Public consultation on draft operational procedures and principles of the Turkish green certificate system and market
Public consultation on draft operational procedures and principles of the Turkish green certificate system and market
February 2021 – The Turkish Energy Market Regulatory Authority (“EMRA”) has initiated a public consultation process in relation to the draft operational procedures and principles regarding Turkey’s green certificate system and the introduction of a regulated green certificate market expected to be operational in June 2021— namely the Draft Operational Procedures and Principles of the YEK-G System and Organised YEK-G Market (the “Draft Procedures and Principles”).
Below we provide an overview of the green certificate system and market structure, together with a review of the Draft Procedures and Principles.
The “green certificate” concept was introduced by the Regulation on Renewable Energy Resource Guarantee Certificate in the Energy Market (the “Regulation”), which was enacted on 14 November 2020 and will enter into force on 1 June 2021. The Turkish green certificate, namely the resource guarantee certificate or YEK-G Certificate as defined by the Regulation, (“YEK-G Certificate”) would be a tradeable instrument that will be issued by the market operator upon the request of supply companies and generation license holders and that guarantee and prove to consumers that either the whole amount or a portion of the electricity that they are provided with is generated from renewable energy resources.
The Regulation envisages a system where qualified participants will be able to request for the issuance of YEK-G Certificates (“YEK-G System”), and an organised market where YEK-G Certificates will be traded (“YEK-G Market”), and that both will be operated by the market operator license holder, i.e., the Energy Markets Operation Company known as EPIAS. We summarise below the main elements of the scheme provided by the Regulation.
Participation in the YEK-G System: The Regulation envisages that only supply companies and generation license holders that their generation renewable-energy based facilities are not registered to any other system that enables the generation facility to prove the resource its generates the electricity from through a certificate may participate in the YEK-G System and the YEK-G Market, and it specifically excludes unlicensed generation. Under the Regulation, eligible companies wishing to participate in the YEK-G System are required to sign a system participation agreement—a standard agreement prepared by the market operator and approved by EMRA—and to complete the procedure to be recorded in the market management system as per the Balancing and Settlement Regulation. Generation companies are also obliged to have at least one facility or a unit of a facility, the acceptance procedure for which has been successfully completed and which is recorded as a settlement unit, and required to register such facilities in the YEK-G System each year. The Regulation also states that additional requirements for participation may be regulated under the operation procedures and principles. It further regulates that generation facilities generating electricity from multiple resources may participate in YEK-G System (and YEK-G Market) only if all resources they generating electricity from are renewable energy resources.
Participation in the YEK-G Market: Similar to participation in the YEK-G System, eligible companies wishing to participate in the YEK-G Market are obliged to sign a market participation agreement, which is a standard agreement prepared by the market operator and approved by EMRA. Nevertheless, participation in the YEK-G Market is not required to trade YEK-G Certificates; YEK-G Certificates may be traded through bilateral agreements on OTC markets. The system participants are obliged to notify the market operator of such trades.
Term of YEK-G Certificates: YEK-G Certificates will be issued for each 1 MWh that is “certifiable” and generated by YEK-G System participants. They remain in force for 12 months following the end of the generation term (which is 12:00 a.m. of the last day of the invoicing term within which the generation activities are conducted) or until they are redeemed due to the allocation of the electricity to be consumed, or cancelled or repealed by the market operator.
Issuance, redemption, disclosure, cancellation and repeal of YEK-G Certificates: The issuance, repeal and cancellation of YEK-G Certificates will be made by the market operator through the system. YEK-G Certificates are not only foreseen as tradable documents, they also enable supply companies to prove that they supply green energy to the consumers wishing to consume electricity generated from renewable energy resources. Accordingly, supply companies issue a request for redemption notification for a YEK-G Certificate to the market operator through the YEK-G System, and upon such notification, the market operator issues a redemption notification, which the supply company uses to prove (disclose) to the relevant consumer the source from which the supplied electricity was generated.
Operation of the YEK-G Market: The market operator announces the contracts, and during the sessions where contracts are open to offers, participants wishing to sell YEK-G Certificates issue a sale offer, and those wishing to buy issue purchase offers. After the session has ended, the market operator reviews the offers and matches them, starting from the offer with the best price, and notifies the concerned participants of matching offers, i.e., commercial transaction approval. The Regulation provides the right to object to commercial transaction approval; however, such objections do not suspend the obligations of the market participants concerned, including payment and delivery obligations arising from the transaction in question.
Invoicing, payment and security obligations: Invoicing, payment and security obligations are not detailed in the Regulation. Nevertheless, the Regulation envisages certain principles regarding default in payment and securities.
Accordingly, in case of default a participant’s authority to conduct transactions in the market/system will be suspended; the securities provided by the concerned participant will be liquidated in the amount equal to the debt amount; the market operator will inform EMRA of the default, so as to enable EMRA to impose appropriate sanctions stipulated in the Electricity Market Law (No. 6446); and the participant will pay a default interest. However, in cases where the participant provided cash security in TL and the security provided is more than the minimum security amount required or a current account surplus that is sufficient to cover the participant’s debt, the payment amount will be drawn from such excess, and the participant will not be considered as in default if the whole payment is received as a result. Furthermore, it is provided that a minimum default base and a minimum default interest base will be announced by the market operator, and that any default less than the announced minimum default base will not be subject to sanctions provided for defaults.
Concerning securities, the Regulation provides that securities provided for market activities cannot be: used for another purpose; seized or affected by the liquidation decisions of administrative authorities; included in a bankruptcy estate; or subject to an interim relief decision.
Draft Principles and Procedures
The Draft Principles and Procedures aims to detail the provisions of the matters regulated under the Regulation. It also includes important new provisions on how the YEK-G System and YEK-G Market will operate, including but not limited to the calculation of certifiable electricity amounts, the types of acceptable securities, and the details of sessions, payments and invoicing.
We review below the most significant provisions of the Draft Principles and Procedures.
Fees to be paid to the market operator: The Draft Operation Principles and Procedures details the matters related to fees to be paid to the market operator. Accordingly, the YEK-G System participants are obliged to pay a system operation fee and an annual participation fee, to be determined each year by a decision of EMRA. The annual participation fee will be paid by relevant market actor, in January of each year.
Conditions for participation in the YEK-G System and YEK-G Market: The Draft Operation Principles and Procedures requires the pre-payment of an annual participation fee for a request to participate in the YEK-G System to be accepted, and the completion of security obligations for a request to participate in the YEK-G Market to be accepted, in addition to the requirements stipulated in the Regulation.
Freeze of participation in the YEK-G System: The Regulation solely envisages that generation facilities that have their participation in the YEK-G System frozen cannot participate in the YEK-G System again within the same calendar year.
The Draft Procedures and Principles, on the other hand provides that the cancellation, suspension, or termination of a license; expiration of a license term; termination of a system participation agreement by the market operator; a participant’s default in its payment obligations; or finalisation of a participant’s bankruptcy will lead to the freeze of participation status. If it is determined that a system participant’s generation facility is registered in the same calendar year to other systems that issue a certificate specifying the type of energy resource, the participant’s participation in the YEK-G System can also be frozen. The market operator can also freeze the participation of a generation facility due to the failure to re-register the generation facility.
The system participant may also request its participation to be frozen.
Redemption under green tariff: Consumers wishing to consume green energy may request, upon notification to the authorised supply company in the region where the relevant consumer is located, that the green tariff published by EMRA be applied to their electricity consumption. Authorised supply companies prove that they supply green energy by via a special mark or logo on the relevant consumer’s invoice. As per the Regulation, authorised supply companies are obliged to obtain YEK-G Certificates for this purpose through the YEK-G Market, and as per the Draft Principles and Procedures, make a redemption notification for the concerned YEK-G Certificates within the day following the day when the session is conducted for the relevant invoicing term. Prior to the redemption notification, authorised supply companies are required to notify the market operator through the market management system of their consumers subject to the green tariff.
Calculation and correction of certifiable electricity amount: Certifiable electricity amounts will be calculated by the market operator within three days following the announcement of final settlement notifications, based on the electricity supply amount basis for settlement, which will be determined based on information obtained from meters registered in the market management system. As each YEK-G Certificate can be issued for 1 MWh, certifiable electricity amounts in excess of 1 MWh or its multiples may be combined with the turnovers of the following invoicing terms up to three invoicing terms, and total turnovers reaching to 1MWh may be subject to a request for issuance of a YEK-G Certificate.
In the event an increase or decrease occurs in the certifiable electricity amount because of objections to settlement notifications and corrections made thereafter as per the Balancing and Settlement Regulation, additional YEK-G Certificates may be requested to be issued by market participants (if the certifiable electricity amount is increased) or YEK-G Certificates issued for the same invoicing term (or if not found sufficient to cover the decrease, previously issued YEK-G Certificates) can be cancelled by the market operator. If no previously issued YEK-G Certificate is owned by the relevant market participant, the market operator can grant a certain period during which the relevant market participant will obtain YEK-G Certificates covering the decrease in the certifiable electricity amount. Failure to obtain such certificates will lead to the prohibition of the market participant from operating in the YEK-G Market, except for transactions conducted to obtain the relevant YEK-G Certificates.
Time for issuance of YEK-G Certificates:System participants can request the issuance of YEK-G Certificates upon receiving the market operator’s notification as to the amount of certifiable electricity until the end of the second invoicing term following the announcement of the final settlement notification under the Balancing and Settlement Regulation regarding the relevant invoicing term (which is defined in the Regulation as the term starting from 12:00 a.m. of the first day of a month and ending at 12:00 a.m. of the last day of that month).
Contract opening and market sessions: Each month the market operator open contracts for offers (the conclusion of which will oblige its parties to deliver YEK-G Certificates or to accept the delivery of YEK-G Certificates over the price determined in the system by matching the offers) on the fourth day of the given month following the day when final settlement notifications under the Balancing and Settlement Regulation are announced. The market operator will decide on the energy resources for which a contract will be opened based on its evaluation of market needs.
Offers to a contract opened by the market operator will be submitted during the market session, which will be opened between 10:00 a.m.–15:00 p.m., and contracts will be opened for offers throughout the session. Offers will be standard offers that will only include information on the price and the amount offered. The amount of the offer can be for 1MWh or its multiples. The market operator will be authorised to match an offer partially with multiple offers.
A YEK-G Certificate with less than one month until the end of its validity term cannot be subject to a sale offer.
The commercial transaction approvals issued by the market operator to inform about a match of sale and purchase offers to the relevant offering participants can be objected to by the relevant participants within 20 minutes upon receipt of the commercial transaction approval; failure to object within this term will be deemed as conclusion of a contract.
Details of security obligations: Market participants are obliged to provide securities to secure their payment obligations, and the transactional limit of the relevant participant will be the total amount of provided securities. Securities may be in the form of each or several of the following:
i. cash in TL, EUR or USD;
ii. a definite electronic letter of guarantee, unlimited in time, that is issued by Turkish banks, denominated in TL, EUR or USD; and
iii. a definite electronic letter of guarantee, unlimited in time, that is issued by a foreign bank allowed to operate in Turkey, or another bank that its guarantee is being counter-guaranteed by foreign banks or credit agencies operating abroad, denominated in TL, EUR or USD.
A valuation coefficient that will be determined by the market operator will apply to guarantee letters provided in EUR or USD.
The amount of securities will be calculated by deducting the total of the matched sale offers (calculated by multiplying the amount with the prices of the relevant sale offers) from the total amount of the matched purchase offers (calculated by multiplying the amount with the prices of the relevant purchase offers) and unmatched purchase offers (calculated by multiplying the amount with the prices of unmatched purchase offers).
The market operator blocks the security amount that equals the amount of transactions (deducting sale offers from the matched and unmatched buy offers), and deducts the same amount from the participant’s transaction limit, unblocks the amount that equals the unmatched offers at the session’s end and/or the remaining amount upon payment of the market participant based on an invoice, and increase the participant’s transaction limit accordingly.
The market operator calculates the required security amount after the completion of the transactions to be conducted following the end of the session, and if it determines that the existing securities are insufficient to cover the required security amount, a call to provide the required security amount is made to the market participant. If the existing security amount is higher than the required security amount, the portion exceeding the existing security amount may be returned to the market participant upon its request.
Details of payment obligations, settlement and invoicing: The market operator, based on commercial transaction approvals, will calculate the amounts to be paid from and to the participants and will issue and announce preliminary settlement notifications on the first business day of the month following the invoicing term. Participants are granted a right to object to these preliminary settlement notifications until 5:30 p.m. on the day following the day on which the preliminary settlement notifications are announced, and any participant objections are to be settled within two days.
Final settlement notifications will be announced on the fifth business day of the month following the invoicing term and may be objected to by participants in writing as per Article 133 of the Balancing and Settlement Regulation. Such obligations will be settled within two months by the market operator.
Upon the final settlement announcements, the market operator issues an invoice within seven days covering both YEK-G System and YEK-G Market activities; however, the Draft Principles and Procedures deems the receipt date of the invoice as the day of announcement of the final settlement notifications for YEK-G System participants. The receipt date is important, as the objection to an invoice can be made in writing within eight days following the receipt date of the invoice.
Participants that are to receive payments will also issue invoices for payment with seven days following the final settlement announcements.
The relevant article of the Draft Principles and Procedures regulating objections to invoices and preliminary and final settlement notifications also stipulates that disputes arising from the decisions of the market operator regarding objections will be reviewed by EMRA based on a participant’s application. Nevertheless, as no decision-making procedure or provision regarding the objections to invoices is regulated in the Draft Principles and Procedures, and as objections to invoices are regulated by other laws, decisions falling under this scope should be interpreted as decisions regarding objections to preliminary and final settlement notifications.
The market operator is granted with the right to deduct fees to be paid to the market operator from payments due to participants.
Objections to invoices and preliminary and final settlement notifications do not suspend the payment obligations of participants. Participants are deemed to have failed to pay an invoiced amount within two business days, and the implications of default as specified in the Regulation will apply. The Draft Principles and Procedures, unlike the Regulation, stipulate the order of the amounts and securities that can be drawn by the market operator in the event of non-payment; accordingly, the market operator can first draw the due payment from a current account surplus; if this is insufficient, from excess security; and if this is still insufficient, from the securities provided by the relevant participant.
The Draft Principles and Procedures also stipulate that in the event of a default in payment to a participant within three business days following the receipt of an invoice issued by the participant, the market operator will be obliged to pay a default interest to the relevant participant.
Turkey’s green energy scheme, as illustrated above, has been shaped by EMRA following a review of international examples and taking into account the European Green Deal and its carbon border adjustment mechanism, and is regulated in line with European Union’s standards. Nevertheless, how the market actors will react to the details of the scheme as revealed in the Draft Principles and Procedures is currently unknown.
The Draft Procedures and Principles are open for market actor opinions until 22 February 2021; once the consultation term is completed, EMRA is expected to revise the Draft Procedures and Principles to reflect the feedback it received, and to proceed with its enactment.
For more information please contact Şeyma Olğun, Senior Associate, at .
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