In February of this year, Turkey’s Energy Minister Taner Yildiz, announced plans to increase the ratio of the country’s renewable energy resources to 30 percent of total energy production by 2023. Over the next ten years The Turkish government is seeking considerable investments to fund projects in wind, solar, hydropower, biomass and geothermal energy, believing a thriving renewable industry to be pivotal to future economic growth. Turkey has already enticed major international investors such as General Electric and Siemens AG; General Electric opened the 22.5-megawatt (MW) Sares wind farm and 10-MW Karadag site, and is scheduled to supply turbines to Fina Enerji Holding AS; Siemens is contracted to supply turbines to a 50-MW wind farm, and the firm expects to be involved in further projects in 2014.
In order to meet the challenges posed by Yildiz’s lofty pronouncement, the body of law governing Turkey’s energy marketplace must change. New legislation has introduced incentives for companies involved in the renewable energy sector, most notably in solar energy and biomass power plants investments, with a 13.3 cent subsidy per kilowatt-hour (kWh).
Since Yidiz’s declaration, Turkey has licensed 15,000 MW of approximately 40,000 MW total of onshore wind power capacity. In March, a new law regulating the Turkish electricity market was enacted, the highly anticipated new Petroleum Law came into force in May, and new set of regulations governing Turkey’s natural gas market is currently being prepared, for submission before the end of the year. Whilst these laws directly pertain to the administration of traditional forms of energy, each has an individual set of implications for Turkey’s renewable energy market.
The New EML
The New Electricity Market Law repealed the previous EML of March 03, 2001.
Below is a summary of the key reforms contained in the New EML:
1. Energy Markets Operating Corporation (“EPIAS”)
The New Law introduces a new corporation, EPIAS, in order to conduct market operating activities effectively; it was due to come into operation on September 30, 2013, but has still not been established. The marketplace welcomed EPIAS as a step forward for the liberalization of the market. EPIAS established a trading exchange for sale and purchase of all forms of energy, including renewable. This enables reference prices for renewable energy to be determined, and renewable energy producers are now able to anticipate prices from a long-term perspective. The market also expects EPIAS to pave the path for the issuance of renewable energy derivatives, depending on power purchase contracts.
Whilst at present only 15 percent of shares in the new EPIAS can be owned directly or indirectly by public institutions or companies with public capital, the New EML sets the Istanbul Exchange aside as an exception for the shareholding limit put for the public institutions. Therefore, it is possible for EPIAS to be established with a shareholding of 15 percent public institutions, a majority shareholding of the Istanbul Stock Exchange and a minority shareholding of private entities. However, this possibility is highly debated by the market players who say that the shareholding of the private entities must be at least 40 percent of the overall shareholding, in order to enshrine operational independence and allow the corporation to respond effectively to the needs of investors.
Another novelty of the New EML is the “pre-license” mechanism; a two tier system established to facilitate all administrative and bureaucratic requirements. The Previous EML required the issuance of the generation license by the Electricity Market Regulatory Authority (the “EMRA”), in order to make certain other applications, ultimately delaying the process for generator companies to become operative. The pre-license procedure aims to solve this problem. When a company applies for a license, it will first be granted a pre-license with a maximum period of 24 months. With this pre-license, the applicant company will have the right to make applications for various administrative permits, licenses and related documents as well as to acquire 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 EMRA cannot be fulfilled, the applicant will not be granted an electricity generation license.
Although the 24 month pre-license period has been criticized 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 realized as quickly and efficiently as possible. The same enthusiasm must be felt by the administrative bodies that will provide the permits required for the completion of a generation facility in order for the pre-license holders to obtain all the required permits in the given time.
One of the most substantive changes for Turkey’s renewable energy sector is the contest criteria. The New EML provides that when there is more than one application for the same area in the renewable energy licensing process, the applicant offering the highest contribution per kWh for a period of two decades will win the tender. Under previous legislation, the winner of a tender was the applicant who accepted the lowest price for the electricity that was to be generated. The EML aims to grant licenses to the applicants who can make a serious investment.
4. Unlicensed Power Generation
Another welcome renewable energy provision inaugurated by the New EML relates to unlicensed power generation. Previously, power plants using renewable energy resources with a maximum capacity of 500 kilowatts could generate electricity without obtaining a license. The New EML doubles the maximum capacity significantly to 1 MW, with scope for a further increase of up to 5MW if this new provision proves popular with industrial facilities and individual households. The Board EPIAS is also empowered to set different maximum capacities for different renewable energy resources, and offer 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 their own renewable energy power plants, without going through the licencing procedure, and to procure their own electricity through that power plant.
The amendments and reforms that have been undertaken in Turkey’s quest for renewable energy primacy have been timely. Already roundly endorsed by investors, they stand to stimulate significantly increased interest from new financiers. However, despite the Turkish government’s admirable long-term vision for the energy industry, significant disadvantages and weaknesses remain. Turkey remains highly dependent on imported natural gas and crude oil, and there is still some way to go before Turkey’s renewable energy markets are in accord with the practices and policies in operation in other EU states and jurisdictions. Furthermore, strict disclosure obligations in licensing procedures may deter large-scale investments.
Nevertheless, as an initial buttress for potential upheaval to come in Turkey’s renewable energy markets, the reforms to have so far been enacted are firm. It can be reasonably expected that further legislation will be enacted in the years to come which will further modernise Turkey’s energy markets in general, and Turkey’s renewable energy capacity in particular, in order to meet the Ministry of Energy’s stated 2023 progress goals.
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