The Ministry of Energy and Natural Resources ("MENR") and its General Directorate for Renewable Energy ("GDRE") implemented a unique procedure for the solar and wind energy resource areas with the Regulation for Renewable Energy Resource Areas ("RERA")1 . These areas will be opened up to large scale renewable energy investments.
MENR announced a tender for wind energy2 on 13 April 2017 regarding the solar and wind energy resource areas. The tender deals with the development of wind farm(s) with a total capacity of 1,000 MWe on renewable energy resource areas. These wind farms are to be designated within the connection region specified in an undisclosed tender specification document. Potential bidders were required to submit their offers by 27 July 2017. On this date, bids were submitted by eight participating bidders who were duly accepted as having the financial and technical capabilities to participate in the bidding. Among these bidders, the consortium of German company Siemens and Turkish companies Türkerler and Kalyon Enerji holdings won this billion-dollar wind energy tender by offering the lowest price of $3.48 cents per kilowatt hour (kWh) at the auction by underbidding that followed the tender on 3 August 2017.
According to the tender specifications, the successful bidding company will establish a factory and provide over $100 million in investment. An average of 300 to 450 domestic wind turbines, with installed capacities of at least 2.3 MWs each, will be produced in the factory. The factory where RERA’s domestic wind turbines are to be produced will have a production capacity of at least 150 units and each wind turbine shall produce 400 MWs per year. The tender specifies that the factory must be set up within 21 months of the contract being signed.
The specifications also set out that 65 percent of the wind turbines will be produced with domestic resources (local content ratio), which will be supplied and manufactured locally. This will contribute to the direct and indirect development of several industries.
The winning consortium will also pledge to undertake research and development activities to transform Turkey into a technology production centre in the field of wind turbines. It will carry out research and development with 80 percent of the personnel involved being Turkish engineers. The research will be carried out for a total of five years in at least three fields of wind-and-generator design, material technology and production techniques, as well as in software and innovative gearboxes. $5 million will be dedicated to these activities every year. The installation and operation of the plant and the wind power plants, along with the research and development activities, will provide jobs for approximately 3,750 people.3
In fact, a minimum of 3 billion kilowatt hours (kWh) of electricity will be generated each year and the electricity requirements for approximately 1.1 million houses will be met annually, as the Turkish Minister of Energy and Natural Resources stated. This will mean that Turkey will reduce its CO2 emissions by approximately 1.5 million tons.
Why are Renewable Energy Resource Areas Necessary?
In light of the foregoing, RERA aims to create large-scale renewable energy resource sites in state and treasury owned properties and within privately owned properties in order to use renewable energy resources effectively and efficiently. There are different benefits and reasons why RERA is important. The research and development aspect as well as the technology and expertise transfer can be deemed as the main benefits of RERA. The winning consortium of the tender will establish a factory and will undertake research and development activities. This will help the growth of the Turkish economy by establishing new employment areas and will also help the technologic growth by learning and adapting new technologies.
Before the wind energy tender, MENR held another RERA tender for a solar energy project. This was the first application of RERA and the tender was made 4 for the development of solar energy power plants. Four bidders participated in the tender for Karapınar RERA in order to construct a solar farm on Karapınar Energy Specialized Industrial Zone. The Kalyon-Hanwha Group consortium submitted the lowest bid of 6.99 cents per kilowatt-hour (kWh) and promised investment of $1.3 billion on 20 March 2017. This was referred to as "a mega project in renewable energy". In detail, a purchase price will be guaranteed for a period of 15 years for the electricity generated from a 1,000 megawatt power plant, which will be constructed by the Kalyon-Hanwha Group. Moreover, 100 permanent technical personnel will be employed at the research and development centre, which will be established as part of the power plant. Electricity production from the plant will start within 36 months after the equipment production plant is established.
How Will the RERA Project be Implemented?
Within the scope of RERA, the investor (the winning consortium) shall realise a renewable energy investment of 1000 MWs of installed power. The state shall furthermore be obliged, for a certain period, to purchase the electricity power produced by the renewable energy resources generated as part of the project. Moreover, the state and the investor shall sign a RERA Usage Right Agreement, which enables the state to purchase the generated electricity for a fixed tariff, meaning price escalation is not possible.
RERA has some strict rules for investors who fail to construct the factory for the equipment or use necessary local equipment. This will result in direct and indirect shareholders of the bidder having their RERA Usage Right Agreement and the preliminary license cancelled and being prohibited from participating in RERA tenders for 2 years. Thus, some time limits are also required; the construction of the factory should be finished within the period of preliminary generation license and the preliminary generation license shall be issued for thirty six (36) months at most. To better understand the time constraints and the procedural implementation, please see the time line below.
1Published in the Official Gazette dated 9 October 2016 and numbered 29852.
2Published in the Official Gazette dated 13 April 2017 and numbered 30037.
4Published in the Official Gazette dated 20 October 2016 and numbered 29863.
Author: Feyza Arikan, Senior Associate at CMS in Istanbul