1. Turkey’s Energy Landscape: Why Investors Care
Turkey has gradually turned from a purely import-dependent, state-dominated energy market into a complex and investment-hungry ecosystem where private companies design, build, finance and operate generation, transmission-related assets, storage facilities and upstream projects.
Several factors explain why international investors consistently look at Turkey for energy opportunities:
- A large and still growing population with structurally high electricity demand.
- Strategic location between major producing and consuming regions, which makes Turkey a natural transit and trading hub for oil, gas and electricity.
- Strong political emphasis on security of supply and diversification of energy sources.
- Ambitious plans to expand renewable capacity and reduce carbon intensity over time.
However, energy is not a “free market” sector. It is heavily regulated, infrastructure-intensive and politically sensitive. For a foreign sponsor or lender, the attractive upside is only meaningful if three fundamental questions can be answered clearly:
- What licences are needed and how robust are they?
- Which long-term contracts will generate and stabilise cash flow?
- What investment protection tools exist if the legal or political environment changes?
This article addresses these three questions from a transactional and project-finance perspective, focusing on electricity (including renewables), natural gas and petroleum projects in Turkey.
2. Regulatory and Institutional Framework
2.1 Main pillars of the legal framework
Although each segment of the Turkish energy sector has its own detailed rules, the architecture follows a similar pattern:
- A framework law for each market (electricity, natural gas, petroleum).
- Secondary legislation (regulations, communiqués, board decisions) that set technical requirements, licensing procedures and tariff rules.
- Cross-cutting laws on environmental protection, zoning and construction, expropriation, public procurement, competition, corporate law and foreign investment.
In practice, any serious energy project will sit at the intersection of these instruments. For example, a wind farm is not only about an electricity generation licence; it also requires environmental clearance, zoning compliance, grid connection approvals and sometimes expropriation of land.
2.2 Key institutions
The institutional map is equally important:
- The Ministry of Energy and Natural Resources sets overall energy policy and prepares strategic documents, such as national energy plans and renewable roadmaps.
- The Energy Market Regulatory Authority (EMRA) is the independent regulator in charge of licensing, tariff approval in regulated segments, market supervision and enforcement.
- TEİAŞ, the electricity transmission system operator, manages the high-voltage grid and is the counterpart for many grid connection and system-use agreements.
- BOTAŞ plays a central role in natural gas import, transmission and wholesale and remains an unavoidable player for many gas-fired power and large industrial projects.
- TPAO and other state-controlled entities are key actors in upstream petroleum and offshore exploration.
Understanding which authority is competent at which stage – and how their decisions interplay – is as important as the black-letter law itself.
3. Licensing of Energy Projects
Licences are the legal oxygen of an energy project. Without the right licences, there is no lawful operation, no access to the grid and usually no financing. This section summarises how licensing generally works in Turkey.
3.1 Core characteristics of Turkish energy licences
Across electricity, gas and petroleum, licences share several structural features:
- Activity-based – A licence corresponds to a specific market activity: generation, transmission, distribution, supply, import, storage, exploration, etc. A single company may hold several licences if it performs multiple activities, but each licence has its own conditions.
- Time-limited – Licences are issued for fixed terms. In electricity and gas, long terms (often up to several decades) are possible, which is essential for project finance, but they are not perpetual rights.
- Regulator-monitored – EMRA oversees technical, financial and organisational compliance. Licence holders must regularly submit reports, financial statements, and operational data.
- Conditional – Licences are subject to ongoing obligations (completion of investments, maintaining minimum capital, compliance with grid codes, payment of fees, etc.).
- Sanctionable – Non-compliance can lead to administrative fines, restrictions, temporary suspension of activity or revocation of the licence in serious cases.
For lenders, the licence is as critical as the PPA or gas supply contract. Any event that jeopardises the licence is usually an event of default under the finance documents.
3.2 Electricity generation licences
3.2.1 Who needs a licence?
In the electricity market, most of the following activities require a licence from EMRA:
- Generation – operating a power plant connected to the grid.
- Transmission – high-voltage transmission (in practice, conducted by TEİAŞ).
- Distribution – regional distribution networks.
- Supply – wholesale and retail sales to eligible consumers and other market actors.
- Market operation – organised market platforms.
There are limited exemptions for unlicensed small-scale generation, usually tied to capacity thresholds and self-consumption models (rooftop solar, for example), but any utility-scale project will fall under the licensed regime.
3.2.2 Pre-licence and generation licence
Turkey uses a two-phase licensing system for new power plants:
- Pre-licence phase
- The project company applies to EMRA for a pre-licence.
- If granted, the pre-licence gives a defined time window to complete preparatory work: environmental impact assessment, zoning and construction permits, land acquisition, technical approvals, connection agreements and – where relevant – participation in support mechanisms.
- During this stage, share transfers in the project company are often restricted, which is important for early-stage investors planning to partially exit or bring in partners.
- Generation licence phase
- Once the pre-licence obligations are fulfilled, the company applies for conversion to a full generation licence.
- The generation licence authorises the construction and commercial operation of the plant for the licence term.
- Licence conditions will include installed capacity, primary energy source, location, obligations to participate in market platforms, and various reporting duties.
Delays in the pre-licence stage can have fatal consequences for a project, because failure to complete prerequisites may lead to cancellation and forfeiture of security deposits. That is why serious sponsors invest heavily in permitting and land-related due diligence from day one.
3.2.3 Renewables and support schemes
Renewable electricity projects (hydro, wind, solar, geothermal, biomass) are integrated into the general licensing system but enjoy several specific features:
- Access to support mechanisms that can take the form of feed-in tariffs, premiums or auction-based offtake terms.
- Possibility to participate in renewable energy resource zones and large-scale auction programmes, where generation licences are tied to winning bids and special site allocations.
- Sometimes additional obligations, such as local-content requirements for equipment or stricter performance milestones.
The economic profile of a renewable project in Turkey therefore depends not only on the licence but also on which support scheme applies, what currency the support is denominated in, how indexation works and how long the support period lasts.
3.3 Natural gas market licences
The natural gas market is structured around specific categories of activities, each requiring a separate licence:
- Import – pipeline gas or LNG imports into Turkey.
- Transmission – operation of high-pressure gas transmission networks.
- Storage – underground storage facilities and LNG terminals.
- Wholesale – resale of gas to distributors and eligible customers.
- Distribution – city-gas distribution networks with regional exclusivity.
- Export – cross-border sales of natural gas.
The legislative design aims at gradual liberalisation, but in practice state-owned entities, especially BOTAŞ, retain a very strong position in import and transmission.
From an investor’s perspective, gas licences raise several specific considerations:
- Volume risk and diversification rules – some licences are subject to caps or diversification obligations to avoid over-dependence on a single supply source.
- Third-party access – access regimes to pipelines and storage facilities can significantly influence the viability of private supply and trading businesses.
- Tariff setting – tariff regulation in transmission and distribution can limit upside but provide predictability where rules are clear and stable.
3.4 Upstream petroleum rights
In upstream petroleum, the legal regime is based on exploration and production rights rather than “licences” in the electricity sense, but the logic is similar:
- The State remains the owner of underground resources.
- Private (and state-owned) companies are granted exclusive rights to explore defined areas for a fixed period and convert successful discoveries into production rights.
- Work programmes, minimum investment commitments and reporting obligations are central.
- Failure to comply can lead to loss of the right over the exploration block or production field.
Depending on the project, foreign investors might operate alone, form a joint venture with TPAO or participate through farm-in arrangements. In all cases, the legal instrument granting rights – licence, permit or lease – becomes the core asset of the project.
4. Long-Term Contracts: Turning Licences into Cash Flow
Licences alone do not produce revenue; they merely allow operations. What makes an energy project bankable is the ability to transform licensed activity into predictable cash flow through long-term contracts. The most important ones are discussed below.
4.1 Power Purchase Agreements (PPAs)
A Power Purchase Agreement is usually the revenue backbone for a power plant. In Turkey, PPAs appear in different forms:
- State-supported or auction-based PPAs – especially in some renewable tender schemes and certain legacy projects. These often involve a public entity or a state-backed company as offtaker and are closely tied to the licence and site allocation.
- Market-based PPAs – private bilateral arrangements where generators sell electricity directly to large consumers or traders at negotiated prices.
- Corporate PPAs – long-term agreements between renewable generators and industrial customers seeking to meet green-energy or ESG commitments.
Key issues that foreign investors analyse in Turkish PPAs include:
- Term – the PPA term should at least match or exceed the repayment profile of project debt and ideally align with the licence term.
- Price structure – fixed prices, indexed tariffs, floor-and-ceiling mechanisms and currency denomination are central in a high-inflation, volatile-FX environment.
- Volume commitments – take-or-pay obligations, minimum annual offtake, flexibility bands and penalties for under-delivery or under-take.
- Change in law – a mechanism to adjust tariffs or compensate the producer if new legislation or regulatory decisions affect the cost or value of the project.
- Curtailment and grid constraints – allocation of risk when the system operator limits dispatch for grid security reasons, which is particularly relevant for intermittent renewables.
- Payment security – guarantees, letters of credit, escrow arrangements or parent company guarantees to support offtaker obligations.
From a lender’s point of view, the PPA is scrutinised line by line. Any ambiguity or imbalance in risk allocation can affect pricing, debt capacity or even bankability.
4.2 Grid connection and system use agreements
Every grid-connected plant needs:
- a connection agreement defining technical conditions for connecting to the transmission or distribution grid; and
- a system use agreement governing ongoing use of grid capacity, balancing responsibilities, outages and compensation rules.
These contracts translate abstract grid codes into project-specific obligations. For example, they regulate the process for planned and unplanned outages, treatment of reactive power, voltage control and responsibility for metering.
Investors and lenders look closely at:
- whether connection capacity is firm or subject to future re-allocation;
- how long the connection entitlement lasts;
- whether curtailment risk is compensated and, if so, how;
- how disputes on metering and balancing are resolved.
4.3 EPC and O&M contracts
Without a properly built and operated plant, even the best PPA is worthless. Therefore, engineering, procurement and construction (EPC) and operation and maintenance (O&M) contracts are key elements.
Typical features of EPC contracts in the Turkish energy market include:
- Turnkey structure – a single contractor responsible for design, procurement, construction and commissioning.
- Guaranteed schedule – contractual completion dates with liquidated damages for delay.
- Performance guarantees – output, efficiency or availability guarantees with associated damages if tests are not met.
- Interface risk management – especially where multiple contractors are involved (civil works, equipment supply, grid connection).
- Local content – compliance with any local-content requirements linked to support schemes or tenders.
O&M contracts, in turn, usually:
- set detailed maintenance programmes;
- define minimum availability levels;
- regulate spare parts management and staffing;
- allocate responsibility for compliance with operating permits and licence conditions.
Well-drafted EPC and O&M contracts are fully aligned with the licence, support mechanisms and PPA, so that a breach under one instrument does not automatically trigger a cascade of defaults elsewhere without clear control and cure options.
4.4 Gas supply, transportation and storage agreements
For gas-fired power plants and large industrial consumers, gas supply and transportation contracts are as crucial as PPAs:
- Gas Sales Agreements (GSAs) usually address take-or-pay obligations, daily and annual contract quantities, calorific value, quality specifications, nomination procedures and price indexation.
- Transportation agreements with pipeline operators cover ship-or-pay commitments, balancing, pressure and temperature parameters, and interruption rules.
- Storage agreements define injection and withdrawal capacities, seasonal flexibility and tariff formulas.
In cross-border projects, these contracts can be governed by foreign law (often English law) and provide for international arbitration, while still being closely linked to Turkish licences and tariff frameworks.
4.5 PPP and concession-type frameworks
Some large-scale energy-related projects, such as major hydro plants, LNG terminals or integrated infrastructure with an energy component, may be implemented under public–private partnership (PPP) or build–operate–transfer (BOT) models.
Such structures usually involve:
- a concession or implementation agreement with a public authority;
- an availability or capacity-based payment scheme rather than pure merchant risk;
- various forms of government support, such as minimum revenue guarantees, debt-assumption clauses or step-in undertakings.
Because these contracts sit at the intersection of public and private law, they raise specific issues of constitutional law, administrative law and parliamentary oversight. Careful analysis is needed before assuming that all disputes can be sent to international arbitration or that all changes in law will be automatically compensated.
5. Investment Protection Under Turkish Law
5.1 Property rights and expropriation
The Turkish Constitution recognises the right to property and allows expropriation only for public interest and against compensation. In the energy context, expropriation tends to appear in two different ways:
- Classical expropriation of land – needed for transmission lines, pipelines or plant sites. This is often initiated by public authorities and affects third-party landowners, but project companies may be involved in funding compensation or coordinating procedures.
- Indirect or “regulatory” expropriation arguments – where investors claim that drastic regulatory changes or termination of concessions have effectively destroyed the value of their investment.
Domestic law provides mechanisms to challenge expropriation decisions and dispute the amount of compensation. However, these processes can be lengthy and technical, which is why investors often seek an additional layer of protection via international treaties (discussed below).
5.2 Administrative law remedies
Decisions by EMRA, ministries, municipalities and other public bodies are typically administrative acts that can be challenged in administrative courts. Examples include:
- cancellation or non-renewal of a licence;
- decisions on tariffs, eligibility for support schemes or penalties;
- environmental approvals or refusals;
- expropriation decisions connected to energy infrastructure.
Key characteristics of administrative litigation in Turkey include:
- Short limitation periods – investors usually have a limited time window to bring annulment actions after notification of the decision.
- Possibility of “stay of execution” – courts can temporarily suspend the effects of an administrative act if there is a prima facie illegality and risk of irreparable harm.
- Follow-on damages claims – once an act is annulled as unlawful, separate actions for compensation may be available.
Sophisticated sponsors integrate these procedural realities into their project governance: tracking notification dates, reserving rights explicitly in correspondence and coordinating court challenges with contractual remedies.
5.3 Contractual protections and stabilisation
Under Turkish contract and commercial law, parties enjoy wide freedom to allocate risks, subject to mandatory rules and public policy. In energy projects, contractual protection mechanisms often include:
- Change-in-law clauses – defining which types of legal changes trigger tariff adjustments or compensation and how the impact is calculated.
- Economic equilibrium clauses – allowing renegotiation if the economic balance of the contract is fundamentally disrupted by external events.
- Tax and cost pass-through mechanisms – particularly in regulated tariffs or long-term offtake contracts.
- Stabilisation language – in some PPP or concession agreements, the host authority may commit not to apply adverse legal changes to the project or to compensate the investor if it does.
These clauses do not prevent the state from legislating, but they create contractual consequences if it does, giving investors a legal basis for claims in arbitration or court proceedings.
5.4 Dispute resolution choices
Energy contracts with private counterparties (EPC, O&M, corporate PPAs, shareholder agreements) almost always include arbitration clauses or jurisdiction clauses for civil/commercial courts.
Contracts with public bodies or state-owned enterprises require more careful analysis:
- Some are clearly administrative contracts, where disputes are generally subject to Turkish administrative courts and public-law principles.
- Others are private-law contracts where international arbitration is permissible and widely used, especially in cross-border projects and finance documents.
Turkey is a party to the New York Convention, which supports enforcement of foreign arbitral awards, but certain assets of the state may enjoy immunity from execution depending on their nature and purpose. Investors therefore need a coherent enforcement strategy, not just a beautifully drafted arbitration clause.
6. International Investment Protection
6.1 Bilateral investment treaties (BITs) and Energy Charter Treaty (ECT)
Turkey has signed a wide network of bilateral investment treaties with many capital-exporting countries. These treaties generally:
- protect foreign investors against expropriation without prompt, adequate compensation;
- require fair and equitable treatment and protection against discrimination;
- guarantee free transfer of returns;
- allow investors to bring claims directly against the State in international arbitration.
In addition, Turkey is a party to the Energy Charter Treaty, a multilateral agreement specifically focused on energy investments and cross-border energy trade. The ECT provides investors with standards of treatment similar to those in BITs and an additional basis for arbitration.
For energy sponsors, one of the most practical questions is corporate structuring: under which jurisdiction should the holding company of the Turkish project be incorporated to maximize treaty protection? The answer depends on the specific content of the relevant BITs and ECT provisions, but many investors deliberately route their investments through jurisdictions with favourable treaties.
6.2 ICSID and arbitration practice
Turkey is a member of the ICSID Convention and has been involved in multiple ICSID cases, many of them energy-related. ICSID arbitration offers a self-contained enforcement mechanism: awards are binding on the parties and are to be treated as final judgments of a state’s own courts.
Additionally, Turkey’s participation in the New York Convention facilitates enforcement of non-ICSID arbitral awards, provided they meet formal conditions and do not conflict with basic notions of public policy.
The practical message for investors is two-fold:
- Treaty-based arbitration is not theoretical; it is actually used in energy disputes involving Turkey.
- The combination of domestic remedies and international arbitration creates a two-tier protection system that can be very valuable for large, long-term projects.
7. Practical Guidance for Foreign Investors
Bringing together the elements above, the following points form a pragmatic checklist for foreign investors planning energy projects in Turkey.
7.1 Structuring and corporate planning
- Establish a special-purpose vehicle under Turkish law that satisfies the corporate form and capital requirements for the relevant licences.
- Align shareholder agreements and articles of association with EMRA’s rules on share transfers, control changes and licensing conditions.
- Consider treaty-friendly holding structures to benefit from favourable BITs or the ECT while also complying with Turkish foreign investment rules.
7.2 Regulatory due diligence and timeline
- Map all required licences and permits: pre-licence, generation licence or gas licences, environmental approvals, zoning and construction permits, land rights, grid connection approvals and – where relevant – competition clearances.
- Understand the sequencing: certain steps must be completed before others (for example, grid connection approvals before final licensing, or EIA before construction permits).
- Factor in realistic timeframes; underestimating regulatory timelines is one of the fastest ways to derail a project finance schedule.
7.3 Contract design and risk allocation
- Negotiate PPAs and gas supply contracts with a view to long-term stability: clear price formulas, robust take-or-pay mechanisms where appropriate, balanced change-in-law clauses and workable force-majeure provisions.
- Ensure consistency between EPC/O&M agreements, licences, PPAs, support schemes and grid connection agreements so that obligations align rather than conflict.
- Embed step-in and cure rights for lenders through direct agreements with key counterparties, including offtakers, EPC contractors and major suppliers.
7.4 Currency, inflation and tariff risk
Turkey is a jurisdiction with foreign-exchange volatility and inflation risk. Projects must address this explicitly:
- Decide in which currency revenues will be earned and how that interacts with the currency of financing.
- Where tariffs are in Turkish lira, explore indexation mechanisms, hedging tools and covenant packages that reflect potential stress scenarios.
- When support schemes or auction tariffs are involved, analyse how they evolve over time and how they respond to macro-economic shocks.
7.5 ESG, social licence and community relations
Beyond legal compliance, modern energy projects must earn and maintain a social licence to operate:
- Environmental impact assessment is not just a formal hurdle; it is also a focal point for potential opposition from local communities and NGOs.
- Land acquisition, resettlement and compensation must be handled transparently and fairly to avoid long-term disputes and reputational harm.
- Aligning project standards with international ESG benchmarks (for example, those used by multilateral lenders) can reduce financing costs and regulatory friction.
8. Conclusion
Energy projects in Turkey sit at the intersection of commercial opportunity, regulatory complexity and political sensitivity. For foreign investors, the country offers:
- significant demand for new capacity and infrastructure;
- a sophisticated, though demanding, licensing and regulatory system;
- a mixture of state and private counterparties in long-term contracts;
- domestic legal protections, administrative remedies and international treaty-based safeguards.
Successful investors treat licences, long-term contracts and investment protection tools as three inseparable pillars of the same structure. Weakness in any one of them can undermine an otherwise promising project; strength in all three can support resilient, bankable investments that withstand regulatory change and economic volatility.
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