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The bankability (Project Finance suitability) of renewable energy projects (Solar, Wind, Geothermal, Biomass) relies absolutely on the structural integrity of the underlying EPC (Engineering, Procurement, and Construction) contract. While ostensibly an engineering blueprint, the EPC contract is profoundly a heavyweight legal instrument—an operational arena where the question "on whose shoulders does the risk ultimately fall?" is definitively answered. At Ertuğ & Partners, we systemize below the critical risk allocation doctrines and legal safeguards strictly demanded by commercial banks and international lenders in high-volume energy projects.
1. Apportionment of Cost Overrun and Pricing Risks
The intrinsic nature of an EPC contract is to be "Turn-Key" and "Lump-Sum." The investor (Owner) expects to receive an immaculate, fully operational (plug-and-play) facility in exchange for a singular, predetermined invoice.
Investor Protection: Material cost escalations in design, extreme fluctuations in global iron/steel markets, or sudden labor wage surges must exclusively burden the contractor (EPC Firm). Guaranteeing a "fixed price" is the most sensitive nerve for project financiers.FX and Inflation Hurdles (The 2026 Jurisprudence): Within Turkey, under the oppressive weight of Article 138 of the Turkish Code of Obligations (Hardship/Impossibility of Performance) overriding alongside "Decree No. 32 on the Protection of the Value of the Turkish Currency", parties must rigorously assess whether their contract falls foul of the prohibition to denominate contracts in foreign currency between Turkish residents. If the law mandates Turkish Lira (TRY) pricing, inflation-indexed escalation formulas must be meticulously woven into the fabric of the contract. This legally neutralizes the risk of the contractor abandoning the construction site due to catastrophic currency shocks.2. Delay Liquidated Damages (LD)
The "Guaranteed Completion Date" signifies the very moment the facility connects to the grid and YEKDEM (FIT) or merchant electricity sales commence. Consequently, every single day of construction delay correlates mathematically to an unpaid loan installment for the investor.
Penalty (LD) Ratios: Whenever delays stem not from flawed administrative red tape but strictly from the negligence of the EPC or its sub-suppliers, the contractor is liable to pay a daily Liquidated Damage sum. This is generally negotiated between 0.1% to 0.3% of the total contract price per day.Liability Caps: Punitive damages cannot stretch into infinity. EPC delays are typically capped at a maximum of 10% to 20% of the total contract value. Should this limit be breached, the investor must be explicitly granted the right to enact "termination for default."Testing and Extension of Time (EoT): Encounters with unforeseeable archaeological ruins, delays in grid connection caused strictly by the state transmission company (TEİAŞ), or extraordinary meteorological events (Force Majeure) grant the EPC Contractor an "Extension of Time" but strictly NO "Additional Costs."3. Facility Performance Ratios and Availability Guarantees
Erecting the structure physically is insufficient; a wind turbine or solar park must deliver the exact power output advertised.
Performance Ratio (PR) in Solar: The contract must crystallize the exact guaranteed ratio of solar irradiance converted into exportable electricity (e.g., heavily guaranteed at 80% PR).Availability in Wind: The percentage of time over the year that the turbines are commercially operational and fault-free must be legally guaranteed (traditionally around 97%).Performance LDs: If the electricity generated during the 2-year testing window undershoots the promised baseline, the lost revenue is calculated using a predetermined capacity formula and extracted upfront from the contractor as "Performance Liquidated Damages." Lenders aggressively mandate these technical guarantees as unconditional Conditions Precedent (CP) for financial close.4. Shouldering The Burden of Approvals and Bureaucratic Permits
Fencing off a barren solar field entails profound bureaucratic friction: approving zoning plans, obtaining "EIA (Environmental Impact Assessment) Not Required" certificates, acquiring Forestry and Agricultural permits, and passing rigorous EPDK/TEDAŞ technical examinations.
As a foundational rule, obtaining Official Permits rests within the investor's (Employer's) jurisdiction.However, the flawless structural, electrical, and architectural designs required to obtain these permits MUST be the exclusive liability of the EPC firm. If a project approval is categorically rejected or stalled for months because of a flawed underlying engineering blueprint submitted to TEDAŞ, the fault (and corresponding delay LD) legally falls squarely on the EPC.5. The "Back-to-Back" Accountability of Subcontractors
Virtually no EPC contractor manufactures its own solar panels, complex inverters, or HV cables directly; it procures them from original equipment manufacturers (OEMs).
The Hidden Risk: Should an installed panel ignite or an inverter chronically malfunction, the EPC company cannot sidestep liability by declaring, "It is the supplier's fault, sue them." The EPC must act as the "Single Point of Responsibility" for the employer, remaining jointly, severally, and directly liable for the substandard actions and defective products drafted by its subcontractors.6. Dispute Resolution (Arbitration over Litigation)
In multi-million dollar energy investments, parched parties cannot afford the luxury of waiting 5 years for local courts to resolve a construction dispute.
Strategic Recommendation: Contracts should foremost institutionalize a technical "Dispute Adjudication Board" (DAB) composed of impartial engineers. If unresolved, the clause must mandate binding Arbitration via the Istanbul Arbitration Centre (ISTAC) or, in cross-border cases, the ICC (International Chamber of Commerce). The exclusive authority of arbitral tribunals to issue emergency "Interim Relief" is paramount to preventing unwarranted hostile takeovers of the construction site.---
This publication is formulated to distribute general legal awareness regarding energy sector dynamics and does not substitute specifically tailored legal consultancy for an individual investment project.
