Under the Regulation on Unlicensed Electricity Generation in the Electricity Market published in the Official Gazette dated 2 October 2013 (the “Regulation”), developers of certain electricity generation facilities are not required to obtain a licence or pre-licence (“Unlicensed Facilities”). Among the Unlicensed Facilities, generation facilities using renewable energy sources (mostly solar energy) with less than 1 MW of installed capacity became very popular considering that such Unlicensed Facilities were under-regulated compared to the licensed electricity generation regime in Turkey which is subject to strict scrutiny by the Energy Market Regulatory Authority (“EMRA”). Under the Regulation, developers are only required to apply to the relevant distribution company for the issuance of call letters which grant them the right to develop an Unlicensed Facility.
On 23 March 2016, the EMRA issued the Regulation Amending the Unlicensed Electricity Generation in Electricity Market (the “Amending Regulation”) with the aim of increasing the regulation of Unlicensed Facilities. The novelties brought by the Amending Regulation can be summarised as follows:
1. Share transfers, mergers and spin-off: The Amending Regulation has, for the first time, introduced restrictions on share transfers, mergers and spin-off. Accordingly:
· The Regulation now restricts the transfer of shares in legal entities which are applying to be engaged in unlicensed electricity generation based on wind or solar energy from the date of application for a call letter until the temporary acceptance of the Unlicensed Facility. Failure to abide with this restriction would result in the cancellation of the call letter, hence of the right to develop the Unlicensed Facility.
· Any legal entity owning an Unlicensed Facility can be merged with or into a wholly-owned subsidiary or spun-off (with the same shareholding structure) only if the temporary acceptance for such Unlicensed Facility has been completed. A merger or spin-off would require an application being made to the relevant distribution company one month prior to the finalisation of the merger or the spin-off.
2. New capacity limit on connection to substation: Unlicensed facilities shall, save for very few exceptions, connect to the distribution grid through substations. Previously, there was no capacity limit for a developer to connect through a particular substation. That has helped developers create portfolios of Unlicensed Facilities (each with an installed capacity of 1MW or less) located next to each other and achieve higher capacities in aggregate through a single connection point without requiring a pre-license or license from EMRA. However, this has changed with the Amending Regulation for certain Unlicensed Facilities. Now, the maximum capacity to be provided by a distribution company to an entity (including its direct or indirect shareholders and other legal entities under the control of such entity) developing a solar or wind farm through a particular substation is limited to 1 MW.
3. Limitation on the installed capacity: The development of an Unlicensed Facility requires a consumption point. To that end, developers in the market generally rent empty stores, existing households and similar locations and subscribe themselves as electricity users in those locations. Even for a household with minimal electricity consumption, developers were allowed to develop up to 1 MW of installed capacity. The Amending Regulation has introduced a limit on the installed capacity pro rata to the electricity consumption at the consumption point. Accordingly, installed capacity of an Unlicensed Facility cannot be 30 times more than the electricity consumption at the consumption point.
We expect the Amending Regulation to have a strong effect on the market as the restrictions imposed thereunder might eliminate the relatively favourable treatment that was previously available in connection with the development of Unlicensed Facilities. As a result, it is likely that the number of new developments will be limited and there will no longer be new portfolio companies with aggregate installed capacities over 1 MW.