Licensing in general
Pursuant to the EML, electricity market activities consist of generation, transmission, distribution, supply, market operation, and import and export activities. To carry out any of the market activities, market participants are required to obtain licences from EMRA, except for certain generation activities (see question 3).
In the past, as a state monopoly, the Turkish Electricity Authority (TEK) was responsible for all generation, transmission and distribution activities. In 1984, following the adoption of Law No. 3096, TEK’s monopoly on electricity activities was weakened and private companies were given the opportunity to operate in the market. TEK was first unbundled in 1993 into two state-owned enterprises:
- the Turkish Electricity and Transmission Company (TEAS), for one which was responsible for generation and transmission; and
- the Turkish Electricity Distribution Company (TEDAŞ), which was responsible for distribution.
In 2001, TEAS was unbundled into three state-owned companies:
- the Turkish Electricity Generation Company (EUAS)
- the Turkish Electricity Transmission Company (TEİAŞ); and
- the Turkish Electricity Wholesale Company (TETAŞ).
In 2004, TEDAŞ was included in the privatisation portfolio as part of a Privatisation High Council Decision and, as explained below under ‘Distribution’, the privatisation process has been completed. EUAS is also in the process of being privatised. With an amendment made to EML on 9 July 2018, TETAŞ has been abolished by being merged with EUAS.
Under the EML and the EMLR, licences may be granted for a maximum term of 49 years; however, the term for the licences regarding generation, distribution and transmission may not be less than 10 years. The licences may be renewed for a maximum period of 49 years after their expiry. On the other hand, the licence terms for the Renewable Energy Resource Areas (RERA) will be determined in the specifications for each RERA (see question 5), and the generation licences granted for RERAs may not be renewed.
Each activity is subject to a separate licence. However, export activity can be conducted by generation licensees and supply licensees, while import activity can be conducted by supply licensees. Import and export activities of such legal entities are regulated under their respective supply or generation licences and do not require separate licences. They do, however, require authorisation of the EMRA.
A licence cannot be assigned. However, there are certain exceptions for generation licences (see below). A minimum share capital requirement is sought for electricity companies under the EMLR, the amount of which differs depending on the activity. A licence fee, which differs depending on the activity, also applies.
In principle, generation activity is subject to a generation licence (see question 3). In Turkey, generation activity is carried out by state-owned and private generation companies and organised industrial zone legal entities. EUAS, the state-owned generation company, is in the process of being privatised. EUAS’ market share was approximately 17 per cent as of the end of 2017 per cent as per the January 2019. Generation companies are able to sell electricity or capacity to persons directly connected through a private direct line, suppliers and eligible consumers. They can also purchase electricity or capacity, in order to fill the gap between their actual production and their supply requirements; EMRA determines the upper limit that they can purchase. The upper limit will be a percentage of the total annual amount of generation stipulated in their generation licence.
The total amount of electricity that a real person or entity can generate through generation companies under its control should not exceed 20 per cent of the electricity generated in Turkey in the preceding year.
As mentioned above, a licence cannot be assigned. However, a step-in right is provided in the EMLR for banks and financial institutions, which may be exercised only with regard to the generation licences. There are other exemptions set forth under the EMLR:
- merger and demerger transactions conducted by generation licensees;
- transferring generation facilities, provided that the transfer is conducted through sale, transfer, lease or similar contracts; and
- transferring the rights and obligations of a licensee to another legal entity that has the same partnership structure.
Notwithstanding the foregoing, the EML provides that some activities may be conducted as being exempt from the licence requirement (see question 3).
In order to obtain a preliminary licence, investors are required to apply with certain required documents. In case of preliminary licence applications for wind and solar power, a contest is held when multiple applicants apply to obtain a preliminary licence for the same region. (See question 3 for the cases where multiple applicants apply for a preliminary licence for generation activities based on wind or solar power.) Upon obtaining the preliminary licence, investors are expected to fulfil certain requirements stated in the licence 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) and in some cases completing certain transactions, such as property acquisition or establishing usufruct rights, before applying for a generation licence. Depending on the installed capacity and resource type of the generation facility concerned, preliminary licences can be for a maximum of 36 months, except for the occurrence of force majeure events. This period may be extended by a decision of EMRA’s board within the scope of force majeure provisions. The extension for RERA licences which will result in the pre-licence period exceeding 36 months in total will be subject to the Ministry of Energy and Natural Resources’ (the Ministry) approval in addition to EMRA’s decision.
Both the EML and the EMLR restrict share transfers and acts and transactions which may result in share transfers and change in shareholding structure of the preliminary licensee for the duration of the preliminary licence, except in cases of inheritance and bankruptcy. Acting contrary to such restriction may result in the annulment of the preliminary licence. The EMLR excludes certain changes such as changes in the shareholding structures arising from transfer of publicly owned shares of publicly held companies or changes in the shareholding structure of the relevant preliminary licensee’s foreign shareholder, from the scope of such restriction. The direct and indirect share transfer restriction during the preliminary licence period does not apply to the preliminary licences granted for RERAs. Such a restriction is also not applicable to legal entities granted a preliminary licence for generation facilities anticipated to be established under international agreements.
Electricity transmission activities are conducted solely by TEİAŞ.
Turkey’s distribution network is divided into 21 distribution regions, 20 of which were owned by TEDAŞ and one by a private party, namely the Kayseri region. After the inclusion of TEDAŞ in the privatisation programme, separate distribution companies were established in each of the 20 distribution regions owned by TEDAŞ.
The privatisation process of all of the distribution companies has been completed. At the time of their privatisations, distribution companies were able to perform retail sales activities. However, distribution companies unbundled their distribution and retail activities into separate legal entities as of 1 January 2013. The retail companies established as a result of such unbundling are defined as ‘authorised suppliers’ (see ‘Supply’).
The EML provides that a distribution company cannot engage in any activity other than distribution or be a direct shareholder of a legal entity engaged in any other market activity. However, the EMLR allows distribution companies to provide out-of-market activities which EMRA will consider to be of a nature that will increase efficiency in the electricity distribution activity.
As per the EMLR, distribution companies are obliged to act independently in their businesses and transactions without the interference of any real or legal persons controlling the relevant distribution company. Members of the board of directors and executives at a level of deputy general manager or higher and who hold signatory authority in an electricity distribution company, and those from generation and authorised supply companies under the same control as the electricity distribution company, must be different individuals. Such managers cannot hold offices on the board of directors or similar organs of the controlling companies, or other companies that are under the control of the controlling companies, formed for the purposes of the supervision, coordination, management or auditing of the electricity distribution and retail sale or generation activities of such controlling companies.
Organised industrial zones are also entitled to carry out distribution activities within the organised industrial zone limits provided that they obtained an organised industrial zone distribution licence.
Market operation activity is defined as the operation of organised wholesale power markets and the financial settlements of the transactions made in these markets.
Organised wholesale markets are defined as:
- the day-ahead and intraday markets where electricity, capacity, and retail sale activities are conducted, and which are operated by an intermediary legal entity holding a market operation licence - namely the Energy Markets Operation Company (EPİAŞ);
- markets where standardised electricity contracts (ie, capital market instruments) and derivative markets where derivatives based on the electricity or capacity are traded, which are operated by Exchange Istanbul (Borsa Istanbul); and
- the balancing power market and the ancillary services market, which are organised and operated by TEİAŞ.
The day-ahead market has been in operation since December 2011. The intraday market, on the other hand, only started operating on 1 July 2015. The futures market with physical delivery is expected to be soon introduced, with the aim of providing predictability of the future prices in the market (see question 36).
The EML merged the wholesale and retail sale activities into one licence type - the ‘supply licence’ - and existing wholesale and retail sale licence holders are ex officio granted a supply licence without prejudice to their rights under the existing licences. According to the EML, supply activities may be conducted by generation companies and public and private sector supply companies.
Retail and distribution activities had previously been provided under one legal entity. Since the separation of the retail side from the distribution arm of distribution companies on 1 January 2013, retail companies have been established. Such retail companies are now defined as ‘authorised suppliers’ under the EML. Authorised suppliers are entitled to sell electricity to eligible customers across Turkey, ineligible consumers in their region, and customers of last resort (ie, the eligible consumers whose power demands cannot be met by other suppliers or who have not selected their suppliers despite being eligible to do so) as ‘last-resort supplier’, again in the relevant distribution region. Suppliers that previously held a wholesale licence or obtained supply licence under the EML are entitled to sell electricity to eligible consumers only. The eligible consumer limit has been determined to be 1,600kWh per annum for 2019. In addition, supply companies including authorised suppliers may also import from and export to countries with which the interconnection condition is satisfied.
The EML obliges the authorised supply companies to supply power to customers of last resort. According to the EML, tariffs of the last-resort suppliers are regulated (see question 19). The EML further stipulates that some part of the power to be supplied by the last-resort supplier must be provided by EUAS. The percentage that would be provided by EUAS is annually determined by EMRA.
Import and export
Export activity can be conducted by generation and supply licensees, while import activity can be conducted by supply licensees. Import and export activities of such legal entities are regulated under their respective supply or generation licences and do not require separate licences. Additionally, EUAS is entitled to sign electricity sale agreements within the scope of electricity energy exchange, import and export agreements and existing concession and implementation agreements, and conduct import and export activities in accordance with such agreements. See question 33 for the details and special conditions for the performance of export and import activities.
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