Changes Brought to the Energy Market through Law Numbered 7257
Introduction
The Law on the Amendment to the Electricity Market Law and Other Laws (“Law No. 7257”), which brought important regulations to the energy market, was published in the Official Gazette dated 02.12.2020 and numbered 31322, and entered into force on the same day. With these new regulations that have raised important discussions in the General Assembly of the Turkish Grand National Assembly, very comprehensive and thorough changes were brought to the natural gas, electricity, renewable energy, and mining industries. Some of the major regulations introduced through Law No. 7257 are briefly discussed in this article.
Major Amendments Regarding the Natural Gas Market
Organized Wholesale Natural Gas Sales Market and Last Resource Supply
Some definitions of Natural Gas Market Law numbered 4646 (“Natural Gas Market Law”) were changed and, as well, new definitions were added to this law. The term of ‘organized natural gas wholesale market’ (“OTSP”) is one of the newly introduced definitions. The OTSP refers to the markets regulated by the Energy Market Regulatory Board ("Board") where natural gas trading and balancing are carried out by license holders utilizing the natural gas system, natural gas markets requiring post-dated physical delivery, and markets in which other natural gas-related transactions determined by the Board are carried out. The OTSP, which was previously regulated by the Regulation on the Organized Wholesale Natural Gas Sales Market[1] that was published to ensure pricing of natural gas in the market is now regulated under the law through these recent amendments.
Moreover, the term of ‘last resource supply’ is also defined in the Natural Gas Market Law, and regulations as to its operation was stipulated. With reference thereto, one or more license holders may be authorized by the Board as the last resource supplier to provide consumers who cannot be supplied with gas due to the supplier companies’ bankruptcy, cancellation of their licenses, and/or their failure to meet requirements within the scope of the OTSP, or consumers who cannot be supplied with gas even though they hold the right as an eligible consumer. The Board will, again, determine the last resource suppliers and the last resource tariffs.
Amendments Regarding the Expansion of the Use of Natural Gas
The natural gas generated in line with the Natural Gas Market Law is transferred by transmission and delivery contracts made with transmission companies. In line with the new provision, if the Board decides that the transmission of the generated natural gas via the transmission network is not technically and economically feasible, a connection will be made to the distribution network by the generator company, and the generated natural gas will be purchased by the distribution company at the outset.
In accordance with another newly introduced regulation, legal entities wishing to export liquefied natural gas ("LNG") may carry out LNG transportation, provided that this fact is included in their export licenses and that they do not deliver domestically.
Natural gas distribution companies are legal entities that are authorized to distribute natural gas and carry out transmission activities via the local gas pipelines in a determined city. With the new regulations, distribution companies may perform natural gas distribution activities via feed using the LNG or compressed natural gas (“CNG”) methods in regions that are unreachable by pipelines. Distribution companies may either make their own LNG or CNG facility investments, or may carry out these activities through service procurement. However, distribution companies will not be able to directly sell LNG and CNG. The transmission and distribution networks may be fed by LNG and CNG in urgent circumstances or force majeure situations. The license holders performing LNG and CNG operations will be in charge of meeting the demands of transmission and distribution networks in emergency circumstances or force majeure situations.
Major Amendments Regarding Renewable Energy
Amendments Regarding YEKDEM
Law No. 7257 has introduced comprehensive amendments to the Law on the Utilization of Renewable Energy Resources for the Purpose of Generating Electrical Energy numbered 5346. Primarily, the prices determined on List numbered I for the generation license holders who will start operations by 31.12.2020, or which have started operations prior to this date, and which are subject to the Renewable Energy Resources Support Mechanism (“YEKDEM”), will apply for ten years. For the generation facilities that will start operations after 31.12.2020, and which hold the Renewable Energy Resources Document (“YEK Certificate”), the applicable prices and periods will be determined by the President, provided that they do not exceed the prices determined in the List.
Additionally, YEKDEM, which was previously applied over the United States Dollar, will be applied in Turkish Liras for the energy generation facilities that will be placed into operation after 30.06.2021. The licensed electricity generation facilities that are in operation and would like to be subject to YEKDEM for the following year shall receive a YEK Certificate and apply to the Energy Market Regulatory Authority (“EMRA”) by the date designated by the EMRA. While the generation license holders who seek to benefit from YEKDEM should have applied to the EMRA no later than 31 October of the previous year, the new regulations suggest that applications will be made on a date designated by the EMRA.
Amendments Regarding Unlicensed Generation
Important changes have been brought regarding the unlicensed electricity generation activities from renewable energy resources that aim to fulfill their own consuming needs. Firstly, it is regulated that if those who perform unlicensed generation activities beyond their own needs give their generated electricity energy to the distribution system, then they will benefit from the prices determined in List numbered I for a period of ten years. Within this scope, the authorized supplier company is mandated to buy the electricity energy that is given to the distribution system. It is also regulated that the purchased electrical energy will be deemed to have been generated by the relevant supplier company within the scope of YEKDEM and given to the system.
Moreover, it is regulated that a contribution fee in Turkish Lira will be applied for the generation facilities with a YEK Certificate, using a domestic component that will start operating after 30.06.2021, and for the unlicensed generation facilities to be established to meet the needs of the consumption facility.
Unlicensed generation facilities are allowed to switch to licensed generation activities after the end of a period of ten years provided that 15% of the hourly market exchange price formed at the electricity market during the license period will be paid as a contribution fee to YEKDEM.
Major Amendments regarding the Electricity Market Law
By adding a provision to Law on Electricity Market numbered 6446, (“Electricity Market Law”), it is regulated that the disputes arising from connection and system usage agreements will be resolved in the administrative courts.
Moreover, a convenience is provided for the transactions approved by the Board in exchange for capital shares. Thus, for only legal entities having regulated tariffs (EPİAŞ, EÜAŞ, TEİAŞ, legal entities holding a distribution license and authorized supplier companies), transactions that will result in changes in capital shares of 5% in public companies, 10% or more in others, and a change of control, are subject to the permission of the Board.
An addition was made to the activities exempted from the requirements to obtain a license and establishing a company listed under Article 14 of the Electricity Market Law. In this respect, generation facilities based on renewable energy resources will be able to carry out their activities without a license, provided that they are restricted by the contractual power in the connection agreement.
In accordance with another newly introduced regulation, the price equalization mechanism will be applied until 31.12.2025 and the national tariff will be taken as the basis during this period. This period may be extended for up to five years by the President.
Major Amendments regarding Mining Law
Law on Mining numbered 3213 (“Mining Law”) introduced new rules as to the licensing procedures. In accordance with the Mining Law, the full amount of the license fees shall be paid until the end of January of each year. With the new regulation, if the entire license fee is not paid by the end of January, the non-deposited portion must be paid as the license fee to be increased by the default interest,[2] which is calculated up to and including the last day of June of that year. Otherwise, the license will be annulled.
Moreover, the application period before the operating license expiration date has been withdrawn by six months. Hence, to request a time extension, the minimum price of an operating license must be paid, and the business plan must be presented at least twelve months prior to the expiration date of the license. License holders who fail to comply with this obligation has to pay a fine of 100,000 Turkish Liras, and the license holders who fail to fulfill the specified obligations no later than six months prior to the expiry date will be rejected, and their licenses will be cancelled at the end of the term.
No overdue debt requirements will be also sought for applications for granting, merging, extending the term, transfer and succession of mineral exploration and operation licenses, and for returning the cost of harmonization with the environment.
Major Amendments Regarding Geothermal Resources
The amendment regarding the administration share regulated within the scope of Law on Geothermal Resources and Natural Mineral Waters numbered 5686 is significant. In line with this regulation, an administrative share of 1% of the gross revenue of the facilities will be paid where the fluid is used directly and/or indirectly in greenhouses, electricity generation, and residential heating. In the facilities where the fluid is used directly and/or indirectly in thermal springs and other areas, an administrative share will be paid in such a way that one cubic meter of water used does not exceed 1.5 Turkish Liras. One-fifth of the collected administrative share will be paid by the administration to the relevant municipality or village legal entity, including the district municipality in the metropolitan cities where the resource is located, and within ten working days. Therefore, it will be possible for local administrations to be a part of investments to be made.
Conclusion
New regulations were necessary in line with technical and economic developments in the energy market. The future will tell whether Law No. 7257 totally addresses these necessities or not. With these new regulations, it is expected that investors and consumers in the sector will receive and provide higher quality services in a predictable energy market. Within the remarkable and favorable amendments reviewed briefly, certain subjects, such as incentivizing renewable energy, clarification of uncertainties in unlicensed electricity generation activities, expansion of natural gas usage within the entire country, and facilitation of the transactions are subject to the approval of the Board. However, some of the newly introduced regulations are found to bring uncertainties into practice, as well. Some of these are the uncertainties regarding the YEKDEM practices, and the subjects that are expected to be clarified via Presidential decrees. The reflections of the comprehensive set of regulations brought with Law No. 7257 to the practices will be observed in the following days.
[1] Published in the OG dated 31.03.2017 and numbered 30024.
[2] This calculation is made in accordance with Article 51 of the Law on the Procedure for the Collection of Public Receivables numbered 6183.
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