Rez WPP-2024 Auctions Announcement and Specification: Legal Evaluation, Opportunities, and Investment Conditions in Renewable Energy

Introduction

The REZ (Renewable Energy Zones) WPP-2024 auctions announcement was published in the Official Gazette on October 28, 2024. The REZ WPP-2024 project is one of Turkiye’s significant steps in the field of renewable energy. Aiming to increase the utilization of renewable energy resources and support investments in this sector, the REZ projects provide long-term security for investors and seek to enhance Turkiye's capacity for local and clean energy production.

1. The Concept of Rez and Its Legal Basis

REZ projects are regulated under the Renewable Energy Zones Regulation (REZ Regulation) published in the Official Gazette dated 09/10/2016, No. 29852, and are based on Electricity Market Law No. 6446. The REZ-2024 specification grants a 49-year generation license to the winning investor. This period aims to offer long-term assurance for investments in Turkiye’s renewable energy sources and to make the returns from the project more predictable for investors.

2. Auction Procedures and Participation Conditions

The REZ-2024 auction announcement states that a total capacity of 1,200 MW will be allocated across five wind energy-based auctions.

Each auction is structured according to the specified connection capacities for the installation and operation of a particular wind energy plant. The auction names and connection capacities are as follows:

– R24-Edirne RES – 410 MWe

– R24-Balkaya RES – 340 MWe

– R24-Sergen RES – 200 MWe

– R24-Yellice RES – 160 MWe

– R24-Gürün RES – 90 MWe

Each of these auctions has a unique application process and evaluation criteria based on its connection capacity.

This allocation allows investors to apply for suitable projects according to their capacity needs and strategies. The variation in capacities aims to attract a broad range of investors and to enhance Turkiye’s renewable energy capacity in a geographically balanced way.

Applicants for each auction must be legal entities established as joint-stock or limited liability companies under Turkish Commercial Law or foreign companies with the status of a capital company. Additionally, a participation fee of 50,000 TL is mandatory for each application.

3. Local Content Rate and Localization Policy

The REZ-2024 specification mandates that equipment used in REZ projects must be locally produced, with a minimum Domestic Contribution Rate of 55%. The specification requires documentation of the Domestic Contribution Rate for each component and submission of a certificate of local origin. This rate aims to support the local industry and supply chain, offering a competitive advantage to domestic manufacturers.

In line with Law No. 5346 and the Communiqué on Domestic Goods published in the Official Gazette No. 29118 dated 13/09/2014, a mandatory Domestic Contribution Rate has been set.

However, the imposition of penalties in the event of non-compliance with the Domestic Contribution Rate may lead to increased costs in some projects depending on the capacity of the local supply chain. This regulation, which aims to encourage the development of the local industry, serves the purpose of reducing import dependency in the long term. Flexibility regarding imported parts could reduce risks for investors.

4. Electricity Purchase Price and YEKDEM Support

For the participating investors, the set maximum purchase price is 5.50 US Dollars-cent/kWh, while the minimum price is 3.50 US Dollars-cent/kWh. The ceiling and floor price practices provide a safeguard against fluctuations in the energy market. The ceiling price protects against excessive price increases, while the floor price ensures the economic sustainability of projects. These price levels provide an important legal framework, enabling investors to plan their projects based on predictable costs.

If the floor price is reached, the base price for increasing the contribution per MW has been set at 10,000 US Dollars. This arrangement aims to implement an open reverse auction process if the floor price is reached, allowing investors to increase their contribution and make further contributions to the project. This practice makes the auction more competitive if the floor price is reached, allowing the investors who provide the highest contributions to gain an advantage. This creates diversity for the investors who apply to the auction and provides a mechanism to achieve the most favorable price for the public good.

According to the auction specification, the investor has the right to sell the electricity produced for 72 months on the free market, starting from the contract signing date. This period allows project owners to sell their produced electricity on the free market and earn higher revenues. The Open Market Sale Period enables investors to benefit from market conditions to increase their income. This incentivizes the projects, accelerating the return on the investment made in the project. Additionally, the revenue from the free market during this period serves as a supporting factor for investors in covering their costs.

After the Open Market Sale Period ends, the electricity produced will be purchased by TEİAŞ for 20 years. This arrangement is designed to provide long-term security for the investor.

The guarantee of electricity purchase at a set price throughout the purchasing period provides long-term security for the investor. Such long-term purchase guarantees are essential to maintaining the financial sustainability of projects. Investors can make their financial plans and repayment strategies more predictable thanks to this guarantee.

Throughout the purchasing period, the fees paid to TEİAŞ within the scope of the transmission tariff will be paid to the winning investor under the YEKDEM. This regulation aims to alleviate the financial burden of energy transmission for investors and to increase the financial sustainability of the projects. YEKDEM support aligns with Turkiye's goal of increasing its renewable energy capacity and provides a cost advantage by reimbursing transmission fees to investors. This situation provides financial support for projects while increasing the competitiveness of local and renewable energy resources in the energy market.

The regulations on electricity purchase prices and duration in the REZ-2024 auction announcement enable investors to compete under market conditions and aim to secure energy supply through long-term plans. The guarantees provided during the purchasing period and the support under YEKDEM play a significant role in Turkiye's efforts to achieve its renewable energy goals.

5. Contract and Guarantee Obligations

The winning investor will sign a 49-year contract with the Ministry of Energy and Natural Resources. During the signing process, the investor will be required to provide a 10-year letter of guarantee amounting to 50,000 USD per MW. This guarantee aims to ensure that the investment is completed on time and as promised.

This guarantee obligation serves as an important deterrent to ensure investors’ commitment to the project and prevent public loss.

6. Environmental Responsibilities and Technical Requirements

In REZ projects, EIA-Positive Certificate processes must be completed. Additionally, all components in the project must be recycled and disposed of in accordance with the current environmental legislation once their lifespan has ended. These obligations aim to ensure environmentally friendly and sustainable energy production processes.

These regulations, made in line with environmental protection legislation, aim to ensure environmental sustainability and provide an important assurance for the public good. The mandatory recycling of equipment at the end of its lifespan supports compliance with environmental legislation and highlights environmental responsibility as an obligation for investors.

Conclusion and Evaluation

The REZ-2024 auction announcement and specification provide a robust legal framework to achieve Turkiye’s renewable energy goals and to ensure energy supply security. The Domestic Contribution Rate, long-term purchase guarantee, high guarantee obligations, and environmental regulations aim to ensure that projects are sustainable and long-term.

In this regard, the REZ-2024 project aims to strike a balance between public interest and investor support in the energy sector.