facilities based on renewable sources obtain an approval for capacity increase from the EMRA after 28 February 2019, the increased capacity will not be able to benefit from the incentives. Accordingly, the formula to calculate the RES Mechanism fee to apply has also been amended to reflect such change (by applying the ratio of the old installed capacity to the new install capacity to the generation amount). In addition to the 600MW limit for solar power energy that was allocated in small capacities by granting generation pre-licence, or licences, to companies following a contest (see question 4), an alternative method is also envisaged - to designate large-scale special areas, called ‘renewable energy resources areas’ (RERAs), where electricity may be efficiently generated from renewable energy resources in state-owned lands. This enables the use of these areas by private parties for electricity generation from renewable resources in the EML. To that end, on 9 October 2016, the Regulation on Renewable Energy Resource Areas (RERA Regulation), which regulates the procedures and implementation of RERAs in more detail, was published in the Official Gazette and abrogated the Regulation on the Principles and Procedures regarding the Determination, Rating and Protection of Renewable Energy Resources for Electricity Energy Generation (Old Regulation), which was enacted in May 2005 but was never applied.

As opposed to the small capacities allocated for each generator in a conventional licence-obtaining process, under the RERA Regulation, very high installed capacities can be allocated to one generator by granting a right of usage of the RERA (RERA Usage Right).

While the RERA Regulation sets forth two different methods for the designation of the RERAs, in both methods, the RERA Usage Right is granted through a contest, the procedures of which are regulated in the RERA Regulation. Differently from the conventional licence-obtaining process, the RERA Regulation requires the use of locally manufactured components in the generation facility to be established in the RERA. The applicants of such contests will either be required to manufacture the components themselves in Turkey, in their own factory, or undertake to use components locally manufactured by third parties or both, depending on the specific requirements set forth in the specifications regarding the relevant RERA Usage Right. In cases where the RERA Usage Right-holder will be required to locally produce the components, it will also be required to perform research and development activities in accordance with the requirements to be stipulated under the specifications. As applicable to both methods, as per the RERA Regulation, the highest electricity purchase price that may be offered during the contest will be set forth in the specifications of each contest, taking into consideration the feed-in tariffs set forth for the generators subject to the RES mechanism in the renewable energy legislation. The winner and the purchase price of the electricity will be the bidder offering the lowest price.

While all the unlicensed renewable energy generators used to benefit from the feed-in tariff for their electricity exceeding their consumption amount automatically without opting into the RES Mechanism with a Decree dated 21 June 2018 and the Presidential Decree amending such Decree dated 10 May 2019, certain types of unlicensed generation facilities (eg, the rooftop or façade renewable energy based generation facilities for commercial, industrial, and lighting subscribers at the same measurement point with the consumption facility) are now subject to a price guarantee different from the feed-in tariffs, provided that these facilities obtained the right-to-call letter after entry into force of the relevant Decrees. The surplus electricity will be purchased by the relevant authorised supply companies from the tariffs, each generation facility subject to a period of 10 years from the start of electricity generation in such facility. However, while the licence holders may continue selling their electricity freely after the expiry of such 10-year period, an unlicensed generator will not be able to sell the electricity it generates through the system and only continue to use it for its own consumption. With the Local Manufacture Regulation and the amendment in the Unlicensed Electricity Regulation in line, unlicensed facilities cannot benefit from bonus tariffs applied in the use of locally manufactured components.

Under the regime set forth with RERA Regulation, on the other hand, the electricity that will be generated by the generation facility will be subject to a purchase guarantee under the RES Mechanism at the price stated in the RERA Usage Right agreement (that will be signed by the Ministry and the winner), which is determined as per the contest results. The company obtaining the RERA Usage Right under a contest will not have an option to opt in or opt out to the RES Mechanism. The purchase period will start from the date of execution of the RERA Usage Right agreement (not from the date of the licence issuance) and after the expiry of such period, the licensee may sell its electricity in the market with its generation licence.

Another incentive granted to renewable energy facilities regards the use of state properties. If any state property is used for generating electricity from renewable resources or mines and minerals, the Ministry of Environment and Forestry or the Ministry of Finance shall permit the use of such properties with respect to the facility and access ways and energy transmission grids up to the connection point of the grid in return for a fee. Such permission may be in the form of permits, leases, rights of easement or rights of usage. For facilities that start operating before the end of 2025, for access ways and energy transmission grids up to the connection point, a discount of 85 per cent shall be applied to the fees for permission, lease, right of easement and right of usage for the first 10 years of their investment and operation periods starting from the permit date.

According to the EMLR, the legal entities applying for a pre-licence and licence for the generation facilities based on domestic natural resources and renewable energy resources shall only pay 10 per cent of the total pre-licensing and licence-obtaining fees. Generation facilities based on renewable and domestic energy resources shall not pay annual licence fees for the first eight years following the first provisional acceptance date of the power plant.

Also, TEİAŞ and distribution licensees shall give priority to the system connection of generation facilities based on domestic natural resources and renewable resources.

Climate change

What impact will government policy on climate change have on the types of resources that are used to meet electricity demand and on the cost and amount of power that is consumed?

Government energy policy promotes renewable energy resources to tackle climate change (see question 5). The government is also promoting energy efficiency to decrease the amount of power that is consumed. Turkey also signed the Kyoto Protocol in February 2009; however, it is not listed in Annex B of the Protocol. Turkey signed the Paris Agreement opened to the signature at the United Nations Climate Change Conference (COP 21) on 22 April 2016, however, has not yet ratified the agreement.

Storage

Does the regulatory framework support electricity storage including research and development of storage solutions?

Currently there is no regulatory framework supporting or providing any incentive for the research and development of storage solutions. However, the Electricity Grid Regulation published in the Official Gazette, dated 28 May 2014, No. 29013 (Grid Regulation) defines ‘energy storage systems’ as systems that can react quickly, circulate the energy perpetually, supply the energy to or draw the energy from the system when requested, and store the electricity energy in limited capacity perpetually through the help of mechanical, hydraulic, electrochemical, chemical and thermal energy storage systems, and sets forth how energy storing systems may be used within the scope of ancillary services, as per the principles to be prepared by TEİAŞ and approved by EMRA. Provisional article 1 of the Grid Regulation sets forth the deadline for the submission of such principles and procedures by TEİAŞ to EMRA as 31 December 2015. A draft regulation on storage activities was published at the beginning of 2019, nevertheless, at the time of writing, no principle or procedure has yet been entered into force in this respect, neither by EMRA nor by TEİAŞ.

However, energy storing systems are included in the ancillary services regulated under the Electricity Market Ancillary Services published in the Official Gazette, dated 26 November 2017, No. 30252. Additionally, with a recent amendment to the EML, it is provided that the market activities carried out within the scope of the electricity storage and demand-party response, the procedures and principles and the limits which are determined by EMRA’s board following the opinion of the Ministry, may be performed without obtaining a licence.

Government policy

Does government policy encourage or discourage development of new nuclear power plants? How?

The Nuclear Energy Law, the first such law of Turkey to promote private sector nuclear energy investments, was published on 21 November 2007.

The purpose of the law is to stipulate the procedures and principles regarding the commissioning and operation of nuclear power plants for electrical energy production and energy sale, in accordance with energy planning and policies.

The Turkish Atomic Energy Authority and EMRA have published the vast majority of legislative documents and criteria regarding nuclear safety, licensing, reactor types, power plant lifetimes, proven technology, fuel technology, localisation, operational records and electrical power. Recently, the Nuclear Regulatory Authority (NRA) was established and the Turkish Atomic Energy Authority’s regulatory responsibilities were transferred to it.

The Turkish government promotes nuclear power plants; currently there are three nuclear power projects either in the process of realisation or being considered to be realised. One of those is the nuclear power plant Akkuyu Power Plant, which is currently being built by one of the subsidiaries of Rosatom State Atomic Energy Corporation, Akkuyu NPP Joint Stock Company. The installed capacity of Akkuyu Power Plant is expected to be 4.8GW and the project is expected to be completed by 2023.

An agreement on cooperation in relation to the construction and operation of the second nuclear power plant in Sinop was signed on 3 May 2013 between Japan and Turkey. Turkey’s second nuclear power plant, which was envisaged to come into operation by 2025 and expected to have an installed capacity of approximately 4.4GW, would be built at Sinop by a Japanese-French consortium. Nevertheless the project is, as of the date of writing this article, at a standstill.

A third nuclear power plant is also expected to be built; however, its location has yet to be determined. In November 2014, an agreement was signed to begin exclusive negotiations to develop and construct a four-unit nuclear power plant between EUAS, Westinghouse Electric Company and China’s State Nuclear Power Technology Corporation; however, as of the date of writing, the details of this project remain uncertain.

Regulation of electricity utilities – transmission

Authorisations to construct and operate transmission networks

What authorisations are required to construct and operate transmission networks?

TEİAŞ has a legal monopoly on transmission activities. No other legal entity is allowed to construct and operate transmission networks. TEİAŞ also obtains a transmission licence from EMRA to conduct transmission activities. The transmission licence can be issued for a maximum of 49 years and a minimum of 10 years at a time.

Eligibility to obtain transmission services

Who is eligible to obtain transmission services and what requirements must be met to obtain access?

Legal entities engaged in generation activities, distribution companies and organised industrial zone distribution licence-holding companies, and the consumers meeting the certain requirements stipulated in the concerned legislation (such as owing a consumption facility having a capacity of 50MW or higher, or although having a capacity lower than 50MW, distribution company’s admission on its own incapability to meet the electricity demands of such facility), may request access to the transmission grid.

Requests are evaluated by TEİAŞ and can only be rejected if:

  • the technical features of the network at the required connection point are insufficient;
  • the standards with respect to system connection, the condition of the facility to be connected to the system and the technical standards indicated in the relevant regulations have not been met;
  • TEİAŞ justifies that the intended connection would constitute an obstacle to public service obligations; or
  • a connection point, which is more economical and provides fewer losses in power compared with the connection point applied to, is available in the case of applications for connection of wind or solar power generation facilities.

If TEİAŞ is of a negative opinion with respect to the connection to the system and system use, it must justify the opinion which must also be approved by EMRA. If the reasons for such an opinion are not deemed appropriate by EMRA, TEİAŞ would be obliged to sign the related connection and system-use agreements.

In the event that there are multiple applicants wishing to connect to the transmission system from the same connection point and it is not possible for the transmission system to meet all the applications, the following company types will have priority in the respective order:

  • the distribution companies;
  • organised industrial zone distribution licence-holding companies;
  • companies generating electricity based on domestic coal; and
  • companies generating electricity based on renewable energy.

Transmission system users shall sign connection and use-of-system agreements with TEİAŞ.

Government transmission policy

Are there any government measures to encourage or otherwise require the expansion of the transmission grid?

With a legal monopoly over the transmission grid, TEİAŞ is responsible for the grid’s expansion. According to Grid Regulation, TEİAŞ prepares the 20-year statement report regarding the transmission system (long-term report).

Such long-term reports include items such as investment plans regarding the transmission system and potential supply possibilities. In addition to the long-term reports, TEİAŞ is also responsible for preparing and publishing a short-term (ie, a one-year term) electricity energy supply and demand projection report for the following year with the participation of all the authorities and institutions and the cooperation of the Ministry.

Enabling generation companies to finance and make investments for new transmission lines required to connect generation facilities to the system when TEİAŞ does not have necessary financing under the repayment plan regulated in the Connection and System Use Regulation (see question 4) may also be interpreted as an encouragement for the expansion and improvement of the transmission grid.

Rates and terms for transmission services

Who determines the rates and terms for the provision of transmission services and what legal standard does that entity apply?

The transmission service is subject to regulated tariffs consisting of fees required to be collected for the performance of the transmission system usage activity by TEİAŞ. The transmission tariff includes the transmission system usage price, transmission system operation price (market operation included) and other fees that may occur under the legislation. Transmission system usage and operation tariffs are prepared and proposed by TEİAŞ.

TEİAŞ prepares the transmission tariff proposal and then submits it to EMRA for approval. The tariff becomes effective for the tariff period once approved by EMRA. TEİAŞ is obliged to announce its approved tariffs.

Entities responsible for grid reliability

Which entities are responsible for the reliability of the transmission grid and what are their powers and responsibilities?

EMRA is responsible for preparing regulations for connection and reliability of the transmission grid, such as the Grid Regulation and the Connection and System Usage Regulation. These regulations outline the technical and other standards to be met for the transmission system and also for connection to the transmission network. According to these regulations, the general responsibility for assuring transmission grid reliability lies with TEİAŞ. TEİAŞ is obliged to meet the demands of third parties for connection to the transmission network and system use on a non-discriminatory basis and between equal parties.

TEİAŞ is entitled to take necessary measures and actions in the case of any threat to the reliability and safety of the transmission grid. It is also responsible for the planning and development of the transmission system.