Incentives Provided for Renewable Energy in Turkey

Turkey is dependent on foreign energy. Investments are being made in renewable energy fields in order to get rid of external dependence in import-based energy consumption. In addition to the increase in the prices of import-based products (such as oil and natural gas), the increase in exchange rates also causes the foreign trade deficit to grow. For this reason, it is inevitable for Turkey to turn to renewable energy sources and for this sector to grow day by day.

Incentives for electricity generation from renewable energy sources in Turkey can be listed as unlicensed electricity generation, licensed generation, YEKA (Renewable Energy Resource Areas) model and supports for general investments in addition to these.

Incentives for Unlicensed Electricity Generation Facilities

Unlicensed electricity generation is a system that aims to increase energy production through renewable energy sources and small-scale facilities without a license, and is based on the principle of generating electricity up to 5 MW for real and legal persons without the obligation to obtain a license and establish a company, meeting their own needs and selling the surplus to the distribution network.

The generation and consumption facility to be established within the scope of the relevant legislation must be at the same point. This condition is not required for public institutions. The incumbent supply company purchases the surplus electricity at the price determined for ten years within the scope of supporting renewable energy resources, starting from the date of supply to the grid. In accordance with the relevant legislation, monthly offsetting will be made for the electricity supplied to the grid. The price corresponding to the surplus energy will be paid to the producers. The facilities that will generate electricity without a license must apply to the grid operator with the specified documents.

It is legally possible for more than one consumer to come together and establish a single generation facility. Therefore, consumers located in the same place will be able to establish a joint generation facility. Pursuant to the relevant legislation, expropriation cannot be made for unlicensed electricity generation.

As stated in Article 7 of the Law No. 5346 on the Utilization of Renewable Energy Resources for Electricity Generation, no service fee will be charged for the projects prepared by DSİ (General Directorate of State Hydraulic Works) or EİGM (General Directorate of Energy Affairs) for those who operate isolated electricity generation facilities or grid-supported electricity generation facilities only to meet their own needs, whether real or legal persons.

Another incentive for those who will realize such electricity generation is in terms of income tax. As stated in Article 9/9 of the Income Tax Law No. 193, income tax exemption will be applied in the event that the surplus of the electrical energy produced in only one production facility installed up to 50 KW on the roof or facades of the houses they own or rent is sold to the end source supplier.

Incentives for Licensed Renewable Energy Facilities

Generation activities in the electricity market require a license, except for specified exceptions. Article 4 of the Electricity Market Law No. 6446 lists generation activities in the electricity market among the activities to be carried out by obtaining a license. Within the framework of the relevant Law, all legal regulations and inspections such as the evaluation of the license application, necessary permits, cancellation, extension, renewal, suspension, and determination of license fees are carried out by EMRA.

According to Article 43 of the Electricity Market License Regulation, for generation facilities based on domestic natural resources and renewable energy resources, no annual license fee will be charged for the first eight years from the first date of partial or full acceptance of the generation facility. The places designated as renewable energy resource production areas are expropriated by the relevant institution. The expropriation here is an expropriation for the license obtained.

The Ministry of Environment and Forestry or the Ministry of Finance shall grant permits, leases, easement rights or usage permits for a fee for the immovable properties that are forests or under the private ownership of the Treasury or under the provisions and savings of the State, which will be used for facilities, transportation roads and energy transmission lines up to the connection point to the grid in order to generate electricity from renewable energy sources within the scope of Law No. 5346.

Eighty-five percent discount will be applied on the usage fees of the transmission lines of TEİAŞ and distribution companies to be used until the transportation process of the electricity generated from these sources to the connection point determined in the licenses, and on the permit, lease, easement right and use permit fees to be paid in the first 10-year period starting from the license date.

One of the important incentives for renewable energy sources is the YEK (Renewable Energy Resources) Support Mechanism. Through this mechanism, producers with generation licenses are supported with certain additional fees. As regulated in Article 6 of Law No. 5346, the prices determined on the Schedule I attached to this Law for licensed producers that enter into operation until 31.12.2020; for the facilities that will start production after 31.12.2020, the prices to be determined by the President, not exceeding the figures in the attached Schedule I, will be paid for 10 years.

Law No. 5346 provides another incentive for domestic products. Article 6/B of the said Law stipulates a price support for the use of domestic products. Before 30.06.2021, if the mechanical and/or electro-mechanical components used in the generation facilities put into operation are domestically manufactured, the prices specified in the Table No. II annexed to this Law shall be added to the prices specified in the Table No. I annexed to the Law for the electrical energy produced in these facilities and supplied to the transmission or distribution system, for a period of 5 years from the date the facility is put into operation. After 30.06.2021, support will be provided at the prices determined by the President for the facilities that start operation.

Renewable Energy Resource Areas (YEKA)

Article 4 of the "Regulation on Renewable Energy Resource Areas", which regulates the incentive model for renewable energy resource areas, defines YEKA as "the area(s) where at least one of the renewable energy resources that can be developed in public and treasury immovables and immovables subject to private ownership is located in high density". In this context, large energy-intensive areas are the subject of this incentive. Article 1 of the said Regulation states that "the effective and efficient use of renewable energy resources by creating large-scale renewable energy resource areas (YEKA) on public and treasury immovables and privately owned immovables, the rapid realization of investments through the allocation of these areas to investors, and ensuring that advanced technology components used in electrical energy generation facilities based on renewable energy resources are produced domestically or procured domestically and contributing to the transfer of technology". Therefore, the purpose of the relevant Regulation can be expressed as ensuring large-scale investments by allocating state lands and developing domestic equipment production with these investments.

In the implementation of the YEKA model, high potential areas must first be identified. As a result of the determinations made, licensing, energy facility establishment, domestic equipment production, and then energy production and sales processes will be carried out respectively with the participant who wins the tender to be opened.

In the YEKA model, areas with intensive energy potential are identified in two different ways. The first one is determined as a result of the activities to be carried out by the General Directorate of Renewable Energy (YEGM); the second one is determined as a result of the connection capacity allocation method for YEKA purposes and the studies to be carried out afterwards. In the study to be carried out by the General Directorate (YEGM), an evaluation is made within the scope of scientific data in order to determine the energy potentials on state and private lands for preliminary evaluation. TEİAŞ is then asked for grid connection on these lands. As a result of the positive opinion, the candidate area is announced as YEKA on the website of the said General Directorate. Afterwards, the studies are elaborated and the suitability for the installation of energy facilities is examined, the energy capacity is clarified, the zoning status is reviewed and finally, after the decision on suitability for investment is made, it is announced in the Official Gazette as YEKA and recorded in the zoning plans.

In the other method of determining the resource area, the method of connection capacity allocation for YEKA purposes, the Ministry first organizes a competition for connection capacity allocation for YEKA purposes. In this competition, the parties applying for the tender submit their bids for the entire connection capacity within the framework of the specifications. The relevant specifications include the documents requested, the criteria to be complied with, and the conditions to be met. Here, the purpose of holding a tender without announcing the areas and determining the YEKA at the next stage is to speed up the process. In the bid to be made in the tender, the participant will make an offer, provided that it does not exceed the ceiling price for the purchase of electrical energy per kilowatt hour. The legal entity that wins the competition and signs the YEKA Right of Use contract in this way is working to examine the power plant sites proposed to it. The power plant sites that cannot be identified or used due to force majeure or reasons arising from the public and deemed appropriate by the relevant General Directorate may be changed, provided that the connection region remains the same. It is essential that at least seventy percent of the capacity allocated under the YEKA Right of Use Agreement is utilized as YEKA. All costs for making YEKA ready for investment and for other necessary works and transactions shall be borne by the party winning the tender.

The process for granting the right to use YEKA is set out in the third chapter of the relevant Regulation. First of all, the technical and administrative specifications of the YEKA and information such as connection capacity, application conditions, principles regarding the letter of guarantee, electricity energy purchase ceiling price and purchase period are published on the website of the relevant General Directorate and the Official Gazette. Subsequently, applications are received in accordance with the specifications. Participants who meet the criteria determined within the framework of the Regulation and the specifications are eligible to participate in the competition and make offers. The bids to be made shall not exceed the sum of the prices calculated according to the Schedules I and II annexed to the Law No. 5346, and the ceiling price and purchase period for each competition separately for each competition shall be made according to the auction method over the figure determined in the specifications. As a result of the competition, the lowest bidder is invited to sign the YEKA Right of Use Agreement. At this stage, the legal entity that signs the contract will complete the pre-license and license application processes with EMRA. After the completed processes, the right holder cannot make any price increase during the execution of the contract after entering the sales phase. The contract period cannot be extended except for force majeure. The period specified in the specifications starts with the signing of the right of use agreement. The price in the YEKA Right of Use Agreement is evaluated within the scope of the Renewable Energy Resources Support Mechanism (YEKDEM). At the end of the YEKA Right of Use Agreement, the market activity will continue within the scope of the generation license. Since the price offers in the YEKA model implementation will be evaluated over the figures in Schedules I and II annexed to the Law No. 5346, no additional domestic product support will be provided for the production of domestic equipment to be used in energy generation facilities.

Article 15 of the relevant Regulation states that following the YEKA Right of Use Agreement, the right holder will also carry out R&D activities within the scope of the Law No. 5746 on Supporting Research, Development and Design Activities. The implementation and supervision of R&D activities are carried out by the institutions/organizations assigned under Law No. 5746. The relevant institutions/organizations submit the implementation and audit results of R&D activities to the Ministry (Ministry of Energy and Natural Resources) once a year. There are two reasons for the implementation of the YEKA model. One of them is to establish large projects on high-potential energy areas and commission more energy production facilities in a short period of time; the other is to produce the needed materials and export technology in the next stage by switching to domestic equipment production.

Support for General Investments

Incentives provided for general investments in Turkey can be listed as follows:

✓ Within the scope of investment incentive certificate;
✓ Provision of value added tax (VAT) exemption for the purchase of the relevant investment equipment in Turkey or abroad,
✓ Providing customs duty exemption for the import of relevant investment equipment,
✓ Application of corporate tax at a reduced rate until the investment contribution amount is reached as per Article 32/A of the Corporate Tax Law No. 5520,
✓ Coverage by the Treasury of the employer's share of the insurance premium corresponding to the minimum wage to be paid by employers for employment within certain conditions in the relevant investment,
✓ Coverage by the Ministry of a certain portion of the interest or profit share to be paid for investment loans used for the relevant investment under certain conditions,
✓ For investments to be realized in Region VI, the Ministry will cover the portion of the employer's share of the insurance premium corresponding to the minimum wage on behalf of the employer for ten years following the completion of the completion visa,
✓ For investments to be realized in Region VI, the income tax withholding tax determined for the additional employment provided by the investment under certain conditions,
✓ Providing exemption from stamp tax on papers issued between investors and the producers and suppliers of these goods in relation to the relevant investment goods, on papers issued exclusively for the lease and purchase of intangible rights for the investment within the scope of the certificate during the investment period, on contracts, commitment letters, guarantees and papers of this nature issued for the production and construction of fixed asset investments within the scope of the certificate, and on papers issued for consultancy and technical consultancy services for such investments.

In addition, within the scope of the provisional article 4/1-b of the Law No. 6446, during the investment period of the electricity generation facilities that will enter into operation for the first time until 31.12.2020, the transactions made regarding the generation facilities are exempt from fees and the papers issued are exempt from stamp tax.

Source:
Law No. 5346 on the Utilization of Renewable Energy Resources for Electricity Generation
Electricity Market Law No. 6446
Law No. 5746 on Supporting Research, Development and Design Activities
Corporate Tax Law No. 5520
Income Tax Law No. 193
Stamp Tax Law No. 488
Decision No. 2012/3305 on State Aids in Investments
Electricity Market License Regulation
Regulation on Renewable Energy Resource Areas
Renewable Energy Law and Incentives, Ömer CAN, April 2020

Incentives Provided for Renewable Energy in Turkey