Legal Briefing - Limitation Introduced on the Sale of Electricity Exceeding the Consumption in Unlicensed Electricity Generation
The Regulation amending the Regulation on Unlicenced Electricity Generation in the Electricity Market (the ''Amendment Regulation'') and the decision of the Energy Market Regulatory Authority (''EMRA'') dated 4 August 2022 and numbered 11098 have entered into force with their publication in the Official Gazette dated 11 August 2022 and numbered 31920.
The Regulation on Unlicenced Electricity Generation in the Electricity Market (the “Regulation”) (i) enables consumers to meet their own electricity consumption requirements; (ii) ensures supply security; (iii) adds small-scale generation facilities to the energy sector; (iv) ensures the efficient use of small-scale generation resources; (v) decreases loss in the electricity network; and (vi) allows consumers to generate electricity without obtaining a licence.
The Amendment Regulation has introduced significant changes. For instance, the requirement for such facility to be “closest to the consumption point’’ has been removed. Further, a limitation was introduced on the sale of electricity exceeding the total amount of electricity consumption of the relevant facility. This limitation however will adversely affect investments in unlicenced electricity generation and force potential investors planning to operate in this field to change their investment plans.
EMRA further published an announcement on 31 August 2022 (the “Announcement”) to provide further clarification on the said amendments.
Pursuant to Article 14(3) of the Unlicensed Activities in the Electricity Market Law (the “Law”), if there is excess electricity generated by unlicensed facilities using renewable energy sources, such excess can be sold to the system at the relevant feed-in tariff determined by law. Previously, there was no limitation vis-à-vis the excess amount.
Amendments that will Jeopardise Investments
The Amendment Regulation now imposes a limitation by adding 16 additional paragraphs to Article 26 of the Implementation of Monthly Netting Regulation. Accordingly, it is now stipulated that the excess to be sold cannot exceed the consumption amount of the facility. The most remarkable point in this context is that this amendment takes effect retrospectively and any application for connecting to the grid after 12 May 2019 will henceforth be adversely affected.
The question is as to what happens to that part of the excess amount which can no longer be sold to the system. Unfortunately, it is foreseen that any such disregarded excess amount shall be provided as so-called “free contribution” to the Renewable Energy Resources Support (the “RES”) Mechanism.
Only those consumption facilities that are classified as residential with an installed power of 50 kW and below are excluded from this new limitation.
The principles of calculating the consumption amount to be used are set out in the decision of EMRA dated 4 August 2022 and numbered 11098 as follows:
- The consumption amount and the excess amount of the previous calendar year are netted and any remainder shall be subject to the limitation;
- If there was no consumption in the previous calendar year, then the consumption amount shall be calculated by reference to the average of the current monthly consumption;
- If the consumption amount in the current calendar year exceeds the consumption amount determined by the aforementioned methods, the sale of excess electricity shall be calculated according to the data of the current year.
The example given by EMRA on its website is as follows:
“For example, a person who consumed 1 million kWh of electricity in the previous year will be able to sell only a maximum of 1 million kWh of electricity in the current year, following the monthly netting. Payments for the sale of excess electricity will be made as of the first month of the year, and a generation exceeding 1 million kWh shall be passed as a ‘free contribution’ to the RES mechanism.”
The Announcement further clarified that these calculation principles will be effective as of the date of their publication – i.e. after 11 August 2022.
Evaluation of the Amendment Regulation
It is envisaged that the provisions of the Amendment Regulation will cause a loss of rights on the part of the generators operating in the unlicensed electricity generation market.
The designation of the remainder after netting the consumption amount and the excess amount as so-called “free contribution” basically means that no payment will be made by the market operator or the authorised supply company with regards to electricity generated by the unlicensed generator that exceeds the total amount of electricity consumption of the consumption facility. This will adversely affect the return on investment of investors since investors will no longer be able to earn the income they envisaged when investing in this market. Repayment of any financing obtained by investors will be negatively impacted. Any guarantees or other security that investors have provided will be jeopardised. For example, considering the reliance of investors operating in the electricity market on the status quo prior to the Amendment Regulation, investors will face difficulties in meeting debt service since they will no longer generate the same revenue as they had prior to the Amendment Regulation. In this respect, although the right to sell the excess of electricity that exceeds the total amount of electricity consumption of the consumption facility had been granted to unlicensed generators pursuant to the Regulation, this right has now been abolished by the Amendment Regulation retrospectively.
The Amendment Regulation has created an extremely controversial situation in terms of its legal and financial consequences. To protect the rights of established investors, the first step is to make the relevant administrative applications to the Ministry of Energy and EMRA and the second step to protect the rights of established investors is to then apply to the Council of State for the annulment of the Amendment Regulation. In the past we have achieved favourable results for unlicensed investors in this regard and would hope that the mere retrospective nature of the Amendment Regulation in itself will yield the same result for affected investors in the upcoming weeks. This is a serious deprivation of rights on the part of investors who were entitled to receive an invitation letter for connecting to the grid upon applications made after 12 May 2019 and hence the necessary steps need to be taken urgently to make this situation right, and to protect the rights and interests of investors. If this is not possible, an application should be made to the administrative courts to resolve the issue from a financial loss perspective.
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 Published in the Official Gazette dated 12 May 2019 and numbered 30772.
 Published in the Official Gazette dated 30 March 2013 and numbered 28603.
 Published in the Official Gazette dated 11 August 2022 and numbered 31920.