Understanding the Legal Framework of the REZ-SPP Auction: Key Insights for Investors

Introduction

The recent announcement of the Renewable Energy Zone Solar Power Plant (REZ-SPP) auctions in Turkiye has attracted significant interest among investors eager to support the nation’s green energy goals. These auctions, which will allocate 800 MWe of solar-based capacity across six zones, present major opportunities and substantial commitments. This blog provides an in-depth look at the legal structure, eligibility criteria, localization requirements, guarantees, and specific competition details, helping prospective investors prepare for successful participation.

1. Background of the REZ-SPP Auction

On November 4, 2024, Turkiye's Ministry of Energy and Natural Resources published the REZ-SPP-2024 auction notice in the Official Gazette. Conducted under the Renewable Energy Zones Regulation (REZ Regulation), this auction aims to allocate connection capacities and development rights for six solar power plants across different regions, totaling 800 MWe. The six competitions, each designated for specific locations and capacities, are as follows:

▪️ G24-Karapınar SPP: 385 Mwe

▪️ G24-Karaman SPP: 200 Mwe

▪️ G24-Malatya SPP: 75 Mwe

▪️ G24-Van SPP: 60 Mwe

▪️ G24-Antalya SPP: 40 Mwe

▪️ G24-Kütahya SPP: 40 Mwe

2. Legal Framework and Key Provisions

2.1. Eligible Companies

Only joint-stock or limited liability companies established under the Turkish Commercial Code, or foreign companies with corporate status, can participate in the auction. Foreign companies must establish a Turkish legal entity with the same or wholly owned shareholding structure before the contract is signed. Applications must be submitted with specific documents, including financial bids, letters of guarantee, tax debt clearances, and proof of social security debt clearance, all meeting Turkish legal standards.

2.2. Localization Requirements

The auction emphasizes a high rate of domestic contribution. Specifically, the solar modules must contain at least 75% locally sourced content, and other main components are expected to meet domestic manufacturing requirements. Solar cells should be manufactured domestically after the raw wafer stage. Compliance with these localization standards is closely monitored, and failure to meet the 75% domestic contribution rate may result in contract termination and forfeiture of guarantees.

3. Financial Guarantees

Each applicant must submit a performance guarantee to participate, consisting of a letter of guarantee valued at USD 15,000 per MW of installed capacity, valid for one year. Once the auction is won, a second, longer-term guarantee worth USD 30,000 per MW must be provided, covering a 10-year period. This ensures a substantial commitment from investors, emphasizing the importance of project execution and compliance.

4. Auction Process and Bid Submission

The auction follows a reverse auction model, whereby participants submit their bids in sealed envelopes. The bid must adhere to a specified price range, with a ceiling price of 5.50 USD cents/kWh and a floor price of 3.25 USD cents/kWh. The five bidders with the lowest initial bids will be invited to participate in further rounds, where each must sequentially lower their price until the floor price is reached.

If multiple participants bid the floor price, an additional round will determine the final winner based on the highest “contribution share,” with each bidder offering an additional amount per MW above the floor bid to secure the contract.

5. Project Development and Compliance Obligations

Upon winning the auction, the bidder is responsible for securing all necessary permits, conducting required environmental and technical assessments, and constructing and commissioning the SPP within 24 to 36 months, depending on the capacity. The Ministry requires a detailed work program covering each project phase, from development to procurement and installation, to ensure timely project progression.

6. Contractual Terms and Payment Mechanisms

Auction winners are granted a 49-year license to generate electricity, with a 20-year purchase agreement supported by Turkey’s Renewable Energy Resources Support Mechanism (YEKDEM). This mechanism provides a fixed price, guaranteeing long-term revenue stability for investors and mitigating market risks. Payments will be processed through EPİAŞ (Energy Markets Operation Corporation), ensuring that electricity generated is compensated according to the bid price.

7. Legal Risks and Compliance Considerations

REZ-SPP projects come with stringent compliance requirements under the Electricity Market Licensing Regulation. Throughout the project, each phase is subject to thorough oversight by the Ministry, EMRA, and TEİAŞ, ensuring adherence to national and international standards.

Key risks include:

Regulatory Delays: Timely acquisition of licenses and permits is essential, as delays can lead to penalties and contract termination.

Localization Compliance: Failure to meet domestic content requirements within specified timelines can lead to severe penalties.

Forfeiture of Guarantees: Non-compliance or missed project milestones may result in the loss of performance guarantees.

8. Conclusion

The REZ-SPP auction provides a unique opportunity for investors to participate in Turkiye’s renewable energy expansion. However, the process requires thorough legal preparation and an understanding of the regulatory landscape. Compliance with documentation standards and localization requirements is essential to unlocking the economic potential of this long-term investment.