Game-changing Amendments on the Unlicensed Electricity Generation Regulation Enters into Force

The Energy Market Regulatory Authority (“EMRA”) had published on its official website on 26 October 2015 the draft amendments (“Draft”) that foresee important changes on the Regulation regarding the Generation of Unlicensed Electricity in the Electricity Market published in the Official Gazette dated 2 October 2013 and numbered 28783 (“Unlicensed Electricity Generation Regulation”), in order to receive public opinion on the same. Based on certain comments made by the public, the EMRA amended the Draft.  The Draft is expected to be published very soon.

According to the Draft, the main amendments to the Regulation regarding the Generation of Unlicensed Electricity in Electricity Market are as follows:

1 MW Capacity Allocation Restriction foreach transformer station

The Draft states that in each transformer station, maximum 1 MW installed capacity shall be allocated for real or legal persons generating solar or wind energy, regardless of the number of consumption facilities belonging to the same person. While calculating the 1 MW limit, the Draft considers both real or legal persons and their direct or indirect subsidiaries as the same person. The Draft states that the determination of the direct and indirect shareholding structure of the facility owners shall be based on the declaration of the legal entity that owns the facility, and in the event that the information provided regarding the shareholding structure is found out to be missing, misleading, or false, the call letters for the execution of the connection agreements shall be cancelled.

Whether the ongoing projects; specifically

(i) the call letters of which have already been obtained from the relevant distribution company,

(ii) the project approvals of which have already been obtained from TEDAŞ, or

(iii) the connections agreements of which have already been signed with the relevant distribution company,

would remain unaffected from the amendment was unclear as per the initial version of the Draft. Considering the comments by the public, the EMRA eliminated such ambiguity by including a temporary provision to the Draft stating that the facilities having already obtained the right to receive a call letter from the relevant distribution company will not be subject to the new capacity allocation restrictions. A company is considered as having obtained the right to receive a call letter when the distribution company publishes such capacity allocations in its web site. Accordingly, in addition to the projects which have obtained the right to receive a call letter, the projects which have obtained the call letters and project approvals and finally the projects which had executed Connection Agreements shall all be safe from these new restrictions a fortiori.

Share Transfer Restriction

The Draft had also envisaged a share transfer restriction for unlicensed electricity generation projects, prohibiting the shareholders of the facility owner companies to transfer to third parties all or part of their shares in the companies that own the unlicensed facilities starting from the date of application until the provisional acceptance date. The consequence of the incompliance with such restriction, which was missing in the initial text of the Draft, has now been clarified. According to the new provision added in the Draft, the incompliance with such share transfer restriction will result in the cancellation of the call letters of the relevant facilities. One may argue that the restriction constitutes a risk only for the projects which have obtained the call letters, but not for the projects the connection agreements of which have already been signed. It is not clear whether the objective of the EMRA by only referring to the cancellation of “call letters” was to limit the share transfers merely for the projects holding only call letters.  Accordingly, there may also be a risk for the project owners which transfer their share in companies having project approvals or connection agreements before provisional acceptance. Interestingly, the provision only restricts share transfers, but not subscriptions.  In other words, it may be argued that subscription to the shares of a project company through a capital injection process would not fall within such prohibition as it cannot be considered as a share transfer.

As a result of these new amendments, it seems that many companies which invested in unlicensed electricity generation business in Turkey by relying on the initially planned structure of electricity generation without a license will receive a major blow from the new provisions of the Draft.

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