Legal Framework of Aggregation in the Electricity Market
Introduction
A comprehensive inclusion of renewable resources in the energy mix makes the system less predictable and flexible. To offset this, additional flexibility is expected from the demand side. This flexibility may be attained is through by implementing demand-side awareness and market participation of the consumers. This approach is called demand response. Demand response is used to mitigate imbalances in the electricity grid. In addition to the technical necessities for ensuring a demand response such as smart grids , intermediation by a third party (aggregator) is also considered one of the fundamental conditions. Hence, it is considered that the inclusion of aggregators in the electricity market is an effective tool for ensuring the stability of the grid as well as the security of supply.
As a market activity, aggregation is a relatively new concept under Turkish law. In this newsletter article, we will delve into the existing provisions regarding aggregators as well as the new regulation that is contemplated to be put in force.
Current Legal Framework
Aggregation was introduced to the Turkish legal system as an electricity market activity on 22.12.2022 with the amendments made to the Electricity Market Act numbered 6446 (“EMA”). EMA article 3 defines the term “aggregation” as a market activity whereby the aggregator manages the electricity consumption and/or generation of one or more network users. The term “aggregator” is defined as the judicial person having an aggregator license or a supply license, who has executed an agreement with one or more system users for performing aggregation activity in the electricity market on their behalf.
It is possible to deduce a couple of conclusions from these two definitions. First of all, it is certain that, as an electricity market activity, aggregation requires a license. The aggregation activity may be performed under a supply license or an aggregation license. Secondly, it is contemplated that the aggregators (or suppliers acting as aggregators) will execute agreements with the consumers, to be allowed to perform aggregation activities on their behalf. This also means that the chances of success for the demand response will highly depend on to what extent the system users will be willing to participate.
The main provision of EMA where the aggregators are regulated is its article 12/A entitled “aggregation activity”. In this provision, it is regulated that aggregators may be authorized by the system users via an agreement. However, the system users are not allowed to authorize the supply company from whom they are purchasing electricity. It is possible to say that the EMA assumes there would be a conflict of interest if a system user were to authorize the supply company which it currently buys electricity from.
The second paragraph of article 12/A outlines what an aggregator may do in the electricity market. Under this provision, the aggregators may perform the following on behalf of the system users with whom they have an agreement regarding aggregation activities: (i) managing the electricity generation and/or consumption program, (ii) purchasing/selling electricity energy and/or capacity, and (iii) participating in supply procedures as to secondary services.
It should be noted that the provisions of the EMA regarding aggregation activity are not detailed. The basics of this market activity could be understood at a high level from the EMA, but certainly there are many issues that are not addressed. Indeed, the last paragraph of article 12/A states that the principles and procedures regarding the aggregation activity will be articulated in a regulation to be issued by the Energy Markets Regulatory Authority (“EMRA”).
A draft of the regulation mentioned above was announced on the EMRA’s website on 08.05.2024 as the Draft Regulation on Aggregation Activity in the Electricity Market (“Draft Regulation”). In the next section, we will examine the provisions of the Draft Regulation.
Draft Regulation for Aggregation Activity
General Preamble
The Draft Regulation is announced on the EMRA’s website together with a “general preamble”, outlining the purposes of the Draft Regulation. The preamble starts with a reference to the definitions of “aggregation” and “aggregator” as stipulated in EMA, indicating the intention to elaborate on these concepts. It also stipulates that the changes that have occurred in the electricity market increased in decentralized electricity generation facilities. It further states that, to increase the flexibility of the grid, it is of cardinal importance to ensure consumers’ inclusion in the electricity market (i.e. demand response). Hence, EMRA states that the main objective of the Draft Regulation is an aggregation of the decentralized generation plants and the participation of consumers in the electricity market.
Scope of the Draft Regulation
Draft Regulation article 2/2 defines the market participants who will be out of scope. According to this provision, unlicensed (license-exempt) power plants belonging to organized industrial zone legal entities under the Unlicensed Electricity Generation Regulation which has been published in the Official Gazette dated 12.05.2019 and numbered 30772 (“LUY”) and legal entities having organized industrial zone generation licenses will be out of scope from the Draft Regulation. In other words, they will not be able to acquire aggregation services.
Draft Regulation’s article 2/2 also includes real and judicial persons whose 10 years purchase guarantee under the LUY has not expired. This expression is crossed out in the Draft Regulation and, in the footnote, it is stated that this expression is included in the draft to receive opinions for both cases (whether they will be included). Hence, the final version of the Draft Regulation could potentially exclude such facilities operating under the LUY, the purchase guarantees of which have not expired. Presumably, this is because the LUY explicitly states that electricity generated from facilities under the LUY may not be sold on the wholesale markets or via bilateral agreements. Therefore, it is to be seen if this prohibition will be softened through the Draft Regulation.
Who may Perform Aggregation Activities?
The Draft Regulation Article 6 defines who may perform aggregation activities. This provision is in line with EMA. However, despite it is not explicitly mentioned in the EMA, the Draft Regulation provides that for electricity supply license holders to perform aggregation activities, this should be embedded in their licenses. Therefore, for supply license holders to be able to perform aggregation activities, they will need to have their licenses amended to include aggregation activities in their licenses.
General Principles as to Aggregation Activity
As already noted above, EMA contemplates that aggregators will execute agreements with system users. However, EMA does not give any details regarding this agreement. In the Draft Regulation, this is referred to “aggregation service agreement”. According to the definition given in the Draft Regulation, this agreement will be subject to the principles of private law and will not be subject to EMRA’s approval.
To participate in wholesale electricity markets and secondary services, the aggregator will also execute the relevant market participation agreements with the market operator and agreements for secondary services with the grid operator.
After executing these agreements, the aggregator will start managing the generation and/or consumption schedules of the system users in its portfolio. It may participate, on its behalf, in market activities regarding the purchase and sale of electricity and/or capacity and may participate in secondary services.
Fulfillment of the obligations arising out of participation in the electricity markets will be the aggregators’ responsibility. The aggregators will perform the market activities in compliance with the market participation agreements as well as Electricity Market Balancing and Settlement Regulation published in the Official Gazette dated 14.04.2009 and numbered 27200 (“Balancing and Settlement Regulation”). The same applies to the secondary services. The Draft Regulation explicitly provides that the aggregators will perform the relevant obligations as to secondary services in compliance with the Electricity Market Secondary Services Regulation published in the Official Gazette dated 26.11.2017 and numbered 30252.
Aggregators may include generation facilities as well as consumption facilities in their portfolio. However, the aggregate installed capacity of the generation facilities in an aggregator’s portfolio may not exceed 2.000 MW. A further limitation is stipulated for licensed electricity generation and storage facilities. For an aggregator to include them in its portfolio, their installed capacity should be less than 50 MW. However, as for unlicensed (license-exempt) facilities as well as consumption facilities, no limit is stipulated in the Draft Regulation. The Drat Regulation authorizes EMRA to contemplate limitations for unlicensed (license-exempt) plants as well as consumption facilities if it deems necessary.
Real-Time Monitoring and Control
As noted above, one of the pre-requisites for catering demand response is technical capabilities enabling real-time monitoring and control. Acknowledging this, the Draft Regulation includes provisions for addressing such technical issues.
In that regard, the aggregator may request, from the relevant grid operator, to have access to real-time generation and/or consumption values of the users it has agreement with. The Draft Regulation states that this will be done via appropriate hardware, equipment, and device infrastructures. Indeed, the Draft Regulation’s provisional article 1 states that remote control and SCADA infrastructure preparations required for aggregation activity will be completed by 01.09.2024 by the grid operators.
The Draft Regulation also imposes an obligation to the aggregators in that regard. According to article 13, if the aggregator participates in balancing the power market or secondary services market, it is obliged to ensure that control systems are installed for the consumption facilities and, if requested by TEİAŞ, for generation facilities. These control systems should comply with the Electricity Grid Regulation published in the Official Gazette dated 28.05.2014 and numbered 29013 (“Grid Regulation”). The aggregators are also obliged to provide all data requested by the market operator and TEİAŞ as per the Balancing and Settlement Regulation and the Grid Regulation.
Conclusion
As with other electricity systems , real-time balancing in Türkiye’s electricity system is attained through adjustments of the power generation. However, as noted above, renewable power plants numbers of which are rapidly increasing are not considered effective tools for ensuring instantaneous balance in the electricity grid. Therefore, the fundamental aim of demand response and the legal provisions relating thereto is to regain flexibility on the demand side of the electricity market. This intention can be seen in the preamble and provisions of the Draft Regulation. It remains to be seen, however, to what extent the system users will be willing to participate in such demand response.
- Xian He/Leigh Hanche/Isabel Azevedo/Nico Keyaerts/Leonardo Meeus and Jean-Michel Glachant, “Shift, Not Drift: Towards Active Demand Response and Beyond”, European University Institute Robert Schuman Centre for Advanced Studies, Issue: 2013/4, p. 1. (Date of Access: 12.07.2024).
- Demand response is essentially demand side management of the electricity consumption. It aims to provide a degree of flexibility in the demand whereby consumer adjust its electricity consumption when it is economically unreasonable. See: Petri Mäntysaari, EU Electricity Trade Law: The Legal Tools of Electricity Producers in the Internal Market, Springer, 2015, p. 308.
- Ibid.
- Martha M. Roggenkamp/Catherine Redgwell/Inigo Del Guayo and Anita Ronne (eds), Energy Law in Europe: National, EU and International Regulation, 3rd edn. Oxford University Press, 2016, p. 333.
- He/Hancher/Azevedo/Keyaerts/Meeus and Glachant, ibid, p. 5.
- EU electricity market transformation is underway: meet the independent aggregators, https://joint-research-centre.ec.europa.eu/jrc-news-and-updates/eu-electricity-market-transformation-underway-meet-independent-aggregators-2022-11-08_en (Date of Access: 12.07.2024).
- LUY article 24/7 and 34/3.
- Draft Regulation article 4/1-i.
- Draft Regulation article 5/8.
- He/Hancher/Azevedo/Keyaerts/Meeus and Glachant, ibid, p. 3.
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