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Structural changes on the unlicensed renewable electricity generation in Turkey

The new regulations for amending the Regulation on Unlicensed Electricity Generation in the Electricity Market (“Amendment Regulation”) and the Communiqué Amending the Communiqué on Unlicensed Electricity Generation in Electricity Market (“Amendment Communiqué”) were published in the Official Gazette on 23 March 2016 which entered into force on the same date.

The amendment has structurally changed unlicensed electricity generation process in Turkey. The most significant changes are;

  • Same persons or entities including affiliated or group companies directly or indirectly are no longer own more than 1 MW total installed capacity which will be connected for the same sub-station connection point.
  • Share transfers of the company are not available until the provisional acceptance of an unlicensed project is completed.
  • A minimum self-consumption ratio is introduced, placing a cap on the excess energy which can be sold to distribution companies.
  • New requirements are also introduced for connections, mergers/demergers and application procedures.

It is important to note that certain aspects of the new requirements would not apply to the unlicensed applications which have obtained a connection invitation letter before the amendments entered into force on 23 March 2016.

The Amendment Regulation also changed certain provisions of the Regulation on Unlicensed Electricity Generation in the Electricity Market (“Unlicensed Regulation”), published in the Official Gazette on 2 October 2013.

The Amendment Regulation changed the following important aspects for unlicensed electricity generation in Turkey:

1. Changes regarding to the Connection Rules

a. 1 MW Limitation for Affiliated Companies: The Amendment Regulation introduces a new restriction whereby each real person, legal entity or group companies is allowed up to 1 MW capacity jointly at each transformer sub-station for unlicensed renewable energy generation purposes. So that, affiliated or group companies can no longer be allocated more than 1 MW of capacity for the same sub-station connection point, regardless of the number of consumption units. Legal entities must present their direct and indirect shareholding structures to the relevant network operator (either TEİAŞ or the regional distribution company) (Article 6(10), Unlicensed Regulation).

b. Limitation for Distance to the Grid: The Amendment Regulation also introduces a limit for unlicensed projects regarding their distance to the grid (Article 6(8), Unlicensed Regulation):

  • Projects with up to 0.499 MW capacity must not be more than 5 km from the grid.
  • Projects with more than 0.499 MW capacity must not be more than 10 km from the grid.

c. Maximum Installed Capacity Limit: The Amendment Regulation introduces a minimum self-consumption ratio, which places a maximum limit for the excess energy which can be sold to distribution companies.

In accordance with the new rules, the installed capacity for the unlicensed wind and solar generation projects are not allowed to exceed 30 times more than the capacity of the consumption unit associated with the generation unit (Article 6/12, Unlicensed Regulation).

2. Restrictions on Share Transfers and Mergers/Demergers

a. Restrictions on Share Transfers: The Amendment Regulation introduces a provision which prevents shareholders transferring shares in legal entities which are unlicensed facility applicants, until the facility’s provisional acceptance is completed (i.e. until the facility commences its operations). Failure to wait will result in cancellation of the unlicensed facility’s connection calling letter. After this lock-up period, the relevant network operator (either TEİAŞ or the regional distribution company) must be informed of any share transfers at least one month before closing the share transfer transaction.

The relevant network operator must be informed about the changes of the shareholding structure (after the share transfer) within ten business days of the transfer (Article 31/20 of the Unlicensed Regulation).

b. Rules for Mergers/Demergers: The Amendment Regulation introduces new rules for mergers and demergers of unlicensed projects. Mergers and demergers of legal entities which own unlicensed projects can now only be processed after the provisional takeover of the unlicensed facility is completed. Merger applications can now only be made if the unlicensed project’s owner is either:

  • The transferor parent, who merges with a transferee subsidiary (which the parent holds 100% share in); or
  • The transferee subsidiary merges with its parent company (which holds 100% the subsidiary’s shares).

The same principle also applies to demergers, whereby a company owning the unlicensed facility can only be split into companies which the original company holds 100% shares in (Article 31(18) and Article 31(19), Unlicensed Regulation).

3. Ownership Restrictions for Distribution and Supply Companies

According to the Amendment Regulation, the following persons or entities are no longer entitled to own solar or wind based unlicensed facilities above an installed capacity of 50 kW which are located in the same region where they engage in distribution or supply activities:

  • Direct or indirect shareholders of distribution companies and appointed supply companies.
  • Persons employed by distribution companies and appointed supply companies, or their
  • shareholders (direct or indirect).
  • Legal entities with any persons or legal entities listed above as shareholders (Article 31(21), Unlicensed Regulation).

4. Application Process

The Amendment Regulation extends the required documents for connection applications. The new required documents are:

  • Completed Technical Evaluation Form prepared by the Renewable Energy General Directorate
  • Coordinated application plot.
  • Information with regard to the direct/indirect shareholders or (if they exist) controlling persons/entities of the applicant legal entity.

The Amendment Communique introduces a prohibition on network operators and requesting for additional documents which are not listed in the Regulation or the Communique during connection applications.

What is the situation for the projects which were granted a connection invitation letter before 23 March 2016?

The following new rules will not apply to the unlicensed projects which have already obtained a connection invitation letter before 23 March 2016:

  • 1 MW combined capacity limit for affiliated companies.
  • Limitation to the distance to the grid.
  • Maximum installed capacity limit.
  • Ownership restrictions for distribution and supply companies.

Conclusion

The Amendment significantly changed the legal structure of the unlicensed energy generation process and addressed some controversial issues in the market. Although these amendments will impact unlicensed electricity generation applications after 23 March 2016, it won’t effect projects which have already obtained a grid connection invitation letter.