Recent Regulations on Unlicensed Electric Power Generation and Novelties in Renewable Energy Sector

Introduction

In May and June 2019, a number of novelties and developments were introduced for renewable energy sector. Consecutive changes by Energy Market Regulatory Authority (the “Regulatory Authority”) have modified the electric power generation investment projects of the consumers and investors who intend to engage in unlicensed electric power generation.

Exemption Upper Limit and Support Mechanism

The first change modifying the structure of electric power generation based on renewable energy resources was introduced in the Presidential Decree numbered 1044, dated May 10th, 2019.  Pursuant to the Presidential Decree numbered 1044, published in the Official Gazette numbered 30770 and dated May 10th, 2019, the Article 1 of the Decree of the Council of Ministers[1] dated November 18th, 2013 was amended as follows: (i) purchasing guarantee is granted for the surplus electric power produced by the residential, commercial and illumination subscribers under certain conditions by the retail price of monochronic active energy of its own subscriber groups for a period of 10 years, as of the operation date of the power production plants subject to YEKDEM (Renewable Energy Resources Support Mechanism) and (ii) the upper limit of the installed power of the production plants, which are based on renewable energy resources and exempt from obtaining a license and/or incorporating a company, has been increased from 1 MW to 5 MW.

Recent Regulations on Unlicensed Electric Power Generation

Following this development, the long-awaited recent “Regulation on Unlicensed Electric Power Generation in Electricity Market” (the “Regulation”) was published in the Official Gazette numbered 30772, dated May 12th, 2019 and entered into force. The Regulation combined the previous regulation and the communique on the implementation of these regulations and annulled these former regulations thereof.

Although one of the most significant developments introduced by the Regulation is the monthly settlement concept, the Regulation also include some other developments crucial for the sector. The Regulatory Authority introduced certain regulations -restrictions- to ensure that the unlicensed electric power generation based on renewable energy resources is to be made for the sole purpose of meeting the consumer’s own consumption needs, save for certain exceptions.

So, what does settlement mean? Settlement is defined in the Regulation as “the determination of net production or net consumption in kWh by deduction of production from consumption or vice versa, whichever is higher, within a specific period of time[2].

As a result of such settlement, provided that it is within the same month, a production plant shall deduct the surplus electric power supplied by the production plant to the network from the electric power consumed within the same month and based on whether the production or consumption is higher, the production plant shall either (i) receive payment for the surplus electric power supplied to the network as a result of such settlement by issuing an invoice to the assigned supplier company or (ii) the assigned supplier company shall issue an invoice to the production plant for surplus electric power consumption determined as a result of such settlement thereof[3].

Article 26 of the aforesaid Regulation stipulates in detail that the calculations in monthly settlement practice shall be determined based on the operations to be carried out by the operator of the relevant network on the 6th day of each month and it was stipulated in the same provision that the electric power[4] to be supplied to the network as a result of such settlement shall be purchased by the assigned supplier company for a period of 10 years.

Some fundamental developments and/or novelties introduced by the aforesaid Regulation can be listed as follows:

  • It was stipulated that the installed power of power production plants based on renewable energy resources (Article 5.1 (c)) shall not be more than the contract capacity stipulated in the electric connection agreement of the consumption plant to be associated with the relevant production plant. This rate was determined to be 30 times more than the contract capacity in the annulled regulations.
  • As per the Regulation, the generation plants based on solar energy may only be installed as roof-top and façade applications. Such restriction shall not be applicable for the production plants subject to Article 5.1 (ç) and those to be established for consumption needs of public institutions and organizations as per the Presidential Decree.
  • The settlement shall be carried out on a monthly basis rather than on an hourly basis for the generation plants, which are based on renewable energy resources, eligible for receiving call letter to the electric connection agreement as a result of applications to be submitted as of the effective date of the Regulation and of which production and consumption are connected to the same measurement point.
  • One of the concepts requested by the sector was allowing for the sales of the surplus electric power to another consumer by bilateral agreements. However, the Regulation explicitly prohibits merchandizing of such electric power to be generated within the scope of the Regulations. Any surplus electric power shall be purchased by the appointed supplier company to be handled within YEKDEM.
  • The electric power which began to be supplied to the network prior to the effective date of the Regulations and the electric power supplied to the network after the effective date of the Regulations shall be evaluated differently. Regarding the determination of the surplus electric power as per Article 5.1/c prior to the effective date of the Regulations, the data on production-consumption shall continue to be settled on an hourly basis and the buying rate of exchange of the TCMB (Central Bank of the Republic of Turkey) on the date of production shall be applicable to calculate the payment for the daily surplus electric power amount.
  • System use contract must be signed within 1 month as of the date of provisional acceptance in order for the production plant to supply electric power to the electric network and the date of system use contract is the date on which the electric power is supplied to the system and the purchasing guarantee period of 10 years of the appointed supplier company begins as of the date of this contract.
  • The applications for electric power generation as per the Regulation shall not be evaluated based on the capacities to be announced by Turkish Electricity Transmission Company (“TEİAŞ”) and TEİAŞ shall only provide its opinion on fault current limit to be concluded within a definitive period of 15 days for the evaluation of the applications for unlicensed electric power production plants as of the effective date of the Regulations.
  • The documents required to be submitted during application by the investors and/or production plant operators who intend to engage in electric power generation were concluded to be determined by the resolution of the Board and this resolution was published in the Official Gazette numbered 30780 and dated May 21st, 2019.
  • Document evaluation and technical evaluation for the application for electric power generation are explicitly sorted out and the procedures to be carried out during each step were defined in detail as per the Regulation. The application period within the scope of the recent Regulation is estimated to be approximately up to four months.
  • Contrary to the previous regulations, the recent Regulation deem it sufficient to only notify the operator of the electric network in order for the natural and legal persons who act as the owner of the emergency groups and isolated production plants.
  • (i) Commission is required to be within 1 year as of the date of signature of the electric connection contract for all production plants to be connected from Low Voltage level and (ii) commission is required to be within 2 years as of the date of signature for production plants to be connected from Medium Voltage such as solar and wind power production plants.
  • In case the owners of the unlicensed production plants fail to pay system use charges until the due date specified in the relevant invoices, such production plants shall be disconnected from the electric network by the operator of the relevant electric network, without necessity for any notification, until the conditions of the said production plants become satisfactory again and the reason for disconnection shall be notified in writing to the owner of the production plant within 3 (three) business days. In addition, general debt follow-up procedures shall be applicable to such kinds of debts.
  • All agreements and contracts signed regarding the consumption of the production plants for which subscription was established for the internal consumption amounts arising due to operation of any kinds of structures and equipment located in the premises of the production facility prior to the effective date of the recent regulations are required to be terminated within 6 months as of the effective date of this article. Unless the production plants whose agreements and contracts signed regarding the internal consumption terminate such agreements and contracts within 6 months, they shall be disconnected from the electric network by the operator of the relevant electric network without notification thereof.
  • Law on Renewable Energy Resources, appendix, Table I was amended by the Presidential Decree numbered 1044 and it was decreed that the surplus electric power produced within the scope of the Regulations shall be purchased by the appointed supplier company by the retail price of monochronic active energy of its own subscriber groups for a period of 10 years as of the operation date of the power production plants. However, the Decree also states the following: “The production plants eligible for receiving a letter of invitation to electric connection contract as of the effective date of this article (different article)….”. Therefore, the previous prices contained in Law on Renewable Energy Resources, appendix, Table I shall be applicable in case the production plants eligible for receiving a letter of invitation within the scope of the repealed regulations are commissioned until 2020.
  • Regarding the production plants commissioned following completion of the provisional acceptance, in case there is no electric power consumption in the consumption facility or facilities associated with a production plant, the electric power produced during the relevant month is deemed to have been produced by the appointed supplier company and supplied to the system and no payment for such electric power shall be made by the market operator and/or the appointed supplier company and the electric power supplied to the system within this scope shall be considered as a contribution to YEKDEM free of charge.

Decree of the Council of Ministers on Distribution Fees

The Regulatory Authority determined the distribution tariffs to be applicable for the electric power supplied to the network or received from the network by the distribution companies as a result of settlement as per the Decree of the Council of the Ministers numbered 8666, published in the Official Gazette numbered 30813, dated June 26th, 2019.

The aforesaid Decree determined the distribution tariffs only for the production plants subject to Article 5 (c) of the Regulations and for the electric power generated in these production plants and for consumption plants associated with these production plants, the following discounts shall be applicable:

  • 50% discount in consumer distribution tariff exclusive to the subscriber group of the consumption plant for the production amount providing for the need of the consumption plant regarding the electric power consumed; and
  • without discount (distribution fee subject to invoice amount) for consumer distribution tariff for the relevant subscriber group for the surplus production amount out of the consumption amount thereof;
  • 100% discount shall be applicable to the distribution fee in the direction from the supply for a period of 10 years as of the commencement date of the production plant provided that the consumption is equal to the production or the consumption is more or less than the production

e.g. If Consumption >=< Production, then the distribution fee in the direction from the supply shall be 0; and

If Consumption > Production, then 50% discount shall be applicable to the distribution fee for the portion of the production amount in the direction of the receiver and 100% of the distribution fee shall be applicable for the remaining consumption.

Evaluation

The aforesaid Regulation combined the previous regulations and the relevant communique under single text to provide for a more clarified and simpler context by inclusion of bureaucratic procedure documents such as application documents to be determined in a separate decree.

The Regulatory Authority provided a framework to support self-consumption as well as preventing unlicensed electric power production to be used for commercial purposes.

It is evident that providing a legal infrastructure for energy sales agreements (especially Corporate PPA) applicable around the world would be an opportunity for production plant operators and investors alike, thus leading to a long-term revival in the energy sector.

The aforesaid Regulation introduced the long-awaited settlement concept in the form of a monthly settlement for the sector, however, the prevailing view is that the yearly settlement instead of monthly settlement would offer inactive roofs used in certain months of the year for the use of the energy market. In particular, seasonal enterprises such as agricultural and tourism businesses would not be affected from differences in seasonal production and consumption within a year if yearly settlement would be accepted.

Finally, taking into account the recent distribution tariffs to be applicable as a result of such settlement in particular, we recommend the operators and investors who intend to install Solar Energy System on their roofs to carry out feasibility studies with qualified companies.

 

Özlem Ege Polat

Attorney at Law

For detailed info: info@ege-law.com

About EGE

EGE Attorneys at Law provides comprehensive, efficient, expeditious, and solution oriented legal services to local and multinational clients in various sectors. We provide all our clients partner level legal support.

Our team renders legal services in diverse legal fields such as general corporate law, mergers and acquisitions, energy and natural resources law, dispute resolution, litigation, capital markets law, restructuring and administrative law.

Our team members are fluent in English and German. Some of our team members have obtained legal degrees and have working experience in other jurisdictions. With this background, our firm provides local services with international standards.

 

[1] Decree of the Council of Ministers on the prices and time periods applicable for plants engaged in electric power generation activities based on renewable energy resources.

[2] Regulations, Article 4: Definitions and Abbreviations.

[3] If production > consumption, then the surplus electric power shall be purchased by the assigned supplier company. If production < consumption, then the assigned supplier company shall issue an electricity invoice by the surplus amount.

[4] The electric power generated and supplied to the network in production plants subject to Article 5 (c) and those subject to Article 5 (ç) is evaluated differently. Whereas the surplus electric power generated in production plants established within the scope of Article 5 (c) and supplied to the network is purchased by the assigned supplier company for a period of 10 years, the surplus electric power generated in production plants established within the scope of Article 5 (ç) and supplied to the network is evaluated within the scope of YEKDEM (Renewable Energy Resources Support Mechanism) but it is deemed as free contribution.

AUTOMATIC TERMINATION CLAUSES UNDER TURKISH LAW

AUTOMATIC TERMINATION CLAUSES UNDER TURKISH LAW

With the increase of electricity trading volume in Turkey, market players tend to use standardized trading contracts which are widely used in Continental Europe[1]. Along with such agreements, new risk management systems are introduced into Turkish legal market.

These kinds of contracts include, risk management provisions regulating bankruptcy case of one of the contract parties. Accordingly, in the event a bankruptcy procedure is initiated against one of the contract parties, the contract shall be terminated automatically without need of a notification[2].

The validity of these automatic termination provisions are not analysed in accordance with Turkish law. This paper aims to examine validity of such provisions from a general perspective.

Freedom of Contract

In accordance with Article 26 of Turkish Code of Obligation, the parties of a contract are free to determine to conclude a contract and to determine the content of the contract. In other words parties of contract are free to structure their contracts provided that the mandatory ordre public rules are regarded, the contract does not violate any personal rights or the subject of the contract is not impossible. The law defines contracts, which do not regard these limits, as null and void.

Under the light of the foregoing, contracts structured in accordance with free will of the parties and which do not breach limitations determined under Article 26 of Turkish Code of Obligations are valid contracts. This should also mean provisions regarding automatic termination in case of bankruptcy should also be valid contract provisions.

However, in case of bankruptcy, disposal rights of the bankrupt entity on all of its assets will be transferred to the bankruptcy estate. Therefore whether automatic termination provisions are valid or not must be analysed in accordance with the Turkish Enforcement and Bankruptcy Law.

Since electricity trading agreements can be categorized as sale agreements, Article 98 of Turkish Code of Obligations will also be applicable. Article 98 sets forth that under synalagmatic contracts if one of the contract parties are not able to fulfil its obligations under the contract, especially if it is bankrupt, other party is entitled to request guarantee for the fulfilment of the obligations. Otherwise this party can abstain from fulfilling its obligations. This will be analysed below.

Effects of Bankruptcy on Contacts

Some contracts listed under diverse legal regulations are terminated automatically with the bankruptcy of one of the contract parties. Ordinary partnership agreements and running account agreements are examples of such agreements.

In principle, bankruptcy does not have an effect on sale agreements. In other words, sale agreements (i.e. electricity trading agreements) do not terminate automatically if one of the parties goes bankrupt. However, depending on the fulfilment of obligations of the parties, there will be different outcomes. The subject has to be analysed under various presumptions.

Under specific circumstances, the non-bankrupt party is entitled to request the fulfilment of the contract. For example, in the event of bankruptcy if the price under a sale contract has been paid but the contract subject is not delivered, the buyer can request the price from the bankruptcy estate as bankruptcy receivable. However, if the bankruptcy administration is of the opinion that the contract is in favour of the bankruptcy estate the administration is entitled to opt to fulfil the contract.

If under a sale agreement none of the parties fulfilled their obligations, the buyer can request warranty shows that the seller can perform its obligations under the contract in accordance with Article 98 of Turkish Code of Obligations. If not, the buyer can refrain from paying the price. In this case if the bankruptcy administration does not provide guarantee, the non-bankrupt party can renege on the contract. If the bankruptcy submits a guarantee, the parties shall fulfil their obligations under the contract.

Furthermore Article 198 of the Enforcement and Bankruptcy Law entitles the bankruptcy administration to specific performance. If the bankruptcy administration determines the contract as in favour of the estate, it is entitled to perform the contract[3].

Thus, under Turkish law bankruptcy administration has a cherry picking right over the contracts, if it is of the opinion that the contract in question is in favour of the bankruptcy estate.

Cherry Picking Right of the Bankruptcy Administration

As summarized above, under Turkish law the bankruptcy administration has cherry picking right with regards to the contracts that the bankrupt entity is a party of[4]. Under these circumstances, it can be argued that automatic termination clauses in sale agreements are circumventing the cherry picking right of the bankruptcy administration.

In fact, the German Federal Court Decision mentioned below ruled the same.

German Federal Court Decision

On 15 November 2012 the German Federal Court analysed in its decision numbered IX ZR 169/11[5] whether automatic termination clauses in the event of a bankruptcy in sale contracts are valid or not. The contract subject to the decision is regarding delivery of energy.

With its decision the Court ruled that such automatic termination clauses abrogate the cherry picking right of the bankruptcy administration regulated under Article 103 of German Insolvency Law (Insolvenzordnung) and are therefore invalid[6].

In accordance with German Insolvency Law Article 119, agreements violating Articles 103 – 108 of the Law are null and void. Thus agreements, abrogating/limiting the application of Article 103 are null and void in accordance with Article 119.

 

Conclusion

As mentioned several times above, the bank administration has cherry picking right in accordance with Article 198 of Enforcement and Bankruptcy Law. Depending on the status of the obligations of the parties, contract party which shall fulfil its obligation is entitled to request warranty from the bankruptcy administration. Other than this, the parties shall fulfil its obligations. Thus under Turkish law, sale contracts are not terminated automatically in the event of a bankruptcy.

Whether such automatic termination clauses are valid under Turkish law are not tested before Turkish courts. Taking the similarities between Turkish and German insolvency rules we are of the opinion that Turkish courts may rule in the same direction regarding validity of these contract provisions.

For detailed information ozlem.ege@ege-law.com or info@ege-law.com

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[1] European Federation of Energy Traders (“EFET”) General Agreement Concerning the Acceptance and Delivery of Electricity

[2] EFET General Agreement Clause 10.

[3] Baki Kuru, İcra ve İflas Hukuku p. 1245

[4] Article 198 of Turkish Enforcement and Insolvency Law

[5] BGH, 15.11.2012, IX ZR 169/11 – OLG Celle LG Hannover

[6] Michael Cieslarczyk and Dr. Stefan Schröder Das Aus für Insolvenzabhaengige Lösungsklauseln.

EXPULSION OF SHAREHOLDERS UNDER TURKISH COMMERCIAL CODE NO. 6102

EXPULSION OF SHAREHOLDERS UNDER TURKISH COMMERCIAL CODE NO. 6102

Introduction

Under Turkish Commercial Code (“TCC”) the liability of shareholders of a joint stock company is limited with the payment of the contributed share capital (“single dept principle – tek borç ilkesi”). According to this principle, Save for exceptions stipulated under the TCC, no obligation shall be conferred upon the shareholders by the articles of association, other than the premium exceeding the share price or nominal value of the shares. (TCC 480). The payment obligation of the shareholder is to the company (TCC 329).

A shareholder, who does not pay the contributed share capital in due time will be in default without needing to serve a notification to that end (TCC 482).

In the event that a shareholder is in default in paying its share capital the company is entitled to initiate (i) enforcement proceedings for the payment, or (ii) expulsion procedures against the defaulting shareholder.

This brief note will only analyse expulsion of shareholders in general terms.

Requesting the Outstanding Share Capital

Who is entitled to request the payment?

In the event a shareholder of a joint stock company is in default for paying its share capital, the board of directors of the company is entitled to deprive this shareholder of its rights arising out of its partial payment and expel the shareholder from the company (TCC 482). The board of directors’ decisions regarding expulsion of a shareholder are subject to TCC 390 with regards to quorum.

How to request the payment?

In order to request the payment, the board of directors must issue a notification, addressed to the defaulting shareholder, for the payment. This notification has to be published in Trade Registry Gazette in accordance with Article 35 of TCC.

The content of the notification is also determined under TCC. Accordingly, the board of directors must notify the defaulting shareholder that the payment must be made within a month and inform the consequences of the non-payment.

Consequences of non-payment of the share capital despite notification?

If the defaulting shareholder insist on not paying the share capital within the notified one month, the board of directors deprives of the shareholder’s right arising out of its partial payment and the defaulting shareholder can be expelled from the company in accordance with the decision of board of directors (TCC 390).

The board of directors should find a potential acquirer for transferring the shares of the defaulting shareholder. The shares of the defaulting shareholder will not be transferred to any other shareholder or the company automatically.

Legal Consequences of Expulsion

Upon expulsion the defaulting shareholder will lose its shareholder title for the shares for which he is in default. The board of directors cannot deprive of the shareholders rights for the shares which the shareholder has already paid its contribution amount. The shareholder title of the defaulting shareholder continues for these shares.

Statute of Limitation for Due Share Capital Payments

The Court of Appeal has different decisions regarding statute of limitation on payment of share capital. However in its latest decision the Court ruled that share capital contribution shall not be subject to any statute of limitation unless the company still exists. On the other hand, the interests and secondary payments arising out of the non-payment of the contributed share capital are subject to general statute of limitation terms.

For detailed information ozlem.ege@ege-law.com or info@ege-law.com

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LIQUIDATION OF A FOREIGN BRANCH OFFICE UNDER TURKISH LAW

Introduction

Instead of establishing a Turkish company, foreign corporate entities prefer to establish a Turkish branch office in order to operate in Turkey. As Turkish companies these branch offices can also be liquidated.

Liquidation of branch offices is subject to provisions valid for liquidation of joint stock companies. Accordingly there are different corporate actions to be taken in order to validly liquidate a branch office.

  1. Commencement of liquidation

In order to commence with the liquidation procedures, a decision has to be taken by the authorised corporate body of main company. The authorised corporate body is to be determined in accordance with the local laws. In other words, if the main company is a German company and pursuant to German law, the authorised corporate body to decide on liquidations is the board of directors, the board of directors must take necessary resolution for the liquidation of Turkish branch office.

The decision basically has to include the followings:

– Reason of the liquidation:

Even stating that the operation of the branch office is not commercially feasible, is a valid liquidation ground.

– Release of the branch office director:

According to Article 553 of Turkish Commercial Code, the founders, board of directors members, managers and liquidators have legal responsibilities for their activities during their offices. The decision takers can face a wide range of sanctions from administrative fines to imprisonment. In order to ensure the impunity of these decision takers, it is crucial to release such from their acts. A corporate decision serves to this result.

The release of the branch office director shall therefore be mentioned within the liquidation decision.

– Appointment of a liquidator:

The decision must include the appointment of a liquidator who will be responsible for the next steps of the liquidation.

The liquidator can be the former director or a third party, however, Turkish Commercial Code Article 536 requires that one of the liquidators to be Turkish citizen and resident in Turkey.

  1. Interim Period Procedures

The liquidation decision must be registered with the trade registry and announced in the trade registry gazette. Once the liquidation decision is registered and announced, the liquidator shall issue a notification to the creditors of the branch office, if any. This notification shall be published at least three times in the trade registry gazette. The publication is made automatically by the trade registry, subsequently each week.

In the event there are company creditors, paying these debts even before the commencement of the liquidation process would shorten the liquidation process.

iii. Closing of the branch Office

After all notifications are completed the liquidator has to prepare a closing balance sheet.

The closing balance sheet has to be approved by the authorised corporate body of the main company which then has to be registered with the trade registry.

Once the balance sheet is registered with the trade registry, the liquidator has to take another decision regarding the completion of the liquidation process. This decision has also be registered. The registered decision will be submitted to the tax offices and social security authorities in order to complete the deletion of the branch office from these authorities.

For detailed information ozlem.ege@ege-law.com or info@ege-law.com

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