Electricity Licensing in Turkey: An In-Depth Guide to Market Regulations

I. General Principles for Electricity Licensing In Turkey

a. Overview

To participate in the Turkish electricity market, entities must adhere to a set of general licensing principles. First and foremost, license holders must be private legal entities established in accordance with the Turkish Commercial Code (TCC). They typically take the form of either joint-stock companies or limited companies.

For joint-stock companies, it’s mandatory that all shares, except those traded on the stock exchange under capital market regulations, be registered.

It should be noted that each entity must secure separate licenses for every distinct activity and facility within the market. This ensures that the operations are transparent and can be regulated effectively.

Licenses are granted for a maximum of 49 years, providing a long-term perspective for market participants. These can be renewed subject to certain terms and conditions. Entities holding licenses are subject to rigorous oversight, with inspections conducted by the Energy Market Regulatory Authority (EPDK). Additionally, electricity distribution companies are inspected by the Ministry of Energy and Natural Resources.

b. Obligation to Obtain a Preliminary Electricity License

Before embarking on any electricity-related activities, entities are required to obtain a preliminary license. This prerequisite applies to all activities and facilities. Preliminary licenses cannot be shared or otherwise transferred between entities. The objective here is to establish a clear regulatory framework from the outset.

c. Activities Subject to Electricity Licensing in Turkey

The Turkish electricity market covers a wide array of activities that necessitate licenses, including but not limited to Electricity Generation, Electricity Transmission, Electricity Distribution, Wholesale Electricity Sales and Retail Electricity Sales.

Despite the comprehensive licensing requirements, certain types of electricity generation facilities enjoy exemptions. These include Isolated Generation Facilities, Renewable Energy Facilities, Solid Waste and Incineration Facilities, Micro Cogeneration Facilities and Self-Consumption Facilities.

d. License and Preliminary License Durations

Preliminary licenses typically have a maximum duration of 36 months, except in cases of force majeure. The EPDK sets the specific duration based on the energy source and installed capacity.

On the other hand, full licenses are granted for a minimum of ten years and a maximum of 49 years, with exceptions for licenses issued within the framework of existing contracts.

II. Preliminary License: The First Milestone

Before embarking on the journey of constructing an electricity generation facility, prospective entities must first obtain a preliminary license from the EPDK. This initial phase is crucial as it allows them to acquire the necessary permits, approvals, and rights to the land where the power generation facility will be established.

One vital point to note is that construction cannot commence until the full license is secured. The construction phase begins only after obtaining the preliminary license.

a. Who Can Apply for a Preliminary License?

Entities seeking a preliminary license for electricity production in the Turkish market must meet specific criteria:

Legal Entity: Applicants must be legal entities established according to the Turkish Commercial Code (TCC). This typically involves forming joint-stock companies or limited companies. A detailed look at company formations can be found here.

Share Registration: In the case of joint-stock companies, all shares, except those publicly traded on the stock exchange, must be registered.

License History: Entities that have had their licenses revoked are subject to restrictions. This includes a three-year ban on obtaining new licenses, submitting license applications, or holding direct or indirect shares in license applicants.

b. Documentation Requirements

The application process for a preliminary license is meticulous and requires the submission of several documents and guarantees:

Bank Guarantee: For each megawatt (MW) of installed capacity, applicants must provide a bank guarantee based on amounts determined by the EPDK. This guarantee serves as financial security and ensures compliance with regulations.

Capital Increase: Companies must submit their articles of association reflecting that their minimum capital has been increased to 5% of the total investment amount as stipulated by the EPDK.

Fee Payment Confirmation: Evidence of the payment of the preliminary license fee to the EPDK’s account is mandatory.

Compliance in Articles of Association: The company’s articles of association must include provisions indicating that no changes will be made to the company’s ownership structure during the preliminary license period, in accordance with regulatory requirements.

c. The Application Process

The EPDK carefully reviews all documents submitted during the application process to ensure compliance with regulatory standards. If any discrepancies are identified, applicants are given a 15-day period to rectify these issues; otherwise, their documents will be returned.

Once the application is considered complete, the EPDK announces the details on its website. Interested third parties have a 10-day window to file written objections, specifically addressing any potential personal rights infringements.

The evaluation process concludes when the EPDK submits its findings to the relevant board. A final decision on the preliminary license is then reached by the board, taking into account all relevant factors and regulations.

Entities that fulfill all regulatory requirements are granted a preliminary license by the board. This decision is publicly announced on the EPDK’s website, marking the official start of the preliminary license period.

d. Duration of Preliminary License

The preliminary license period typically lasts up to 36 months, except in cases of force majeure. The EPDK determines the specific duration based on factors such as energy source and installed capacity.

e. Prohibition on Transfers

One critical aspect of preliminary licensing is to prevent speculative practices, where entities secure land and licenses with the intent to sell them to investors at exorbitant prices. To combat this issue, a ban on transferring shares within the entity holding the preliminary license for electricity generation was introduced in 2016. If there are any changes to the ownership structure, either directly or indirectly, the preliminary license is revoked.

III. The Final Electricty Licensing Process

For organizations seeking to operate in the electricity market, obtaining a license involves submitting a set of documents to the Energy Market Regulatory Authority (EPDK). It’s essential for applicants to ensure all necessary documents are prepared meticulously. Some of the key documents include, License Application Letter (Duly Signed), Authorization Documents for Legal Representatives, Certified Copy of the Corporate Charter and Information on Shareholders.

a. Preliminary License Milestones

According to Article 17 of the Regulation, if an applicant can demonstrate the completion of all obligations defined within the scope of the preliminary license during the preliminary license period, they can directly apply for a production license without the need for a preliminary license.

During the preliminary license period, which is a time for completing essential preparations for the construction and operation of the production facility (as outlined above), several milestones must be achieved:

1. Obtaining Ownership or Usage Rights: If the preliminary license holder does not own the land where the production facility will be established, securing ownership or usage rights is imperative. This may involve acquiring rights to the land or obtaining permits related to dam reservoir areas for hydroelectric power plants, land expropriations for thermal power plants relying on local minerals or imported coal, and forest usage permits for nuclear power plants.
2. Approval of Zoning Plans: The final approval of zoning and implementation plans for the production facility’s construction area.
3. Project or Final Project Approval: Ensuring that the project or final project required for the construction of the production facility is approved.
4. Application for Connection Agreement: Applying to the Turkish Electricity Transmission Corporation (TEİAŞ) or the relevant distribution company for a connection agreement.

b. The Licensing Process

Upon submitting the license application, the EPDK conducts a thorough examination to verify whether all required documents have been correctly submitted. This review process typically concludes within 10 business days of the documents’ arrival. If discrepancies are identified, applicants are given a 15-day window to rectify the issues. Failure to address these concerns within the stipulated timeframe results in the return of the submitted documents.

In evaluating a production license application, EPDK considers whether the applicant has fulfilled all preliminary license obligations within the stipulated period. Once the evaluation is complete, EPDK submits its findings to the Energy Market Regulatory Board (Board) for a final decision.

c. License Renewal

Licenses can be renewed upon the licensee’s request, beginning no earlier than 12 months and no later than 9 months before the expiration of the current license period. License renewal fees must be submitted with appropriate documentation as proof of payment.

The evaluation of a license renewal application concludes no later than three months before the license expiration date, and the Board communicates its decision in writing to the license holder. Details of the renewed license, including the trading name of the legal entity, license type, and duration, are published in the Official Gazette and on the EPDK website.

d. Sanctions and License Cancellation

Licenses can be terminated under specific circumstances, including the expiration of the license term, the finalization of the bankruptcy of the license holder, or the loss of the conditions required for granting the license. If a license holder wishes to voluntarily terminate their activity, they must apply to the EPDK in writing at least six months before the desired termination date.

In cases of non-compliance with relevant regulations, the Electricity Market Law, and Licensing Regulation, sanctions outlined in Article 16 of the Law may be applied. Furthermore, a production license may be canceled if the facility’s construction has not commenced during the prescribed construction period or if it becomes evident that the facility cannot be completed within the remaining timeframe.

IV. Conclusion

In the intricate realm of the electricity market, securing a license is a critical juncture for entities seeking to participate in various facets of this dynamic sector. Throughout this journey, adherence to regulatory guidelines and compliance with licensing obligations emerge as paramount considerations. The Electricity Market Law and Licensing Regulation dictate the rules of engagement, while non-compliance can lead to sanctions and even license cancellation.

In conclusion, the path to obtaining and maintaining Electricity Licensing in Turkey demands careful planning, technical acumen, and regulatory diligence. The meticulous preparation and commitment to fulfilling obligations are essential prerequisites for any entity seeking to thrive in this dynamic and pivotal sector. By navigating the licensing journey effectively, organizations can contribute to the country’s energy landscape and play a vital role in powering the future