Turkey is one of the world’s leading countries in terms of geothermal resources, ranking among the top five globally. Thanks to its tectonic structure, Turkey has substantial potential for geothermal energy production, especially in the Aegean, Central Anatolia, and Marmara regions. With an evolving legal infrastructure and government incentives, establishing a geothermal energy company in Turkey has become an attractive opportunity for both local and international investors. However, the process involves a complex set of procedures, regulatory compliance, and technical standards. This article outlines the step-by-step process, legal framework, and key considerations for setting up a geothermal energy company in Turkey.
1. Regulatory and Legal Framework
The geothermal energy sector in Turkey is governed primarily by:
- Geothermal Resources and Natural Mineral Waters Law No. 5686
- Electricity Market Law No. 6446
- Renewable Energy Law No. 5346
- Regulations and communiqués issued by the Ministry of Energy and Natural Resources (MENR) and the Energy Market Regulatory Authority (EMRA/EPDK)
- Environmental Law No. 2872
- Turkish Commercial Code No. 6102
All geothermal exploration, exploitation, and electricity generation activities must comply with these statutes and corresponding secondary legislation.
2. Company Formation: Legal Entity Setup
To operate in the geothermal sector, a legal entity must first be established. The most common structures are:
- Joint Stock Company (A.Ş.)
- Limited Liability Company (Ltd. Şti.)
For large-scale and foreign-participated projects, the joint stock company model is preferred due to its flexibility in share transfers and financing.
Key Steps in Company Formation:
- Choose a Company Name: Ensure it reflects geothermal energy as an operational objective.
- Draft the Articles of Association: Explicitly state geothermal resource exploration, production, and electricity generation as main activities.
- Notarization: Articles and signatures must be notarized.
- Capital Deposit: Deposit the minimum capital requirement (TL 50,000 for Ltd., TL 250,000 for A.Ş.) in a Turkish bank.
- Registration with the Trade Registry: Apply to the Chamber of Commerce.
- Tax Office and Social Security Registration: Obtain a tax number and register for social security if employees will be hired.
3. Exploration and Operating License Procedures
Geothermal energy operations are subject to a two-stage licensing system: exploration and operation.
a) Exploration License
- Application: Submit an application to the relevant Provincial Special Administration (or the General Directorate of Mining and Petroleum Affairs, MAPEG).
- Required Documents:
- Company documentation
- Detailed exploration project and feasibility studies
- Proof of financial capability
- Evaluation and Permit Granting: If the application is accepted, an Exploration License is granted for up to 3 years (extendable for 1 more year).
- Land Rights: The license gives the right to conduct geological, geophysical, and drilling activities within a designated area.
b) Operating License
- Transition to Operation: If exploration activities prove viable reserves, the company may apply for an Operating (Production) License.
- Application Requirements:
- Reserve assessment reports
- Environmental Impact Assessment (EIA) approval (if required by project scale)
- Updated project and business plan
- Land usage rights and site map
- License Duration: Usually granted for up to 30 years, with extensions possible.
c) Surface Rights and Land Acquisition
- Land Ownership: If the project is on private land, usage rights must be secured by purchase, lease, or easement. For state land, permission must be obtained from the relevant authority.
- Expropriation: In some cases, the state can grant expropriation rights for public benefit, but this process is complex and subject to strict controls.
4. Electricity Generation License (EMRA/EPDK)
If the geothermal resource will be used for electricity generation, a Generation License must be obtained from the Energy Market Regulatory Authority (EMRA).
a) Pre-License and License Application
- Pre-License: Initial step for projects over 1 MW installed capacity; includes technical feasibility, EIA report, site approval, and proof of financial sufficiency.
- Full Generation License: Granted after completion of pre-license requirements, securing land and grid connection, and financial closure.
b) Technical and Environmental Compliance
- Drilling Permits: All drilling activities must comply with technical and safety regulations.
- Environmental Impact: Projects above specific thresholds require a positive EIA report.
- Operational Standards: Compliance with Turkish and international standards for plant construction, operation, and safety is mandatory.
5. Grid Connection and Electricity Sales
After obtaining the generation license, the company must:
- Grid Connection Agreement: Sign an agreement with the relevant distribution/transmission company (e.g., TEİAŞ).
- Power Purchase Mechanisms: Sell electricity through the Renewable Energy Support Mechanism (YEKDEM) at guaranteed feed-in tariffs, bilateral power purchase agreements (PPAs), or on the spot market.
6. Incentives and Supports
The Turkish government offers several incentives for geothermal investments:
- Customs and VAT Exemptions: For imported equipment.
- Feed-in Tariffs: Guaranteed prices for electricity sold under YEKDEM.
- Investment Incentive Certificates: Provide benefits such as VAT refunds, customs duty exemptions, social security premium support, and corporate tax reductions.
- Regional Incentives: Projects in less-developed regions may receive higher incentive rates.
7. Ongoing Obligations and Regulatory Compliance
After commencing operations, geothermal energy companies must:
- Submit annual operational and financial reports to authorities.
- Comply with environmental, occupational health, and safety regulations.
- Maintain continuous technical audits and regulatory filings.
- Meet tax, social security, and labor law obligations for employees.
8. Legal Risks and Dispute Resolution
- Land Rights Disputes: Clear and documented surface and underground rights are essential; otherwise, legal disputes may arise.
- Environmental Complaints: Projects may face opposition from local communities or environmental NGOs.
- Contractual Disputes: Well-drafted EPC and PPA contracts with arbitration clauses are highly recommended.
- Administrative Fines: Non-compliance with licensing and environmental standards may result in serious fines or license revocation.
9. Foreign Investment and Repatriation of Profits
- Foreign Ownership: No restrictions on foreign ownership in geothermal projects.
- Repatriation: Profits and dividends can be freely transferred abroad upon meeting tax obligations.
- Local Representation: Foreign companies may appoint a local representative for regulatory communications.
10. Common Challenges and Best Practices
- Resource Risk: Geothermal exploration carries technical risk; investing in detailed surveys and feasibility studies is essential.
- Permitting Delays: Proactive engagement with authorities and local stakeholders can help minimize delays.
- Community Relations: Early consultation with local communities helps prevent social opposition.
Conclusion
Establishing a geothermal energy company in Turkey is a multi-stage process involving corporate establishment, resource licensing, environmental compliance, and operational management. Thanks to the country’s abundant resources and government support mechanisms, the sector offers significant opportunities for investors. However, the process requires detailed planning, legal due diligence, and professional technical support. By following the regulatory steps and working with experienced advisors, both domestic and foreign investors can succeed in Turkey’s dynamic geothermal energy market.
INTERN LAW FACULTY STUDENT
YAĞMUR YORULMAZ
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