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TURKISHELECTRICITYMARKETREPORT

JANUARY,2016

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I. INTRODUCTION

Turkey is at the crossroads of Europe and several volatile, strategically and economically

important regions and countries, including Russia, the Caspian region and the Middle East. It

is located in the middle of the biggest oil and natural resources sources of the world. Given

its strategic location, it forms a natural energy bridge between the source countries and

consumer markets, and stands as a key country in ensuring energy security through

diversification of supply sources, routes, and considerations which have gained increased

significance in Europe today. The Turkish government predicts that energy demand will

increase for the next 20 years. The gap between Turkey's energy supply and demand is the

key element which determines Turkey's energy policy and given this increasing demand,

energy has emerged as an important factor influencing both internal and foreign policy. In

general, as a country with rapidly growing economy, Turkey, at the same time, is facing a

rising growth in its demand for energy.

II. HISTORY OF THE TURKISH ELECTRICITY MARKET

In order to understand the current structure of the Turkish Electricity Market (“Market”),

Market’s history have to be examined. The roots of the current Market was established by

the foundation of the State-owned and vertically- integrated electricity company Turkish

Electricity Authority (Türkiye Elektrik Kurumu) (“TEK”), which was controlling the entire

Turkish electricity sector starting from 1970 to 1984. After 1984, private generation and

distribution modeled companies were allowed to operate in the Market. In 1993, in order to

start the liberalization of the Market, TEK was separated into two embranchments: namely,

Turkish Electricity Generation and Transmission Corporation (“TEAS”) and Turkish Electricity

Distribution Corporation (“TEDAS”). While TEAS performed the generation, transmission and

wholesale activities, TEDAS performed the distribution activities.

The Electricity Market Law numbered 4628 published in Official Gazette dated February 2,

2001 (“FEML”), as a first step for the liberalization of generation and distribution activities,

was enacted by the Turkish Parliament.

On one side, TEDAS has been divided into 20 distribution regions and accordingly,

distribution activities started to be performed via 21 distribution regions in Turkey. 20

companies under the ownership of TEDAS have been incorporated in order to engage the

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distribution activities in each distribution region. The remaining 21st company is Kayseri and

Surroundings Electricity T.A.S. (“Kayseri”) which was never owned by TEDAS. Commencing

on 1929, around 50 companies were established for the generation of electricity in Turkey.

However, except for Kayseri, those companies were liquidated because of the impact of the

worldwide economic crisis at that time. Kayseri was established with the Concession

Agreement pursuant to the Council of Ministers decision numbered 4022 and dated August

18, 1926 (“Concession Agreement”). In 1982, this Concession Agreement of Kayseri has

ended and pursuant to TEK Law numbered 1312, Kayseri was transferred to TEK. Kayseri

was privatized by the decision of Council of Ministers dated November 11, 1988. The

operation right was transferred in March 1, 1990 to Kayseri.

On the other side, in order to facilitate the privatization procedure, TEAS was demerged into

three companies, namely Electricity Generation Corporation (“EUAS”), Turkish Electricity

Trade and Contracting Corporation (“TETAS”) and Turkish Electricity Transmission Company

(“TEIAS”) by the resolution of the Council of Ministers dated February 5, 2001. As can be

understood from these titles, the corporations were demerged according to their commercial

transaction areas, which can be summarized as follows;

(i) EUAS is entitled to construct, lease and operate power plants, in case of

necessity for security of electricity supply, in accordance with forecasts regarding

the Market’s development, which is prepared by TEIAS, and also taking into

account the investments of the private sector players to the generation sub-

sector.

(ii) TEIAS is a state monopoly in electricity transmission activities, and owns all

respective publicly owned assets related to the electricity transmission activities.

TEIAS prepares investment plans for the transmission sub-sector, defines,

revises and submits tariffs (transmission, connection to and use of the system

tariffs) to the Energy Market Regulatory Authority (“EMRA”) for approval, and

prepares forecasts of electricity market development as a whole, which is subject

to approval by the EMRA. TEIAS is also responsible for balancing and settlement

between demand and supply in the Market. National Load Dispatch Center and

Market Financial Settlement Center are founded within TEIAS’s organization.

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Thus, in addition to being a system operator, TEIAS also acts as the Market

operator.

(iii) TETAS is established for wholesale activities in the electricity market and for

transferring of the existing agreements regarding the purchase of electricity from

EUAS, Built-Operate (“BO”) and Build-Operate-Transfer (“BOT”) generators and

sale to TEDAS. The BO model means that the private sector partner finances the

project, constructs and operates it, at the end of which, the ownership of the

property shall eventually belong to the private sector partner. The BOT model

means that the private sector partner finances the project, constructs and

operates it, and at the end of the designated time, returns the property back to the

state. Under a BOT concession, a private company would build and operate a

plant for up to 99 years (subsequently reduced to 49 years) and then transfer it to

the state at no cost.

As stated above, the state owned companies are as follows;

Table 1: Development of State Owned Companies

Pre 1993 TEK

(generation, transmission & distribution)

Between

1993-2001

TEAS TEDAS

(generation, transmission & wholesale) (distribution)

Today

EUAS TEIAS TETAS 20 DISTRIBUTION COMPANIES

(generation) (transmission) (sale) +

KAYSERİ

As explained above, Turkey has been in the process of liberalization of the Market within the

context of “Energy Sector Reform” since the early 1980s. Since March 2001, the Turkish

Government has embarked on a long and comprehensive process to reform and liberalize its

Source:PolarMüşavirlik

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energy market in order to attract private investments, enhance competition, increase

efficiency and shift the investment burden from the state to the private sector. Liberalization

of the Market remarkably began with the enactment of FEML in 2001. FEML had foreseen a

system where the state acts only as a supervisory and regulatory authority. FEML aimed to

create a competitive Market where private actors would make the investments. In order to

develop the Market envisioned in the FEML, the privatization of distribution and generation

assets were designed as supportive factors as well and the Republic of Turkey Prime

Ministry Privatization Administration (“Privatization Administration”) was granted the full

responsibility for the related privatizations. The final objective of the current process is to

form a transparent Market, with free market principles, in a competitive, stable, financially

reliable, and transparent business environment, where the participants are treated equally.

The attainment of this objective was to serve to the security of electricity supply without

bringing additional financial burden on the Treasury; and, it would help consumers to obtain

good quality and cheaper electricity. Moreover, the new legislative framework described in

the FEML complied, to a great extent, with the European Union’s rules about the Market. The

Market had become a competitive one with the entry of the participants being subject to

objective criteria.

In 2004, in order to define the plan and duties of the institutions during the process of

privatization and liberalization of the Market, Electricity Sector Reform and Privatization

Strategy Paper (“Strategy Paper”) was published as an addendum to the decision of High

Planning Council, which is authorized by the Privatization Administration. The Strategy Paper

includes procedures concerning the privatization of distribution and generation assets,

transition period measures and the security of supply. According to the Strategy Paper, 20

distribution regions, which had been operated by TEDAS, were formed in 2005. TEDAS has

transferred the operating rights of these assets to the newly established companies.

Distribution licenses have been granted to these companies and their tariffs to be applied by

the end of December 2010, have been approved.

According to the FEML, privatization process shall be conducted by the Privatization

Administration. After the privatization of distribution companies, followed by the privatization

of publicly owned generation companies, the final stage would be the process of developing

a competitive Market.

The privatization of TEK has been addressed in a lawsuit before the Turkish Constitutional

Court. In this case, the Turkish Constitutional Court nullified the fundamental terms of the law

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regarding TEK’s privatization by selling of its properties. This decision dated December 11,

1994 established the main principles applicable to the privatization of TEK. Thus, public

electricity companies shall not be privatized by selling of its properties, and, on the contrary,

they shall be privatized by transferring their operating rights pursuant to the Law on the

Authorization of Entities other than the Turkish Electricity Company for the Generation,

Transmission, and Distribution and Trading of Electricity dated December, 19 1984

numbered 3096 and the Law on Privatization Applications dated November 24, 1994 and

numbered 4046. Transfer of Operating Rights (“TOOR”) agreements is signed for existing

generation and distribution assets of EUAS and TEDAS. Under a TOOR, the private

enterprise would operate (and rehabilitate where necessary) an existing government-owned

facility through a lease-type arrangement. When the TOOR agreement has expired or been

terminated, all the system, assets, equipment that have been transferred, shall be returned

back to the public entity which has originally transferred such system, assets, equipment

pursuant to such TOOR agreement.

III. TRANSITION PERIOD

In transition period, the Market was passing through a liberalization process and rapid

growth. The Market was experiencing a transition into a competitive electricity market in

order to attract private sector investments and maximize efficiency.

The main drivers for liberalization in Turkey have been very different from those that

preoccupied the European Union or leading countries electricity liberalization. The European

Union was primarily concerned with creating an internal market. Countries such as the

United Kingdom were motivated by the ownership dimension, and the market structure

dimension. While the ownership dimension means the inefficiency of public enterprises, the

latter means the opportunities generated by technological changes that enabled competition

in generation. In Turkey, the main driver, as well as the public justification for private

participation under the pre-2001 regime and also for the liberalization under the new

regulatory regime, has been rapid growth in demand combined with the inability of the

government to meet that demand through public investments or Treasury-guaranteed private

investments, given the deteriorating fiscal situation.

In this respect, in order to establish a well functioning Market, Strategy Paper named the

period of 2006-2010 as the transition period and set forth the rules and principles which are

applicable to it. During this period, the main goals were to achieve a transition from the

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national distribution tariff to a fully cost-based regional tariff, and the completion of the

privatization of distribution and generation assets.

FEML envisioned a market governed through bilateral agreements and which was also

completed with the balancing market, where imbalances in the Market will be balanced

through accepting bids and offers of market participants. The functioning of this balancing

market started as of August 1, 2006 and since that date, the price of electricity is determined

by the participants of the balancing market depending on the demand and supply. However,

since TETAS has buying guarantee obligations, and it was still the biggest wholesale

participant in the Market, the role of TETAS, therefore the role of the public, in the Market

was crucial and influential.

The privatization process regarding EUAS power plants has gained speed in 2010. The aim

of privatizations was to end the state monopoly from emerging and to increase production

capacity by strengthening competition. According to the EUAS’s own data published, it has

prepared six portfolios of power plants to be privatized. According to the High Board of

Privatization decisions numbered 2009/56, 2006/100, 2003/34, 2009/56, a total of 83 power

plants were included in the privatization program. Privatization of electricity generation

companies was accelerated during 2010 as well. 52 hydro-electric power plants’ tenders

were established under 19 groups with a total deal amount of USD 439.9 million.

In the Market structure of FEML, the wholesale to non-eligible customer was executed by

TEDAS-owned electricity distribution companies and in addition to TEDAS-owned electricity

distribution companies, the wholesale to eligible consumers was executed by auto-producers

and other private producers through the bilateral contracts.

The Market structure was as follows;

Table 2: Semi-liberal Electric Market under FEML

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According to the FEML, the last period, which will be a free and liberal electricity market, was

almost established in accordance with the Strategy Paper. The successfully ongoing

distribution privatizations were completed, including the actual transfers to be completed.

The privatizations provided a win-win situation to both the investors and consumers as result

of efficiency improvements, while contributing significantly to the establishment of a well-

functioning market structure.

Following the privatization of all distribution companies, a high level of investment was

expected from the investors for improving and expanding the network, increasing service

quality, technical quality and supply reliability, gaining technical and operational efficiency

and ensuring reduction of theft and loss rates. While most of expectations have been

achieved today, especially expectations on ensuring reduction of theft and loss rates still

have not been achieved.

Following the transition period, FEML had envisaged an extremely complex liberal Market

structure. Under this structure, privatized electricity distribution companies was able to

operate as regional monopolies with distribution licenses granted by EMRA. Distribution

TEIAS System Operator

Auto-Producers and Auto-producer Groups

Private Generation Companies

EUAS

Non-Eligible Consumers

TEDAS

Private Distribution Companies

Auto-Producers and Affiliates

Eligible Consumers

TETAS


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companies was obligated to prepare annual investment plans each year by making

projections on consumption growth, analyzing network expansion requirements and other

technical parameters, and then they were presenting these investment plans to EMRA for

approval. After receiving EMRA’s approval, distribution companies were obliged to

implement the approved plans. Implementation of these investments (i.e. investment amount

and form) was monitored through investment control and quality measurement mechanisms

set up by the EMRA in collaboration with the distribution companies.

During liberal Market structure established by FEML, TEIAS, the system operator, took over

all publicly-owned transmission facilities and prepared transmission investment plans for

transmission facilities that are to be set up, and started to construct, operate, enhance, repair

and maintain the new transmission facilities within the scope of the applicable legislation as

stated in its license.

Pursuant to the provisions of the former Electricity Market License Regulation and other

regulations in force at that time, the generation companies was able enter into affiliate

relationships with distribution companies without having control over them. Generation

companies which were consisted of EUAS, BO, BOT and TOOR modeled generators, private

generation licensees, auto-producer and auto-producer group licensees was permitted to sell

the electricity to their customers. EUAS was permitted to sell the energy it has generated to

TETAS, distribution companies and private wholesalers. Auto-producers and auto-producer

groups were not allowed to sell electrical energy to the private wholesalers. As a wholesale

company, TETAS was buying electricity or capacity from EUAS, private generation licensees

and auto-producers and auto-producer groups, and it was sell the electricity or capacity to

distribution companies or to retail sellers. Unlike TETAS, private wholesalers was permitted

tp sell electricity to both retail companies and eligible consumers as well as the distribution

companies.

The distribution companies were not allowed to be engaged in any market activity other than

those indicated in their licenses. Distribution companies and retail companies had the right to

engage in direct relationship with eligible and non-eligible consumers. It should be noted that

provision of the connection to the distribution network and distribution of electricity to non-

eligible consumer was compulsory for the distribution companies. The retail licensees was

engaged in retail and retail services without any limitation of regions. The distribution

companies holding retail licenses was entitled to sell electricity and/or capacity to consumers

located within their authorized area. If the price of electricity generated at generation facilities

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based on renewable energy resources was equal to or lower than the sales price of TETAS

and if there were no cheaper alternative, the retail licensees was obligated to purchase such

energy for the purposes of re-sale to the non-eligible consumers.

Auto-producer group licensees was permitted to engage in the establishment and operation

of generation facilities primarily to meet their affiliates’ needs, sale of the generated electricity

and/or capacity to the group partners. If there were any excess generation, they were

permitted to sell such excess electricity and/or capacity to TETAS, distribution companies

and eligible customers.

The following scheme shows the relationship between the Market players in the light of the

abovementioned information;

Table 3: Liberal Market Structure of FEML

IV. CURRENT SITUATION

The development of the Market brought its own needs and Market structure of the FEML was

very complex and unable to meet the needs. For these reasons, Electricity Market Law

numbered 6446 published on Official Gazette numbered 28603 and dated March 30, 2013

Generators

Wholeseller

Sellers

Customers

TEIAS System Operator

Auto-Producers and Auto-producer Groups

Private Generation Companies

EUAS

Wholesellers

Non-Eligible Consumers

Distribution Companies

Retail Sellers

Auto-Producers and Affiliates

Eligible Consumers

TETAS


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(“EML”) has been enacted, and annulled the provisions of FEML regarding the electricity

market, and amended the remaining articles of FEML.

EML did not change the main principles set forth by the FEML, however it brought new

procedures and phases to licensing and simplified the structure of the Market. The phase

that all the permissions and licenses to be obtained and the conditions to be fulfilled in order

to obtain a generation license was not regulated by FEML, and this was creating confusion.

EML introduced the pre-license and ended the confusion.

Generation licensees may sell the electricity it has generated to eligible consumers and to

the consumers to which they established a direct transmission line. Also, they may buy

electrical energy and/or capacity to ensure the energy and/or capacity that they are obligated

to generated.

EML did not changed status of EUAS. EUAS and private sector generation companies may

sell electricity and/or capacity to customers in accordance with their licenses. EUAS may

build, lease and operate new generation facilities on behalf of the state where deemed

necessary in accordance with the approval of the Ministry of Energy and Natural Resources.

The total installed electricity generation capacity of the generation company or companies

owned or controlled by a private sector investor cannot exceed 20% of the total installed

electricity generation capacity of Turkey in the preceding year.

The activities of the distribution licensee have limited and unlike in system of FEML, in the

market they may only distribute the electrical energy. However, they may buy electrical

energy and/or capacity to fulfill their distribution activities, general lightning obligations and

other obligations which distribution companies are burdened by the legislation.

There is no change in transmission activities, and TEIAS remains to be the sole transmitter.

However, it is not the market operator any more. Since a new activity and a new type of

license has been introduced by the EML. In order to operate the organized wholesale electric

markets, and to realize the financial reconciliation of the operations in such markets Energy

Markets Operator (“EPİAS”) has founded and the Energy Exchange Istanbul (“EXIST”) has

established.

Wholesale activities may be conducted by supplier licensee. Retail sale activities to the non-

eligible consumers are conducted by the authorized suppliers. Authorized suppliers are

established by the distribution companies, and they have monopoly for the sale of electrical

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energy to the non-eligible consumers in their designated regions. Export of the generated

electrical energy can be made by supplier licensee and generation licensee, however import

of electrical energy can only be made by the supplier licensees. In this regard, role and

status of TETAS has not been changed with EML, and remained to be the state supplier.

Organized industrial zones (“OIZ”) can generate distribute the electrical energy under a

licensee granted by EMRA.

Table 4: Current Structure of the Market

EUAS Private Generation Companies

TETAS

EPIASMarketOperator

TEIAS(above34kV)

Suppliers

DistributionCompanies(below34kV)

AuthorizedSuppliers

EligibleConsumers Non-EligibleConsumers

Consumerswithadirectprivatetransmissionline


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As a developing country, electricity demand has increased significantly in the last decade

Future predictions of TEIAS expect a growth in the demand as well;

-4

-2

0

2

4

6

8

10

12

14

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Table5:PeakDemand

PeakDemand(MW) Increase(%)

0

10000

20000

30000

40000

50000

60000

70000

80000

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

2016 2017 2018 2019 2020 2021 2022 2023 2024

Table6:Energy&PeakDemandPredicXons

EnergyDemand(low)(GWh) EnergyDemand(high)(GWh)

EnergyDemand(predicXon)(GWh) PeakDemand(low)(MW)

PeakDemand(high)(MW) PeakDemand(predicXon)(MW)

Source:PolarMüşavirlikdependingonthedataobtainedfromTEIAS


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Electricity consumption in Turkey is increasing parallel to the demand.

-4

-2

0

2

4

6

8

10

0

50000

100000

150000

200000

250000

300000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Table7:EnergyConsumpXon

EnergyConsumpXon(GWh) Increase(%)


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(1) It includes consumption in agriculture, livestock, fishery sector and municipal water abstraction pumping facilities, and other

public services etc.

In summers consumption of electricity rises, and decreases in winters.

0.00

10.00

20.00

30.00

40.00

50.00

60.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Table8:DistribuXonPercentageofNetElectricityConsumpXonbySectors

Household Commercial Government Industrial IlluminaXon Other(1)

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

MWh

Table9:MonthlyElectricalConsumpXon(MWh)

2010 2011 2012 2013 2014

Source:PolarMüşavirlikdependingonthedataobtainedfromTEDAS


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Since 2001, installed capacity is increased with the contribution of the private sector to the

Market.

Breakdown of the installed capacity depending on the licence sector is as follows;

When the last decade is examined, generation of electricity is rises; however, role of public

decreases. This have two main reasons; new licenses granted by EMRA and privatizations.

4.4 3.9

12.411.7

3.5

5.54.4

0.7

2.4

7.0

10.6

6.87.8

12.2

8.6

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

0.0

10000.0

20000.0

30000.0

40000.0

50000.0

60000.0

70000.0

80000.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

MW

Table10:InstalledCapacity

InstalledCapacity Increase(%)

EUAS,20,852.30

AffiliatedPartnershipsofEUAS,1,034.00

OperaXonRightsTransferees,946.30

BO,6,101.80

BOT,2,312.30

PrivateCompanyLicenceHolders,

38,193.00

Autoproductors,27.20Non-Licensed

ProducXon,52.90

Table11:InstalledPowerin2014(MW)



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Conventional power plants constitutes a huge part of the electrical generation in Turkey.

Even though generation of electrical energy from renewable energy resources is increased

significantly still conventional power plants is plays a big role.

0.00

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

60,000.00

70,000.00

80,000.00

2006 2007 2008 2009 2010 2011 2012 2013 2014

MW

Table12:AnnualDevelopmentoftheDistribu8onofInstalledCapacity

EUAS AffiliatedPartnershipsofEUAS

MobilePowerPlants PrivateCompanyLicenseHolders

Autoproducers+TOOR+Unlicensed


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Increase in the installed capacity and generation and improvements in the interconnection

transmission lines, increased Turkey’s export to its neighbors. However, economical negative

developments in Greece or civil war in Syria slowed down the volume of the export.

HARDCOAL+IMPORTED

COAL+ASPHALTITE

8%

LIGNITE7%

FUEL-OIL1%

DIESELOIL0%

LPG0%NAPHTHA

0%

NATURALGAS24%

RENEW.+WASTES+WASTEHEAT

0%

HYDRO8%

GEOTERMAL+WIND2%

SOLAR0%

GENERALTOTAL50%

Table13:DistribuXonofResourcesusedin2014


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Since there is a free market, and an exchange, the price of electricity is determined freely by

the market players in accordance with EMRA’s rules and regulations.

0

1000

2000

3000

4000

5000

6000

7000

8000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Table14:ExportedElectricalPower(GWh)

BULGARIA ROMANIA ALBANIA GEORGIA AZERBAIJAN

IRAN IRAQ SYRIA GREECE TOTAL

0

50

100

150

200

250

TL/M

Wh

Table15:Day-AheadMarketAveragePrices

2010 2011 2012 2013 2014


Source:EMRA

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V. REGULATORY FRAMEWORK

Main regulatory framework of the Market is the EML. EML aims to ensure the development of

a financially sound and transparent electricity market operating in a competitive environment

under provisions of civil law and the delivery of sufficient, good quality, low cost and

environment-friendly electricity to consumers and to ensure the autonomous regulation and

supervision of the Market. With those purposes, EML covers generation, transmission,

distribution, wholesale, retailing and retailing services and, import and export of electricity.

Those activities are stated specifically in EML and needed to be monitored by an

independent authority. For this purpose, an independent authority was established by FEML

in February 2001 and named as Electricity Market Regulatory Authority. Electricity Market

Regulatory Authority was renamed as Energy Market Regulatory Authority - EMRA in May

18, 2001. Following the enactment of EML, FEML has amended and became the Law on

Organization and Tasks of Energy Market Regulatory Authority which solely regulates the

establishment, obligations and rights, competence of EMRA and other related matters with

EMRA. The Energy Market Regulatory Board (“Board”) is the EMRA's decision-making body

and authorized to represent and bind EMRA. The license approvals are decided by the

Board. EMRA shall be responsible for issuing Board-approved licenses that set forth the

activities to which the legal entities shall be entitled and the rights and obligations arising

0

50

100

150

200

250

TL/M

Wh

Table16:LoadLevelingMarketPrices

2010 2011 2012 2013 2014

Source:EMRA

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from such activities, and the regulation of existing contracts within the scope of transfer of

operating rights. Since EML explicitly requires the publishing of a regulation which sets forth

the rules of the Market, the Regulation has been published by EMRA. The Electricity

Licensing Regulation published in the Official Gazette numbered 28809 and dated November

2, 2013 (“Regulation”) sets forth the principles and procedures applicable to the granting,

modification, renewal, termination and cancellation of the licenses and the rights and

obligations of the licensees to be engaged in generation, generation, transmission,

distribution, wholesale, retail and retail services and, import and export activities in the

Market.

5.1 Licensing

5.1.1 Licenses

A license is an authorizing certificate that a legal entity should obtain from the EMRA in order

to operate in the Market. Legal entities must obtain the relevant license for each market

activity and for each facility. Those legal entities who wish to be engaged in electricity market

activities in more than one facility have to obtain a license for each facility. Only legal entities

may apply for a license. According to the EML, licensees may be engaged in the following

market activities:

i. Generation

ii. Transmission

iii. Distribution

iv. Wholesale

v. Retail

vi. Market operation

vii. Import and Export

5.1.2 Exceptions

The real persons or legal entities generating electricity for their own needs and those who

have facilities or equipment which are not operating in parallel to the transmission and

distribution network shall not be required to obtain a license provided that they remain

disconnected to the transmission and distribution network and do not engage in wholesale or

retail activities to sell the electricity and/or capacity generated in these facilities.

5.1.3 Rights and Obligations

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Under no condition can licenses be transferred. However, according to the Regulation, the

following cases are within the scope of this prohibition;

i. Licensee may transfer his rights and obligations arising from the Regulation to

another legal entity formed by merger or demerger of the licensee; or

ii. Licensee’s generation license will be cancelled and a new generation license,

which is a continuation of the cancelled license, is granted to the legal entity

which is newly established with the same shareholders and same shareholding

structure with the licensee and provided that newly established legal entity have

to fulfill the conditions set forth by the Regulation; or

iii. A generation licensee may transfer the generation plant to another legal entity

wishing to continue generation activities in such plant by a transaction like selling,

transferring, leasing or other transactions which will have similar effect; provided

that Board’s approval before is necessary before such transfer and transferee

has obtained a generation license before; or

iv. In case limited or nonrecourse project financing is provided to the licensee by

banks and/or financial institutions, the related banks and/or financial institutions,

as per the provisions of their loan agreements, may request from EMRA, together

with their justification, that another legal entity be granted the relevant license, in

line with the conditions set forth in the Regulation; provided that the entity subject

to the grant of the license meet all obligations arising from that particular license.

The legal entities shall be granted the relevant license on the condition to comply

with the obligations outlined in the Regulation.

The transfer of the rights of the licensee within the scope of its license to third parties and

share transfers are subject to Board’s approval. Board will only approve such share transfer

on the condition that the legal entity, to which the shares have been transferred, has the

necessary qualifications required for the legal entity’s affiliates during the license application.

The direct or indirect acquisition of the shares which constitute more than 10% of the capital

of a licensee directly or indirectly (5%for publicly traded companies), or the share

acquisitions that result in an increase in an affiliate’s shares to exceed 10% of the licensee’s

capital or a transfer of shares that leads to the decrease of an affiliate’s share to below the

above-mentioned rate, are subject to Board’s approval. This provision is also applicable for

acquisition of the shares which gives the right to vote and for pledging of the shares.

For generation license applications; the applicants are required to submit to EMRA a work

schedule prepared taking into account the features of the generation facility to be licensed

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and that covers the period up to the completion of the facility, and such completion date

indicated in that work schedule needs to be approved by EMRA. If the Board approves the

application it grants a pre-license. The pre-licensee has to meet all the conditions set forth by

the Regulation within 2 years. This term may be prolonged by the Board upon certain

circumstances. If the conditions are met, generation license is granted, if not, application is

rejected.

Licensee have to be a limited liability or a joint stock company which is duly established in

accordance with the Turkish Commercial Code. There is a minimum capital condition for all

the licensees. The minimum amount of the capital varies depending on the type of the

license, and the investment going to be made. Except for the publicly traded entities, all

shares of the licensee have to be registered shares. Also, Regulation requires some

amendments in the articles of association of the entity.

The shareholders and board members of the entities shall not be prohibited under the article

5(8) of the EML. This article states that shareholders or board members of a licensee whose

license is cancelled by the Board.

In generation license applications, Regulation requires a letter of guarantee to be submitted

to EMRA. Amount of the letter of guarantee cannot exceed 10% of the amount of the

investment which is foreseen by EMRA.

The licenses are granted for at most 49 years. They may renewed; however, each renewal

cannot exceed 49 years.

There is a disclosure burden on the license applicant entities. Before approving, documents

showing the shareholding structure of the entity have to be submitted. The shareholding

structure has to show every shareholder who holds more than 10% of the license applicant

entity’s directly or indirectly.

5.1.4 Types of Licenses

Pursuant to the Regulation the licenses and the scope of the licenses are as follows;

(i) Generation License:

The generation licensees may engage in the activities of construction and commissioning of

generation facilities, electricity generation, and sale of the generated electricity and/or

capacity to customers. The generation activity may be performed by the private generation

24

companies, EUAS and its affiliates. The generation licensees may sell the generated

electricity and/or capacity to supplier licensees, eligible consumers or consumers to whom

they can directly transmit the electrical energy through bilateral contracts. Generation

licensees may export the electrical energy that they have generated. It is not allowed for the

generation licensees to engage in market activities other than those described in EML and

the Regulation.

(ii) Transmission License:

Pursuant to the Regulation, transmission is the transport of electricity through lines higher

than 36 kV. The transmission activity in the market shall only be performed by TEIAS.

Holding the ownership of all transmission assets, TEIAS shall serve as the transmission

system operator, and it is a state monopoly on the transmission. TEIAS cannot be engaged

in any market activity other than those indicated in its license. If TEIAS would like to engage

in activities other than the activities indicated in its license, it shall have the approval of the

Board.

(iii) Distribution License:

Pursuant to the Regulation, the distribution refers to the distribution of electricity through lines

of 36 kV or lower. The distribution licensees shall be required to perform distribution activities

in the regions specified in their licenses. The distribution activity may be performed by

TEDAS, its affiliates and private sector distribution companies. They may distribute electricity

in the regions specified in their licenses. There is a monopoly of each distribution company

within its designated area.

(iv) Supply Licenses:

The supply licensees may engage in the wholesale or retail sale of electricity and/or capacity

and its direct sale to eligible consumers. Supply licensees may also perform import and

export activities in the Market if import and export is explicitly permitted in their licenses. The

annual purchase of electrical energy by a supply licensee, together with its affiliates in the

Market, shall not exceed 20% of the total energy consumed in the Market in the previous

year. Supply licensees shall not be engaged in any other market activities other than those

indicated in EML and the Regulation. The supply activity may only be performed by TETAS

and other private sector companies which hold supply license, and companies established by

distribution licensees which are considered as an authorized supply licensee.

25

Retail and/or retail services to the non-eligible consumers are performed by authorized

supply licensees. Authorized supply licensees are monopolies in their designated areas.

They have to provide energy to the eligible consumers who did not purchase its energy from

other suppliers.

No separate license shall be required for the import and export activities. While export

activities can be performed by supplier licensees and generation licensees, import activities

can only be performed by the supplier licensees provided that importing and exporting is

allowed in their licenses.

(v) Organized Industrial Zone Generation License:

Organized Industrial Zones have right to generate electrical energy within their approved

zones. They have to obtain a generation license from EMRA.

(vi) Organized Industrial Zone Distribution License:

Organized Industrial Zones have right to distribute electrical energy within their approved

zones. If they do not have organized industrial zone distribution license, then the distribution

in their zones is realized by the distribution licensees, and organized industrial zones cannot

charge their members for the distribution.

(vii) Market Operator License:

EPIAS is the market operator. EPIAS may operate the organized wholesale electric markets,

and realize the financial reconciliation operations in such markets (e.g. day-ahead and day

merkets). Also, this license gives EPIAS the option to establish new electricity trade markets,

and to be a partner in the international institutions which are established for electricity trade.

5.2 Eligible Consumers

Eligible consumers are real persons or legal entities who have the right to choose its supplier

because they consume more electricity than the threshold set by the Board and/or because

they are directly connected to the transmission system. The eligible consumer limit, which

reflects the rate of the liberalization of the Market, shall be determined by the Board not later

than January 1 and published no later than January 31 in every calendar year. In determining

the eligibility limit, development of competition, adequacy of the metering-communication-

control infrastructure, the processing capability of the Market operator, the availability of a

freely negotiable generation margin that can be contracted bilaterally, statistical information

26

about eligible consumers provided by TEIAS and distribution licensees shall be considered.

The consumers who fulfill the below conditions are accepted as eligible consumers:

i. Consumers directly connected to the transmission system, or

ii. Consumers whose electricity consumption level in the previous calendar year was

above the eligibility threshold

iii. Consumers whose electricity consumption level in the current calendar year becomes

more than the eligibility threshold,

iv. Regardless of amount of their electricity consumption, organized industrial zones.

When an eligible consumer consumes less energy than the determined threshold, then it will

not be considered as an eligible consumer for the next year.

Eligible consumer limit determined by EMRA for 2016 is 3,600 kWh/year according to the

Board decision numbered 5967 and dated December 24, 2015.

5.3 Tariffs

Tariffs are defined as the regulations including price, provisions and conditions on the

services regarding transmission, distribution and sale of electrical energy and/or capacity.

9000

7800 7700

6000

3000

1200

480100 30 25 5 4.5 4 3.6

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

MWh

Table17:EligibleConsumerLimit

Source:EMRA

27

Tariffs to be applied for the following year are prepared by the related entities in accordance

with the terms and conditions set forth by the Board. They are approved by the Board. Board

have competence to request revision on the tariffs or to revise them. The tariffs foreseen by

the Regulation are as follows;

i. Connection Tariffs: applied to applicant who wants to connect to the distribution

system

ii. Transmission Tariffs: applied to the electricity transmitted and prepared by TEIAS

iii. Wholesale Tariffs: wholesale prices are determined between the parties; however,

price of electricity to be purchased from TETAS under the circumstances regulated by

Regulation is determined by wholesale tariffs

iv. Distribution Tariffs: prepared by distribution companies

v. Retail Sale Tariffs: tariffs for the sale of electricity to the non-eligible consumers

vi. Market Operation Tariff: applied in order to meet financial needs of EPIAS

vii. Final Resource Supply Tariff: applied to the eligible consumers who are purchasing

electricity from the authorized supply licensees

In order to protect the consumers who are purchasing electricity under a tariff from the

discrepancies in costs in different distribution regions, until December 31, 2020 a national

tariff will be applied.

5.4 Environmental Impact Assessment

An Environmental Impact Assessment (“EIA”) is an evaluation of the possible positive or

negative impact that a proposed project may have on the environment, which consists of the

natural, social and economic aspects. The purpose of the assessment is to ensure that

decision makers consider the ensuing environmental impacts when deciding whether to

proceed with a project. EIA Regulation was put into force in 1993 in Turkey, on the basis of

Article 10 of the Environmental Law numbered 2872 and dated August 9, 1983

(“Environmental Law”). New EIA Regulations has been published which replaces the

preceding one, in 1997, 2002, 2003, 2008, and 2013. Finally, new EIA Regulation was

published in Official Gazette in November 25, 2014 numbered 29186 based on the

Environmental Law (“EIA Regulation”).

EIA plays an important role in the application and grant of the licenses. During the evaluation

period of the licenses, Board takes the EIA Report into consideration for deciding the

licenses to be granted. Also, the Regulation requires “EIA Positive”, “EIA not necessary”, or

28

“Exempted from EIA” certificate issued by the competent authority. Therefore, if the authority

will issue a “EIA Negative” certificate, the license application will be rejected.

5.5 Renewable Energy

Turkey has abundant reserves of renewable energy, such as hydro, solar, wind and

geothermal. When the total geothermal energy potential in the world is compared, Turkey is

8th the world and 5th in Europe. Turkey’s geothermal energy electrical energy potential is

2.000 MW1. Turkey is also one of the countries in the world which has high amount of hydro-

energy potential. Turkey’s economical hydro-electrical energy potential is 140 billion kW/y2.

Wind protential energy capacity in Turkey is estimated as 47,839 MW3. Map showing

Turkey’s solar energy potential is below;

Turkey has enacted important pieces of legislation to encourage the use of different

renewable energy resources in order to increase the energy production from domestic

energy resources, and to decrease the use of fossil fuels and reduce of green house gas

emissions in Turkey. Consequently, the share of energy production from renewable energy

sources has increased considerably during the recent years.

EML and the Regulation, which have been amended various times in order to encourage

more investment in the renewable energy projects, particularly the wind energy projects, set

forth general principles related to renewable energy.

1http://www.jeotermalvakfi.org.tr/jeoonem.html2http://www.eie.gov.tr/yenilenebilir/h_turkiye_potansiyel.aspx3http://www.mgm.gov.tr/FILES/haberler/2010/rets-seminer/2_Mustafa_CALISKAN_RITM.pdf

Source:http://www.enerjiatlasi.com/gunes-enerjisi-haritasi/turkiye

29

In addition to the main piece of legislation outlined above, the Law on the Use of Renewable

Resources for the Generation of Electrical Energy numbered 24335 (“REL”)was enacted in

May 15, 2005. REL, governs the principles for the conservation of renewable resource areas

and introduces further incentives for renewable energy projects. According to the REL, the

facilities within the scope of this law are required to obtain a Renewable Energy Source

Certificate (“REC”) in order to benefit from the incentives provided under the REL. The

procedures for benefiting from the incentives are detailed in the Regulation on Granting of

Renewable Energy Source Certificate published on the Official Gazette numbered 25956 and

dated October 4, 2005 (“the Renewable Energy Certificate Regulation”).

The facilities must obtain a REC in order to benefit from the incentives provided under the

REL. According to the Renewable Energy Certificate Regulation, the entities should apply to

the EMRA for obtaining REC and such applications should be reviewed by the EMRA within

30 days as of the date of the application. The REC is granted for a term of one year.

The renewable energy resources covered by the REL are wind, solar, geothermal, biomass,

biogas, wave, stream, tidal, river and arc type hydroelectric generation facilities and

hydroelectric generation facilities with a reservoir area of less than 15 km².

The incentives provided by the REL are as follows:

(i) In the event that the forests and the lands under private ownership of the Treasury

or under the control or disposal of the state are utilized for the generation of

electricity from renewable energy resources, such lands shall be leased to or right

of way or usufruct rights thereof shall be granted to the relevant entities. The fees

to be paid by the licensee for using such land shall be reduced by 85%.

(ii) There are certain incentives concerning the investment periods of the projects. For

example, the service fees will not be collected from the individuals or legal entities

willing to construct generation facilities to meet their own energy needs from

renewable energy resources for the preparation of final project, planning, master

plans, initial examination and initial studies to be performed by the State Hydraulic

Affairs General Directorate or the Electricity Affairs General Directorate. In

addition, the investments for energy generation facilities, procurement of electro-

mechanic systems within the country, research, development and production

investments concerning solar energy units, and research and development

30

investments for biomass energy may benefit from the incentives upon a Council of

Ministers’ Decree.

(iii) In addition to the above-stated incentives, the REL also provides that development

plans, which might have a negative impact on the use and efficiency of renewable

energy resource areas, can no longer be created on public land.

As a consequence of the policy to encourage private investment in the renewable energy

projects, the Regulation stipulates that the legal entities applying for licenses for the

construction of facilities based on domestic natural resources and renewable energy

resources shall only pay 10% of the total license acquisition fee. TEIAS and distribution

companies are required to give priority to the connection of the renewable energy facilities to

the transmission or distribution systems.

5.6 Expropriation

Expropriation under Turkish laws is a long and challenging process. The Expropriation Law

numbered 2942 and dated November 4, 1983 (“Expropriation Law”) foresees many

procedures to be completed for regular expropriations. Expropriation Law also sets forth

immediate expropriation in some special cases which shortens the term of the expropriation

to a month from 2 years. EML, relevant Decree Laws and Expropriation Law enable the

application of immediate expropriation procedures to the energy projects. It should be noted

that in expropriations, regardless of whether a regular or immediate expropriation, the costs

of expropriation is borne by the licensee; however, the expropriated land is registered to the

name of the Public Treasury and a right in rem is granted to the licensee for a limited term.

VI. CONCLUSION

Starting in the early 1980s Turkey’s initiatives regarding private sector participation in energy

infrastructure projects was the result of a combination of fast growing energy needs of the

economy and fiscal imperatives of the state, catching up with capacity expansion

requirements.

After its costly and prolonged experience, Turkey presently stands a chance to competitively

restructure its own electricity industry and attract private funds for investment projects, given

that most of the legal and regulatory arrangements have been accomplished and some of the

early implementations have begun. In that sense, enactment of EML and the establishment

of EMRA were major steps in the right direction. EML envisaged a fairly competitive

framework for the Market and attempted to establish pricing mechanisms that reflected the

31

actual cost of the service. In this respect, the role of state-owned entities was planned to be

reduced. However, it was not easy to switch from a state monopoly to a liberal market at

once and quickly. For this reason, Strategy Paper set forth the principles of such a big

change in the Market. To decrease the role of the public, privatizations has started, and new

licenses have been granted to the private sector during FEML. After the enactment of EML,

Turkey has a completely liberal and competitive electricity market.

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