With the increase in the installed capacity of wind power plants (“WPPs”) in Türkiye in recent years, studies on offshore wind power plants (“OWPPs”) have also gained momentum. In this article, we review the past tender experience, the current situation in Türkiye and worldwide, and critical issues regarding potential OWPP projects.
Current Status of WPP Projects in Türkiye
WPP investments in Türkiye have increased significantly in the last 10 years and the installed capacity of WPPs, which was 2,760 MW in 2013, has reached 11,490 MW as of April 2023. Thus, the share of the WPPs in the total electricity installed capacity has reached 11%. According to the Türkiye Wind Energy Potential Atlas published in 2006, the WPP installation potential in Türkiye is 48 GW3, consisting of 38 GW of onshore WPP and 10 GW of OWPP. In recent studies by the World Bank, Türkiye’s offshore wind potential is estimated at 54 GW. Accordingly, it has become one of the targets of the energy sector in Türkiye to transfer its experience in onshore WPP investments to realize this potential and develop its first-ever OWPP project in the near future.
In Türkiye, onshore WPP investments mostly consist of licensed projects and Renewable Energy Resource Areas (“YEKA”) projects. The YEKA WPP-1 tender for the allocation of a total capacity of 1,000 MW was completed in 2017 and the YEKA WPP-2 tender for the allocation of a total capacity of 1,000 MW in Aydın, Balıkesir, Çanakkale and Muğla provinces was completed in 2018. In the most recent YEKA WPP tender, YEKA WPP-3, a total capacity of 850 MW was allocated in 20 different regions and the tender was completed in June 2022.
In parallel with the onshore YEKA WPP tenders, a tender announcement was made for the first YEKA OWPP project in June 2018. A total capacity of 1,200 MW was envisaged to be allocated in the tender where Gelibolu, Saroz and Kıyıköy were determined as candidate regions. The ceiling price in the tender was set at 8 USD cents/kWh, which was subject to a Dutch auction method, and a purchase guarantee was given for the first 50 TWh of electricity generated. It was envisaged that the local content requirement would be at least 60% and at least 80% of the project personnel would be Turkish nationals. However, the tender was canceled as there were not sufficient bids.
Türkiye’s Cooperation with International Organizations
Since the first OWPP tender did not attract the market players, in order to establish a new legal and technical infrastructure, public institutions have carried out various collaborations with international organizations and institutions of leading countries in the field of OWPP investments. The cooperation agreement signed in 2019 between the Ministry of Energy and Natural Resources (“MENR”) and the Danish Energy Agency (“DEA”) is one of the most significant among these cooperation projects. It is aimed that DEA would first share its recommendations on the tender procedure and licensing processes in the light of the system in Denmark, which is a successful example in this regard, and then address the financial framework and infrastructure issues and provide a roadmap for OWPP projects in Türkiye.
A project entitled “Identifying and Mapping Offshore Wind and Wave Energy Potential of Turkey”, which demonstrated Türkiye’s potential in OWPP has been completed with the coordination of MENR and support of the European Bank for Reconstruction and Development (EBRD). Within the scope this project, wind atlases were created for Türkiye as a whole, for seven geographical regions and for each province separately.
Another organization working on OWPP in Türkiye is the World Bank. The World Bank’s Energy Sector Assistance Program (ESMAP) is working on a OWPP Roadmap for Türkiye. This roadmap, which has not yet been published, addresses the barriers to OWPP projects and provides recommendations for short-term targets and a legal framework.
Türkiye also has agreements with the World Bank for OWPP projects using European Union funds under the EU Instrument for Pre-Accession Assistance (“IPA”). Phase 4 of this plan requires MENR to submit reports to the World Bank on environmental, social impacts and occupational health and safety issues on a regular basis.
OWPP Targets in the World and Türkiye
The increase in OWPP investments is significant globally. Especially the goals of developed and developing countries to meet their energy needs from renewable energy sources have also increased the interest in OWPP investments. In 2022, 8.8 GW of OWPP were installed worldwide and the total installed capacity of OWPPs has reached 64.3 GW. By the end of 2022, OWPP accounted for 7.1% of the installed capacity of all WPPs, which has reached 906 GW in total.
Europe accounts for a significant share of this increase, and the European Commission has published a specific EU strategy to support the long-term sustainability of OWPP investments. This strategy targets 60 GW installed capacity of OWPP by 2030 and 300 GW by 2050.
As mentioned above, MENR is working under the Energy Sector Program in cooperation with IPA. Within the scope of Phase 4, MENR continues the “Offshore Wind Energy Site Survey Studies”. This study aims to identify suitable sites for OWPPs and mitigate risks for potential investors before a new OWPP tender is organized by MENR.|
As a result of the abovementioned collaborations and other technical and administrative studies, the National Energy Plan published in 2022 aims to increase the installed capacity of WPP to 29.6 GW by 203510, consisting of 24.6 GW of onshore WPP and 5 GW of OWPP.
Key Issues on Development of OWPP Projects
High costs and access to finance
OWPP investments require high investment and operating costs compared to onshore WPP projects. Therefore, one of the most critical issues for investors is financing. With the legislative amendments in 2020 and thereafter, the ceiling price in YEKA tenders and the Renewable Energy Resources Support Mechanism (“YEKDEM”) feed-in tariffs and local content incentives are denominated in Turkish Lira . Albeit subject to certain adjustments, a Turkish lira-based purchase guarantee brings up an FX risk that needs to be addressed in the financing structure. On the other hand, while the past regulations did not allow for a differentiated initial ceiling price to be applied to OWPP tenders, the Presidential Decree dated 30 April 202312 introduced (i) a separate YEKDEM price (144 TL kuruş/kWh); (ii) floor and ceiling prices in USD (6.75 USD-cent/kWh and 8.25 USD-cent/kWh, respectively); and (iii) a separate local content incentive (38.45 TL kuruş/kWh) for OWPP projects.
Local content requirements
Another critical issue for OWPP investments is the local content requirements in YEKA tenders. Although there is a significant accumulation of experience and production and installation capacity in the sector for onshore WPP projects in Türkiye, the same is not established for OWPP investments. Furthermore, high local content requirements to encourage domestic production may potentially have the side effect of making it more difficult to obtain ECA-covered financing from foreign lenders with more favorable conditions under the guarantee of foreign export credit agencies.|
Permits and licenses
Another obstacle in the first OWPP tender back in 2018 was the lack of clarity in the legislation. Although the amendment to the Coastal Law13 in November 2018 added power plants and energy transmission lines in YEKAs into the scope of structures that can be built on the coast and at sea, there is no specific legislation for OWPP projects and it remains critical for investors to be able to clearly identify the permits and licenses required for investment and operation. When we look at the leading countries in OWPP investments, the regulations regarding the permits and licenses to be obtained from maritime regulatory bodies stand out. Considering that OWPPs will need to be established in areas close to the coast due to the rapidly deepening structure of the seas in Türkiye, the interaction with maritime traffic, tourism, environmental impacts, fisheries and similar issues should also be addressed within the scope of permits and licenses. Floating-based OWPPs, which can be installed in deep seas, raise issues relating to continental shelf and exclusive economic zone disputes, especially in the Aegean Sea.
Technical preparation and site studies
Another controversial issue arising from the first OWPP tender was the lack of technical preliminary preparation of the seabed and surface. In the leading countries in OWPP investments, initial studies for the field are usually carried out by public authorities and potential areas are identified after a comprehensive “marine spatial planning” study. However, since there has not yet been a “marine spatial planning” study on the use of marine areas in Türkiye and there is a lack of measurement data, the responsibility for technical and economic studies falls on the investor.
Conclusion
Considering Türkiye ‘s target of reaching 5 GW of OWPP installed capacity by 2035, it is foreseen that studies for the first OWPP investment will accelerate in near future. In the light of the lessons learned from the first OWPP tender and as a result of the cooperation and technical and administrative work carried out since 2018, developments are expected in the upcoming periods in terms of both legislation and tender structure.
PARTNER
Müşavvir Enerji / Elektrik Petrol ve Doğal Gaz Madencilik Taşımacılık ve Lojistik Kamu Özel İşbirlikleri ve İmtiyazlar İnşaat ve Altyapı Finansal Hizmetler Projeler ve Proje Finansmanı Bankacılık ve Finans Şirketler ve Ticaret Hukuku Sermaye Piyasası Hukuku Kamu İhale Hukuku Gayrimenkul Hukuku
ASSOCIATE
Avukat Tüketim Ürünleri Enerji / Elektrik Madencilik Savunma Şirketler ve Ticaret Hukuku Birleşme ve Devralmalar Dava ve Uyuşmazlık Çözümleri
INTERN LAWYER
Stajyer Avukat
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