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Lacunae in Turkish Electricity Legislation and a Case Study: How to Benefit the Wind Energy Potential of Turkey Completely?

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Electricity market is considered the most competitive energy market in Turkey. Legal amendments since 2001 such as unboundling of public institutions, privatizations in market activities and opening of most of the market activities to private sector companies have served to provide a competitive market in full extent.

Concerning legal aspect, the electricity market legislation has been amended in accordance with the market developments and market requirements. Since Turkish energy market is in need of new investments on the purpose of meeting the energy demand and decrease of import dependence, Turkish electricity market legislation offers diverse investment opportunities to the investors. The incentives in electricity market investments such as reductions in license fee, feed-in tariffs, local equipment supports, facilities in land allocation may be exemplified.

Even if the legislation is investor oriented, there are several lacunae in laws or in practice which bring sectoral issues to the fore. In this regard, it is worth to focus on the investments in wind energy projects as a case study hereinafter.

Case Study: Wind Energy Investments

As mentioned above, electricity market laws and regulations provide investment facilities in order to approach the targeted electricity production in Turkey. As a sustainable, local and environmental and a clean energy resource, wind energy has gained an increasing importance alongside the other renewable energy resources.

The statistics enumerate, the number of wind power plants in Turkey as 75 which corresponds to an installed capacity of 2.958,45 MW by year of 2013[ii]. Currently, the number of wind energy investments is increasing where the above-mentioned incentives have played an essential role. Nevertheless, several amendments in electricity market legislation are required in order to evaluate the existing wind energy potential of Turkey and to approach the power manufacturing target of 30 % for 2023 from renewable resources.

·         Projects, construction of which may not start within the terms determined in the licenses

A sectoral problem confronted by the investors in wind energy is the possibility of license revocation in case that the construction processes of a project have not been completed within the terms regulated by the legislation.

According to the Electricity Market Law, legal entities which were not able to complete the procedures required to start the project construction, obtain an extension of 6 months after entering of the Electricity Market Law into force. In the event that these processes have not been completed within this time frame, the license of these legal entities are revocated. Accordingly, projects which could not start their construction by reason of several permit procedures and bureaucracy had a term to be completed until 2th of May 2014. According to the wind project owners, more than 10 projects have confronted with such a risk. This issue has been evaluated by the Parliament and the Parliament has been working on a solution.

·         High fees and costs for land allocation are disincentive for investors

Land allocation plays an essential role in energy projects. Not only the suitability of the land with the relevant energy resource, but also the qualification of the land is quite significant for such projects. However, it should also be noted down that the reductions in rent and use amounts in renewable energy plants, the permission fee and costs are not reduced in forests. Moreover, according to the legislation on forests, these permission fee and costs are increased each year at a certain rate. Since these permission fees cost very high, the wind energy investors demand legal amendment in respect of reductions in such fees and costs in renewable energy investments.

·         The tender processes for the system connection take a long time and system connection fees are high

In the event that more than one applicant for a connection area or connection point exist, the connection is determined through a tender process under the conditions of Tender Regulation on Wind and Solar Power Plants' Applications. According to the investors' opinion, the tender processes are long and connection fees for system connection are high, to the extent that this poses an obstacle for the increase of wind energy investments' volume.

·         Market limits for electricity manufacturing, supply and sale activities

Although it is intended to open the Turkish electricity market completely to competition, the market restrictions are still existing. According to the Electricity Market License Regulation and Electricity Market Law, an electiricty manufacturing license holder is entitled to purchase the electricity in quantities which have been determined by the Energy Market Regulatory Authority ("EMRA"). Pursuant to a Resolution of the EMRA in 2014, this amount shall not exceed the electricity capacities which have been added to the licenses of manufacturing license owners. This capacity had been limited to 40 % of the electricity capacity added to their licenses for the year of 2013. Moreover, the electricity capacity of a private sector company which is manufactured by the companies controlled by this company may not exceed 20 % of the total manufactured electricity quantity of the previous year in Turkey.

Above mentioned market limits are not only applicable for the manufacturing license owners, these limits are applicable also for supply and sale activities. Any private sector company holding a supply license is entitled to purchase not more than 20 % of the consumed electricity of the previous year from other supply license holders operating in import and manufacturing activities.

·         Eligible customer limits decreased but not removed completely

Eligible customer has been defined in the electricity market legislation as a legal entity or a private person having the possibility to determine his/her supplier due to his/her annual electricity consumption over the limits determined by the Energy Market Regulatory Board ("Board"). Within the frame of procurement of a competitive electricity market, repeal of eligible customer limit has been intended which has been increased currently from 5000 kWh to 4500 kWh with a Board Resolution. In countries of the European Union this limit has been repealed within the frame of a EU Directive in 2007 and the electricity market has been opened to all customers. It is expected to provide the harmonisation of Turkish legislation regarding eligible customers with EU Directives until 2015 and to repeal the above-mentioned eligible customer limit.

·         Legal reforms have changed the sector in a positive way in spite of Turkish electricity legislation requirements

Despite the above-mentioned sectoral issues, amendments and reforms in electricity legislation may be regarded as positive developments in the energy sector. According to the Regulation on Wind and Solar Power Plants' Applications, the contribution amount is determined on the basis of installed capacity instead of the licensed wind energy capacity. In addition to this, the contribution amount is recovered within three years after the temporary acceptance of the power plant.

Another essential development is the prohibition of stock transfer of the pre-license holder company to a third company and prohibition of partnership's change of pre-license holder company during its pre-license period. Due to this prohibition, the license transfer -or with other words- "license trading" has been prevented.

State of Wind Energy Investments in Turkey and Future Expectations

As mentioned above, Turkey is planning to produce 30 % of its energy from renewable resources and 20 GW of this energy is expected to be produced from wind until 2023[iii]. The installed capacity in wind energy has been in a rapid growth during the recent years and Turkey has a big potential of wind energy which by far exceeds the current installed capacity. Moreover, pursuant to the studies, Turkey's offshore wind power potential amounts more than 10 MW[iv]. Notwithstanding this potential, neither offshore wind power plants exist, nor a legislation concerning offshore wind power plants in Turkey.

Despite aforementioned sectoral issues, these targets in renewable energy manufacturing may be attained especially due to the investment incentives, new laws and regulations and provided that laws and regulations are enacted in line with the sectoral requirements based on existing legislation.


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