Türkiye’s hydropower fleet remains a cornerstone of national generation, and many assets are now at the age where rehabilitation/modernization can unlock material efficiency and availability gains. In parallel, small hydro (HPP) infills and add-ons in existing schemes—such as utilizing irrigation canals, dam toe outlets, or pressure-reducing stations—offer incremental capacity with comparatively light footprints. The legal pathway is well established but multi-agency; careful structuring, land and water rights validation, and bankability-focused contracting are essential.
1) Market entry and corporate structuring
Foreign investors can hold 100% equity in Turkish project companies. Projects are typically held in a special purpose vehicle (SPV) incorporated as a joint-stock company (A.Ş.) or limited liability company (Ltd. Şti.). For portfolio strategies (multiple rehabilitations across a basin), use a holding company with downstream SPVs to ring-fence construction and operational risks. At term sheet stage, agree on governance (reserved matters), funding mechanics, and milestone-based equity draws aligned with licensing and grid timelines.
2) Licensing fundamentals (rehab and small HPP)
Hydropower is ordinarily a licensed activity. For greenfield small HPPs and for modernization that changes installed capacity, turbine types, hydraulic parameters, or layout, sponsors follow the pre-license → license pathway with the energy regulator. Rehabilitation that does not alter key licensed parameters still requires license amendment and often refreshed technical annexes. Where investors acquire privatized or operating assets, review the existing license, annexes, operating-right agreements (if any), and historical compliance to avoid latent breaches carrying penalties or curtailment risk.
3) Water rights with the water authority
Projects depend on water use agreements with the competent authority (commonly long-term, e.g., multi-decade terms). For modernization or small HPP add-ons (e.g., adding a unit at the dam toe or along a diversion), sponsors must seek amendments that reflect changed design flows, head, and ecological flow commitments. Diligence points include:
- Priority of uses (drinking/irrigation vs. power) and seasonal allocation rules.
- Ecological minimum flow and monitoring obligations (gauging, telemetry, reporting).
- Sediment management, fish passage, and intake trash-rack requirements.
Assignments or pledges of water-use rights to lenders generally require prior consent; ensure the consent mechanics and replacement-sponsor provisions are built into financing documents.
4) Land, expropriation, easements, and forest permissions
Hydro sites intersect treasury lands, forest areas, pasture, and private parcels. Map all footprints (intake, penstock, powerhouse, switchyard, access roads) and secure:
- Easements/usufruct rights mortgageable in favor of lenders.
- Forest permits and fees where corridors cross forest domains.
- Expropriation support via the regulator for public-interest declarations; urgent expropriation may be available for critical corridors.
Title packages should be bankable (assignable, step-in ready) and harmonized with grid-connection security interests.
5) Environmental and social safeguards
Depending on capacity and location, Environmental Impact Assessment (EIA) screening or full EIA applies. Rehabilitations can benefit from prior baselines, but increased capacity or altered flow regimes may trigger updated assessments. Expect requirements for avian/bat screening where overhead lines are involved, aquatic ecology studies, fish migration solutions, noise and vibration analysis (especially for powerhouse upgrades), cumulative impact evaluation at the basin level, and stakeholder engagement with nearby communities and irrigators. Construction and blasting plans, sediment flushing protocols, and downstream notification procedures should be embedded in EPC and O&M manuals.
6) Grid connection and dispatch
Obligations differ by whether the connection is to transmission or distribution. Modernization often requires grid model updates, protection studies, and revised connection and system-use agreements. Even though hydro is dispatchable compared to intermittent renewables, curtailment and water-availability constraints must be modeled in the financial case. For schemes adding small HPPs to existing dams or canals, clarify metering boundaries, auxiliary supply, and any black-start or ancillary commitments.
7) Dam safety and HSE compliance
Sponsors must comply with dam safety regulations and guidance on structural integrity, instrumentation, and emergency action plans. Rehabilitation scopes frequently include replacement of governors, excitation systems, control/SCADA, spillway gates, and penstock linings; each change can have safety implications requiring design checks and third-party verification. Construction HSE plans should govern confined-space entries, lifting operations, and water-side works; allocate responsibilities in EPC/BoP contracts with enforceable liquidated damages for safety non-compliance and clearly defined shutdown rights.
8) Revenue frameworks and offtake
Legacy plants may have benefited from support schemes; post-support revenues rely on market sales and bilateral/corporate PPAs. For modernization projects, sponsors commonly re-underwrite merchant exposure with floor-price PPAs, virtual PPAs, or structured hedges. Bankable PPA terms should address indexation (TRY vs. FX), change-in-law, force majeure (including hydrology shortfalls and grid outages), curtailment allocation/deemed energy, and step-in/assignment in favor of lenders.
9) Procurement and construction risk allocation
A single EPC wrap can de-risk interfaces, but many hydro rehabs use split contracts (turbine-generator package, BoP/civil, control & protection, grid). Key provisions include:
- Performance guarantees (efficiency curves, output at contract head, availability).
- Reliability test runs and seasonal commissioning windows tied to hydrology.
- Spare parts and long-term service agreements (LTSA) for predictive maintenance.
- Insurance: construction all-risk, third-party liability, delay in start-up (DSU), and in operations, business interruption and machinery breakdown.
Customs and logistics planning is critical for large runners, stators, and transformers; route surveys and special transport permits should be conditions precedent to notice-to-proceed.
10) Compliance, competition, and integrity
Interactions with public authorities (water, forestry, grid) require robust anti-corruption controls. Competition law risks may arise in power trading and joint bidding; implement information-barriers and avoid resale-price maintenance. Ensure KYC/AML diligence for local partners, consultants, and land agents; contractually require transparency and audit rights.
11) Financing and security package
Lenders focus on water-rights robustness, land/mortgageability, grid deliverables, and proven equipment/OEM strength. A standard security suite includes share pledges, receivables and account pledges, assignments of key contracts and insurance, and mortgages/easements over project sites. Direct agreements should provide lender step-in and cure rights, including replacement-sponsor mechanics acceptable to the regulator and water authority.
Actionable takeaways
- Treat water rights and ecological flow as gating items; secure amendments before major equipment orders.
- For repowering/modernization, align license and EIA updates with the grid study timeline to avoid commissioning bottlenecks.
- Structure PPAs with explicit curtailment and hydrology risk provisions and lender-friendly assignment.
- Front-load dam safety and emergency planning—these drive permits, insurance, and bankability.
- Use a layered security package and milestone-based EPC/BoP LDs to withstand construction and hydrology variability.
With disciplined permitting and bankable contracting, Türkiye’s hydro rehabilitation wave and targeted small HPP add-ons can deliver resilient, inflation-hedged cash flows—offering foreign investors scale through modernization rather than solely greenfield development.
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