Doing Business in Türkiye: Energy

Electricity market

The Electricity Market Law provides the main framework of rules applicable to the electricity market. EPDK complements the Electricity Market Law with secondary legislation. 

The following activities may be undertaken in the electricity market: (i) generation, (ii) transmission, (iii) distribution, (iv) wholesale, (v) retail, (vi) market operation, (vii) export and (viii) import. Only legal entities incorporated in the form of a joint stock company or limited company (please refer to “Corporate Environment” for details of these legal entity forms) may conduct these activities. While, as a general rule, electricity generation is conducted under a generation license issued by EPDK, the applicable legislation also allows for unlicensed generation under certain circumstances described below. 

There are no ownership restrictions imposed on foreign investors in the electricity market.

Electricity market activities and licenses

As a general rule, activities in the electricity market require that a company be issued an appropriate license. However, transmission and market-operation activities are exclusively performed by state-owned entities. Transmission done through lines with voltage above 36 kV is under the control of TEİAŞ. Market-operation activities are undertaken by EPİAŞ, which operates the day-ahead, intraday and balancing markets. EPİAŞ is also responsible for the settlement of the market participants’ trading activities. 

Licenses are issued upon fulfillment of the criteria, including certain minimum share capital and corporate requirements, set out in the applicable legislation. Licenses are issued for a maximum period of 49 years. For generation, transmission and distribution licenses there is a minimum license term of 10 years. Licenses may be renewed. For generation activities, prior to applying for the generation license, the applicant must first obtain a pre-license from EPDK.

Licenses expire automatically at the end of their term or, in case of bankruptcy of the license holder, upon request by the license holder or through loss of eligibility with an act of EPDK. EPDK also has the authority to impose monetary fines or, ultimately, cancel a license as a result of the license holder’s failure to comply with the requirements of the applicable legislation.

Licensed generation

A generation license grants the holder the right to construct and operate an electricity generation facility with the purpose to sell the generated power. Generation license holders may sell electrical energy or electrical capacity to supply-license holders, users with direct private connection and eligible consumers. Eligible consumers are those who, because their electricity consumption exceeds certain levels determined by EPDK, are free to choose their supplier or are directly connected to the transmission line. Generation license holders may conduct the wholesale and retail sale of power and also the import and export of power.

Generation activities require issuance of a pre-license in order for the project company to start the construction of the generation facility. The term of a generation pre-license is up to 36 months depending on the installed capacity of the facility or the type of energy used. A license may be issued for only one electricity generation facility. Upon fulfillment of all pre-license obligations, pre-license holders apply for a generation license. During the pre-license period the holder is required, among other things, to acquire title to or other right to use the project site, obtain zoning approvals and environmental clearances and apply to TEİAŞ or the distribution companies for system connection and system use arrangements.

Unlicensed generation (license-exempt generation)

Certain energy generation activities may be undertaken without a license and are free from the requirement to form a separate legal entity for such activities. In general, private individuals and entities may directly or indirectly own and operate renewable energy generation facilities with a total installed capacity of 5 MW or less. 

Although less bureaucratic compared to licensed generation, unlicensed generation also involves certain application formalities. Unlicensed generators must apply to distribution companies or organized industrial site distribution license holders in their region to obtain the relevant approval. 

Please also see below for further details with respect to unlicensed generation from renewable energy resources.

Supply license

A supply license grants the holder the right to make wholesale and retail sales of electrical power to eligible consumers without any regional restrictions. If the supply license holder is authorized within a regional supply territory, it may engage in the sale of power to non-eligible consumers in that region and also to eligible consumers in that region that do not procure electrical power from another supply license holder. Supply license holders may also engage in trading activity (import and export) involving countries with which Türkiye is interconnected.

Distribution license

Distribution is delivered through lines with a voltage of 36 kV or less. Distribution was previously undertaken by the TEİAŞ, a state-owned entity. As part of the market liberalization process, Türkiye was divided into 21 distribution regions and the distribution assets, which had been owned by TEİAŞ, were privatized. Each distribution company has the exclusive right to operate the distribution network in its respective region. 

Certain restrictions applicable to license holders

Regulatory authorities, particularly EPDK, oversee and monitor license holders. Below is a non-exhaustive list of issues that must be taken into account by investors in the electricity market.

Share transfer restrictions

If the market activities of the relevant license holder require a tariff that is subject to EPDK’s regulations (i.e. system connection, distribution, transmission, wholesale, retail sale, market operation and last resort supply), EPDK must approve any direct or indirect share transfer in the share capital of the license holders exceeding 10 percent or more of a license holder (5 percent if the license holder is a public company) or share transfers resulting in a change of control. For direct share transfer of market operation license holders, such threshold is 4 percent or more. 

Approval is subject to the transferee’s fulfilment of criteria imposed on license applicants if the license holders carry out an activity which is subject to regulated tariffs. Transfers that are exempt from the above-mentioned share transfer restrictions must be notified to EPDK via the “EPDK Application System” within six months from the date of their completion.

As mentioned above, during the construction period a generation license is preceded by a pre-license. During this period, subject to limited exceptions, no direct or indirect shareholding structure changes are permitted.

Transfer of licenses

As a general rule, licenses may not be transferred. The legislation provides for an exception for generation licenses in the form of a step-in right. In a limited or non-recourse project financing, if a generation license holder fails to fulfill its obligations under the loan documents, lenders may apply to EPDK to issue the license to another legal entity as a continuation of the existing license.

Other restrictions

The following transactions and the subsequent transfer of the rights and obligations of the licensed entity are also subject to EPDK’s approval:

• Merger of a licensed entity with another entity (whether a license holder or not), the partial or full spin-off of a licensed entity or the transfer of a licensed entity’s rights and obligations upon a merger or spin-off;
• The transfer of a generation license holder’s rights and obligations to another entity due to a spin-off or to a new entity with the same shareholding structure as the license holder; and
• The sale or lease of a generation facility to another entity by a generation license holder.

Market share restrictions

The amount of electricity generated by a single generation company or by companies controlled by a single individual or legal entity may not exceed 20 percent of the total amount of electricity generated in Türkiye in the prior year. Similarly, supply license holders may not purchase electricity in an amount equal to more than 20 percent of the total electricity consumed in Türkiye in the prior year.

Renewable energy

Türkiye enacted renewable energy legislation in 2005 to encourage and support the use of renewable energy resources for electricity generation, for decreasing carbon emissions, protecting the environment and developing a manufacturing industry for the equipment and other facilities needed for the use and expansion of renewable energy resources.

In October 2021, Türkiye ratified the Paris Agreement and declared a target to reach “net-zero” by 2053. 

Renewable energy support mechanism ("YEKDEM")

The support mechanism encompasses the incentives provided by the Renewable Energy Law and its applicable regulations and is comprised mainly of feed-in tariffs and domestic component incentives. Project companies wishing to opt into the support mechanism must apply to EPDK by the deadline announced in the year preceding the designated opt-in year, which will be announced by EPDK. Settlement of power sales under the support mechanism is coordinated by EPİAŞ. 

Feed-in tariff

The feed-in tariffs listed below are valid for a period of 10 years for renewable energy generation facilities that will become operational by June 30, 2021 and have opted into the support mechanism. 

A presidential decision dated January 30, 2021, introduced the following new feed-in tariffs, denominated in Turkish Lira (TL), valid for 10 years for renewable energy generation facilities that have opted into the support mechanism and become operational between July 1, 2021 and December 31, 2025. 

The rates specified above will be adjusted on a quarterly basis in January, April, July and October. The decision also caps the US$ Cent feed-in rates for each power source category as shown above.

The Regulation on Unlicensed Electricity Generation was amended in May 2021 to stipulate that the President will determine rates and other principles related to the feed-in tariff scheme for unlicensed generation facilities that become operational after June 30, 2021. 

Domestic component incentives

In addition to feed-in tariffs, the Renewable Energy Law provides incremental price incentives for licensed generators that use certain domestically manufactured mechanical and electromechanical components in their facilities. Similar to the feed-in tariff incentive, these incremental price incentives apply to renewable energy generation facilities that commence operations before June 30, 2021, and opt into the support mechanism. At least 55 percent of the components used in an electricity generation facility must be locally manufactured to benefit from related incentives. Incentives for using domestically manufactured components are available for five years following the commencement of electricity generation at a facility.

The presidential decision dated January 30, 2021 also introduced new domestic component incentives, denominated in Turkish Lira, that will apply to renewable energy generation facilities that commence operations after June 30, 2021. The incremental price incentives will also be adjusted on a quarterly basis.

Other incentives

Other incentives granted under the Renewable Energy Law and other applicable laws include:

• Access and use of state-owned land. An 85 percent reduction on permit costs, rent and other costs of gaining rights to access and use of state-owned land will be applied for a 10-year period starting from the license issuance date for generation facilities operational by December 31, 2025. These facilities are also exempt from paying the Forest Villagers Development Fee (Orman Köylüleri Kalkındırma Geliri) and the Forestation and Soil Erosion Control Fee (Ağaçlandırma ve Erozyon Kontrolü Geliri).
• Grid connection priority. TEİAŞ, the state-owned electricity transmission company, will give grid connection priority to renewable energy generators. 
• License fee discounts. The pre-license application fee for renewables will be 10 percent of the non-renewable energy pre-license fee (however, the amount of the fee cannot be lower than TL 14,301). 
• Annual license fees. For a period of eight years after the provisional acceptance date, generation facilities based on renewable energy and local resources are exempted from annual license fees.
• License amendment fees. A discount will also be available on the fee for the amendment of license.
• Authorizations. Renewable energy projects may be developed in protected areas such as national parks, natural parks, natural protection zones, protected forests and wildlife developments sites if the required permits from the relevant authorities are obtained.

Renewable Energy Resource Guarantee Certificates (YEK-G Certificates)

EPDK issued the Regulation on Renewable Energy Resource Guarantee Certificates in the Electricity Market on November 14, 2020. Accordingly, “Renewable Energy Resource Guarantee Certificates” which are similar to the Guarantee of Origin certificates defined under EU Directive 2009/28/EC, attesting that a certain amount or proportion of electricity supplied to consumers has been generated from renewable energy sources, will be issued.

EPİAŞ is appointed by the Regulation as the market operator and undertakes, among other things, the following: (i) operating the organized market (i.e. the “YEK-G Market”) for registering and trading YEK-G Certificates, (ii) defining the terms of trade in the organized market (including pricing, margin requirements, settlement terms, invoicing and payments), (iii) organizing trades, clearance and settlement processes; and (iv) defining the rights and obligations of market participants and the “central counterparty.” Since mid-2021 EPİAŞ operates the YEK-G Market as the market operator.

Renewable Energy Resource Areas (YEKA)

In line with its renewable energy targets, the Turkish government has embarked on large scale renewable projects, or YEKAs, to be developed on privately owned or public lands. The projects are awarded by the Ministry of Energy through a tender process. Tenders are organized through the reverse auction method, where the applicant offering the lowest rate wins the tender. Winning bidders are also required to set up a manufacturing facility and conduct research and development activities, as part of the government's promotion of the local component manufacturing.

The three YEKA tenders are awarded so far, one for solar and two for wind power, each having an installed capacity of 1 GW. There have been several other YEKA projects on the government’s agenda, including a solar power YEKA project that is distributed in different regions in Türkiye, each with an installed capacity of 10-20 MW (a “mini YEKA project”) and an off-shore wind YEKA project.

In mid-2022, the Ministry of Energy completed tenders for the fourth YEKA cohort, which were held for numerous solar power projects having a total installed capacity of 1 GW. Tenders for the fifth cohort mini YEKA projects with a total installed capacity of 1,220 MW, each with a capacity ranging from 10 MW to 30 MW, are planned to be launched in 2023.

Unlicensed generation

The unlicensed generation of renewable energy, especially of solar power, is an area of interest for both domestic and foreign individuals and entities. 

Unlicensed renewable generation facilities may have an installed capacity of 5 MW or less. A generation facility with an installed capacity exceeding 5 MW must be licensed by EPDK. License-exempt generation was introduced for consumer facilities to be able to meet their own power consumption through facilities of their own. In other words, the underlying reasoning of license-exempt generation is the satisfaction of one’s own power consumption and not the trading of the power generated. 

That said, prior to March 2016, the unlicensed generation legislation did not explicitly prohibit (or allow) setting up multiple generation facilities, each having an installed capacity of 1 MW or less (the then-applicable threshold), thereby reaching a total installed capacity which would normally require a generation license. Domestic and foreign investors have used this structure and set up multiple facilities, each having an installed capacity of 1 MW or less, for trading purposes. However, due to amendments made to the legislation in March 2016, the total amount of installed capacity a single person may directly or indirectly own in unlicensed wind or solar generation facilities within a substation may not exceed the applicable threshold. Investors are not able to establish separate special purpose vehicles, each holding a separate unlicensed project, to be operational in a substation. Unlicensed generation facilities which secured a “call letter” (a letter issued by the distribution company allowing the facility to connect to the grid) prior to March 2016 are exempt from this restriction.

In addition, as a result of the recent amendments to the Electricity Market Law, provided that it is limited to the capacity set out in the connection agreement, it is now possible to generate electricity using renewable resources without obtaining a generation license, even if the total installed capacity exceeds 5 MW. The amendments aim to facilitate consumers’ power generation for their own consumption. These generators will also be able to sell the excess power at the applicable retail energy price determined by EPDK. 

Although unlicensed generators are exempted from company formation formalities imposed on licensed generators, they must still obtain approval from the distribution company for grid connection, system usage and secure land use rights and environmental clearance. 

Each unlicensed facility is required by law to be connected to a consumption unit. Any excess power not consumed in the consumption unit may be sold to the grid. The power so generated may benefit from the applicable feed-in rates, if the call letter was issued before May 2019. As to the unlicensed facilities with a call letter issued after May 2019, the applicable retail energy prices announced by EPDK will apply to the excess power. 

Unlicensed facilities will also benefit from domestic component incentives after June 30, 2021.

Prior to becoming fully operational, an unlicensed facility will receive provisional acceptance to continue commercial activities and complete certain tests required to provide evidence of full and safe functioning. As a general rule, during this time period, no share transfer may be made. There exist some exceptions to this rule, such as shareholding structure changes due to: (i) inheritance, (ii) transfer of publicly traded shares of a public generation company or its public shareholder, or (iii) changes in the shareholding structure of a foreign shareholder.

Once the provisional acceptance is issued, unlicensed facilities may be transferred with the approval of the relevant distribution company. A step-in right, as described earlier for licensed generation, is also possible for banks and other financial institutions that have provided limited or non-recourse project financing to the unlicensed generator.

Energy transition

Increasing the total installed capacity of renewable energy plants, increasing the energy efficiency of the existing infrastructure, in particular in public assets; integrating new resources (e.g. green hydrogen) in the Turkish energy mix; and promoting the rapid integration of new energy-efficient and greener technologies are all areas of focus in Türkiye. These ambitions not only require access to new financing resources but also necessitate the enabling legislation to be put in place.

On the financial side, the need for new investment for energy transition projects estimated by market players is as follows:

On the legislation front, the primary steps with respect to energy efficiency have been taken in as early as 2007 by the enactment of the Energy Efficiency Law No. 5627. The purpose of the above mentioned law is to set the framework with respect to effective consumption of energy, minimize energy losses and increase efficiency in the use of energy resources.

Among other things, the concept of “energy performance contracts” enabling implementation of a number of procedures to decrease energy consumption in privately-owned, as well as public buildings, was introduced under the same law. With respect to privately-owned buildings, the Regulation on Energy Performance in Buildings was issued in 2008 to set forth details with respect to the measures to be taken in buildings to increase energy performance levels.

On the public buildings front, Presidential Decree No: 2850 with respect to Energy Performance Contracts in the Public Sector was issued in 2020 and followed by an implementation communiqué in 2021. The aforementioned decree and communiqué set out details with regards to the tenders to be launched by public authorities before entering into energy performance contracts to optimize energy consumption in public buildings. Bankable energy performance projects are expected to be launched soon.

Another pillar of energy transition which is picking up speed is the electrical vehicle (EV) and EV charging units. In order to regulate EV charging activities, the government amended the Electricity Market Law in late 2021 to introduce a licensing regime for charging network operators. The amendments to the Electricity Market Law were followed by the Charging Services Regulation that came into force in 2022.

According to the Electricity Market Law and the Charging Services Regulation, in order to be able to operate EV charging stations in Türkiye, the investors must obtain a Energy efficiency “charging network operator license” from EPDK. The charging network operator license is issued for a maximum period of 49 years and entitles the holders, among other things, to provide EV charging services in Türkiye, install and operate charging stations, appoint third parties to install and operate EV charging stations through certification and launch loyalty schemes with their customers. The regulation also sets out the procedures and principles with respect to the inspection and monitoring of the EV charging network, as well as EV charging station activities.

The Energy Efficiency Law also marks one of the first legislative texts referring to “hydrogen,” which is now globally accepted as a cleaner and more efficient resource for power generation, and an alternative energy resource which should be encouraged. Secondary legislation with respect to the procedure and principles for developing hydrogen power plants should be set forth by the Ministry of Energy.

Other than a few pilot projects, hydrogen has yet to become an alternative resource to be added to the Turkish energy mix. The primary pieces of electricity market legislation, such as the Electricity Market Law, the Renewable Energy Law and their secondary legislation, do not explicitly refer to “hydrogen” as an energy resource and green hydrogen is not recognized as a renewable energy resource. In addition, green hydrogen power generators, once established, would not be able to benefit from the feed-in tariff mechanism as currently there is no tariff available for green hydrogen power plants. In order for green hydrogen projects to be scaled up, further legislative steps still need to be taken.

On the other hand, since 2020, hydrogen has become a widely discussed topic and, in the absence of a clear regulatory framework, hydrogen power plant projects are being developed. For instance, the first green hydrogen power plant is planned to be established by the South Marmara Development Agency (GMKA), Enerjisa Üretim A.Ş., Eti Maden, Türkiye's Scientific and Technological Research Council's Marmara Research Center (TÜBITAK MAM) and Aspilsan Energy in Balıkesir.

Oil and gas

Upstream activities

Under the Constitution, natural resources and the right to explore and exploit such resources belong to the state. However, the state may assign these rights through a licensing regime to persons or legal entities for a limited time period. The Turkish government has expressed the policy objective of promoting private participation in the oil and gas markets.

Enacted in 2013, the Petroleum Law regulates the exploration and production of petroleum products, including crude oil and natural gas, and aims to promote and liberalize the Turkish upstream oil and gas markets. Notably, the law removed state-owned TPAO’s monopoly in the acquisition of petroleum product permits, licenses and leases, thus opening the field to competition by private companies. The law also removes limitations on the number of licenses that may be obtained by any license holder.

The Petroleum Law regulates both onshore and offshore activities and provides for the issuance of five-year exploration licenses for onshore projects (with extensions possible for an additional four years) and eight-year exploration licenses for offshore projects (with extensions possible for an additional six years). Extensions to the license periods can be made for two-year terms, up to two times in total. At the end of the respective license period, license holders may be granted an additional two-year period for the commercial evaluation of the oil discovery. Exploration and production licenses are granted by the General Directorate of Mining and Petroleum Affairs. If a discovery is made during the exploration period, an operating license is issued to permit production and sale of the petroleum for a period of 20 years. Upon expiration of the operation period, the physical structures must be decommissioned and, upon the approval of both the Ministry of Energy and TPAO, the operating rights of the petroleum field may be auctioned.

If the land that is subject to a petroleum license is owned by a private person, the petroleum license holder may utilize such land by leasing or acquiring it, establishing a servitude right over it or having it expropriated under relevant expropriation procedures.

Petroleum rights holders may export 35 percent of their production from onshore fields and 45 percent of their production from offshore fields. The remaining part of the petroleum or natural gas must be set aside for the domestic market. For fields that were discovered prior to 1980 the entire portion of the discovered petroleum must be set aside for the domestic market. 

Petroleum license holders are required to pay the state a share equal to one-eighth of the market price of the petroleum or natural gas produced under the applicable license.
Both domestic and foreign legal entities are entitled to obtain exploration and operation licenses. Any share transfer in an entity with an exploration or operation license that results in a change of control is subject to the prior approval of the Ministry of Energy. Petroleum rights are required to be registered in a registry maintained by the General Directorate of Mining and Petroleum Affairs.

Downstream activities

Downstream activities are subject to license from EPDK. In the oil sector, downstream activities requiring a license include refining, distribution, storage, transmission, processing and dealership activities. In the natural gas sector downstream activities requiring a license include import, export, transmission, storage, wholesale, distribution and transportation activities.

Licenses granted for petroleum activities have no specified minimum period but have a maximum period of 49 years. Licenses granted for natural gas sector activities have a minimum of 10 years and a maximum of 30 years and are not transferable. There are some exceptions to restrictions on transfer of licenses. For example, transfers are permitted when there is a merger between two companies which results in the formation of a new company.

Downstream petroleum and natural gas licenses may only be obtained by companies established in Türkiye. However, there is no limitation on foreign ownership of such companies. 

Oil and gas transit

Türkiye, due to its geographical location situated between oil rich Middle Eastern and Caucasian countries and highly industrialized European markets, is a key transit country in the global oil and gas sector.

In the oil sector, the Baku-Tbilisi-Ceyhan Pipeline connects Azerbaijan’s oil fields to Türkiye’s Mediterranean ports for shipment to Europe. The 1,776 kilometer pipeline has capacity to discharge a maximum of 1.2m barrels of crude oil per day with capacity to discharge 50m tons of oil per year. The Kirkuk-Ceyhan Pipeline, also known as the Iraq-Türkiye Pipeline, carries crude oil from Iraq to Türkiye’s Mediterranean ports. 

In addition to these operational pipelines, in an effort to create an alternative to maritime crude oil transportation, projects are underway to connect the Black Sea to the Mediterranean Sea with a crude oil pipeline. 

There are also domestic oil pipelines operated by BOTAŞ; the main ones are the Batman–Dörtyol, the Ceyhan-Kırıkkale and the Şelmo-Batman pipelines.

In the gas sector, the 692 kilometer Baku-Tbilisi-Erzurum Pipeline (also known as the Shah Deniz Pipeline) transports Azerbaijan’s natural gas to Türkiye to serve Türkiye’s natural gas demand. A natural gas pipeline running between Karacabey (Türkiye) and Komotini (Greece), also connects Türkiye and Azerbaijan’s natural gas with Greece. In addition, in late 2020, TANAP became ready to carry the gas from Azerbaijan’s Shah Deniz-2 gas field and the Caspian Sea to Türkiye and Europe. TANAP runs between the Turkish borders with Georgia and Greece and the length of the main pipeline reaches 1,811 kilometers. 

Lastly, TurkStream (TürkAkım), a natural gas pipeline running from Russia to Türkiye, which starts from Russkaya compressor station near Anapa in Russia's Krasnodar Region and crosses the Black Sea to the receiving terminal at Kıyıköy, Kırklareli, was officially inaugurated on January 8, 2020. It has an aggregate throughput capacity of 31.5bn cubic meters (15.75bn cubic meters per each of the two strings).  

The country’s largest offshore natural gas reserve was discovered in 2020 in the Black Sea near Sakarya. Production facilities as well as a 169 km underwater natural gas pipeline are being constructed. Throughput, capacity is anticipated to rise from an initial level of 5 to 10bn cubic meters in 2023 to 20bn cubic meters. 

BOTAŞ operates the transmission network and manages third-party access to the network. Parties that wish to use the network are required to apply to BOTAŞ for capacity allocation at an entry point and an exit point. Connection and transmission tariffs are set by EPDK. Any disputes regarding access to the transmission network are subject to resolution by EPDK. EPDK decisions may be appealed before Türkiye’s administrative courts.