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In recent years, the increasing demand in the energy and infrastructure sectors has brought various challenges to existing electricity distribution systems. The expansion of electricity services to growing residential areas and industrial zones has imposed significant financial and operational burdens on distribution companies. Traditionally, these infrastructures were established and operated by distribution companies. However, with the new regulation, both individuals and legal entities have been allowed to establish distribution assets. The main reason for this change is to accelerate investment processes and meet infrastructure needs through a more flexible model.
The connection of generation or consumption facilities to the distribution system and the fulfillment of the increasing electricity demand of generation and consumption facilities are constrained by the system’s limited capacity. Due to the lack of sufficient installed capacity, new lines, transformers, and distribution centers may need to be constructed. If the demand for connection is not included in the current investment plans of the distribution company, or if physical conditions make it difficult to expand the existing grid or require the establishment of a new one, these factors can lead to delays in the application process. In such cases, allowing the applicant to finance and construct the necessary infrastructure themselves has become an important necessity to overcome these challenges rapidly.
Since distribution companies can invest only within a specific budget and plan, it is not always possible for them to respond to every regional need at the same speed. Ensuring rapid infrastructure access is especially crucial for industrial facilities, large-scale housing projects, and commercial areas. However, existing procedures sometimes lead to delays. Furthermore, the regulatory framework and investment plans set for distribution companies make it difficult to meet all demands simultaneously. At this point, Establishment of Distribution Facilities by Individuals and Legal Entities and the Reimbursement Methodology (“New Methodology”) comes into play, allowing users (applicants) to establish the infrastructure that suits their needs, thereby expediting the process. From a financial perspective, this model reduces the financial burden on distribution companies. Consequently, in high-demand areas, infrastructure expansion processes accelerate, and economic resources are used more efficiently.
In the first section of this document, we will discuss the opportunities that applicants may encounter. In the second section, we will analyze the new regulation by comparing it with Methodology for Establishment of Distribution Facilities by Users (“Repealed Methodology”)
The terms “applicant”, “user”, and “investor” will be used interchangeably.
Applicants may be individuals or legal entities. This includes Individual Consumers (residential subscribers who use electricity in their homes), Commercial and Industrial Consumers (factories, businesses, shopping malls, Organized Industrial Zones (OIZs), and other high-consumption commercial and industrial entities), Public Institutions and Municipalities, Irrigation Cooperatives and Agricultural Enterprises using electricity, and Electricity Producers.
Indirect Gains for the Applicant
Applicants who establish distribution assets do not generate direct profits but obtain economic advantages through indirect means.
Under the new methodology, investors can benefit from reimbursement mechanisms, reduced operational costs, strategic advantages, and future business opportunities by improving the grid infrastructure.
- Reimbursement Mechanism to Cover Investments
- According to the New Methodology, applicants who invest in distribution assets can recover their expenditures. This reimbursement process follows TEDAŞ’s (Turkish Electricity Distribution Company) cost tariff and the Consumer Price Index (CPI) rates.
- The applicant finances and constructs (or has constructed) the necessary electrical infrastructure (transformers, lines, poles, distribution centers, etc.) to connect to the distribution system.
- All expenditures are documented and submitted to the distribution company.
- TEDAŞ and the distribution company verify the expenditures and calculate the reimbursement amount.
- Payments are made to the investor within the specified timeframe.
- However, no direct profit is made from this process; only the initial investment is reimbursed. The reason investors undertake such an investment lies in the potential indirect gains.
- For Electricity Producers: Increasing Electricity Sales
- Renewable energy producers (solar, wind, biomass, etc.) and large-scale energy producers can invest in distribution infrastructure with the aim of ensuring faster and uninterrupted access to the grid.
- If there is a capacity issue in the distribution system, producers can strengthen the infrastructure and accelerate the process of feeding the electricity into the grid.
- As a result, they can start selling electricity earlier and generate more revenue.
- They gain a competitive advantage by securing priority grid access.
Example: A solar power plant investor facing transformer capacity issues can finance the necessary infrastructure, ensuring grid connection and generating income from electricity sales.
- For Industrial and Commercial Enterprises: Lower Electricity Costs
- Large-scale electricity consumers (industrial facilities, shopping malls, OIZs, large manufacturing factories) can reduce long-term energy costs and improve profitability by establishing distribution assets.
- A reliable and uninterrupted energy infrastructure prevents production losses.
- Minimizing operational halts due to power outages reduces overall costs.
- By increasing grid capacity, businesses can meet their future energy needs at lower costs.
Example: A factory suffering from frequent power outages can invest in distribution assets to secure an uninterrupted energy supply, improving operational efficiency and achieving indirect financial gains.
- Preparing for Future Investments: Creating New Business Opportunities
- Investing in distribution assets provides long-term advantages for investors.
- Companies investing in electricity infrastructure may gain priority status in future energy projects.
- Government incentives and grants may become available.
Example: An investor developing a transformer station in a specific region may gain a competitive edge and be prioritized in larger future energy projects in the area.
- Public and Strategic Advantages
- Large companies investing in energy infrastructure contribute to environmental and social sustainability goals.
- Investors supporting public projects may benefit from government incentives and long-term financing advantages.
- Lower energy prices and reduced operational costs can be achieved over time.
Example: A municipality investing in distribution assets to reduce power outages can enhance public satisfaction and lower long-term infrastructure costs, leading to savings.
Summary: How Do Investors Benefit from Establishing Distribution Assets?
- Applicants do not profit directly from reimbursements but can gain advantages through indirect means.
- Electricity producers investing in distribution infrastructure can expedite grid access and generate earlier revenue from electricity sales.
- Industrial and commercial enterprises can lower operational costs by securing a reliable power supply.
- Investors can create long-term business opportunities and secure priority positions in future projects.
- Government incentives, grants, and energy cost advantages can be utilized.
- Competitive advantages can be gained, strengthening the investor’s market position.
Key Changes Introduced by the New Methodology
The Energy Market Regulatory Authority (EPDK) approved the Methodology for the Establishment of Distribution Facilities by Users (“Repealed Methodology”) in a meeting on August 27, 2014. However, with EPDK’ s Decision No.13289, dated February 13, 2025, this methodology was repealed and replaced with the Establishment of Distribution Facilities by Individuals and Legal Entities and the Reimbursement Methodology (“New Methodology”).
The New Methodology is based on Article 9 of the Electricity Market Law 6446, dated March 14, 2013, and Article 21 of the Regulation on Electricity Market Connection and System Usage. It was published in the Official Gazette No.32818 on February 19, 2025, and has since been in effect.
This change restructured the processes between investors and distribution companies, increased investor responsibilities, and detailed reimbursement mechanisms.
Key Innovations Introduced
With the New Methodology, several significant changes and innovations have been implemented. These can be summarized in comparison with the previous methodology as follows:
- Role of the Applicants
Repealed Methodology: Only users could establish distribution assets in specific cases where there was insufficient capacity at connection points; the process was at the discretion of distribution companies.
New Methodology: Now, both individuals and legal entities can establish distribution assets, and the process will have a broader scope. Additionally, a financing option has been introduced, allowing applicants to contribute directly to investments.
- Connection Opinions and Agreements
Repealed Methodology: Distribution companies evaluated connection requests based on their investment plans. However, connection opinions were not detailed enough and were not structured within a clear framework.
New Methodology: Connection opinions will now be more detailed, specifying necessary network assets and required investment timelines in advance, making the process more transparent.
- Reimbursement and Cost Calculations
Repealed Methodology: The reimbursement process for facilities established by users were uncertain.
New Methodology: Since TEDAŞ’s published unit prices and Consumer Price Index (CPI) rates will be used in reimbursement calculations, investors will have clarity on which costs will be reimbursed, and reimbursement processes will become standardized.
- Guarantees and Process Management
Repealed Methodology: The application of financial guarantees was unclear, and there were no established rules on how processes would operate.
New Methodology: Distribution companies will now have the authority to request guarantees from applicants under specific conditions for facilities that affect investment plans.
- Expropriation and Permit Procedures
Repealed Methodology: Expropriation and permit processes were the responsibility of distribution companies, and the responsibilities of applicants were not clearly defined.
New Methodology: Distribution companies will be able to assign specific responsibilities to applicants based on requests, potentially speeding up expropriation processes.
- Provisional Provisions and Status of Previous Investments
Repealed Methodology: Reimbursement procedures for previously established facilities were uncertain.
New Methodology: The new regulation provides an opportunity to assess past investments under New Methodology and aims to address deficiencies in previous applications.
Legal Precautions for Investors
Carefully reviewing agreements related to the connection and reimbursement process,
Seeking legal counsel regarding expropriation and permit procedures,
Establishing written agreements with distribution companies regarding payments and cost calculations.
Legal Precautions for Distribution Companies
Preparing connection opinions and investment plans in compliance with regulations,
Ensuring transparency in reimbursement processes,
Maintaining clear communication with investors during expropriation procedures.
Conclusion:
The New Methodology aims to regulate the establishment of distribution facilities and reimbursement processes in a more detailed and transparent manner, addressing uncertainties from previous applications. However, since it may introduce new risks for both investors and distribution companies, it is essential for both parties to carefully manage the process and seek legal counsel as necessary.