Whether a renewable energy project (solar, wind, geothermal or biomass) is bankable depends on how soundly the EPC (engineering, procurement and construction) contract behind it is structured. An EPC contract is not merely an engineering document; it is where the question of whose shoulders each risk sits on is answered between the investor and the contractor.
Drawing on high-value energy projects, we set out below the risk allocation principles and legal protections that banks and international lenders look for.
1. Allocating Cost Overrun Risk
An EPC contract is by nature turnkey and lump-sum. The investor expects to take delivery of a complete, operational plant for a single price.
Protecting the investor: Increases in material quantities during design, fluctuations in steel prices and labour cost rises should sit with the contractor. The fixed price guarantee is the point on which financiers are least flexible.Currency and inflation risk: A common misconception should be corrected at the outset. Article 8 of the Communiqué on Decree No. 32 on the Protection of the Value of Turkish Currency prohibits foreign currency pricing in many contracts between persons resident in Türkiye, but works contracts fall outside that prohibition: under paragraph 8 of that article, parties resident in Türkiye may denominate the price and other payment obligations in, or index them to, foreign currency in works contracts that involve costs denominated in foreign currency.An EPC contract is, in legal terms, a works contract, and in renewable energy projects a substantial part of the cost consists of imported equipment (panels, turbines, inverters), so the condition of "involving foreign currency costs" is typically satisfied. Pricing the EPC contract in foreign currency is therefore permissible in most projects, and proceeding on the assumption that conversion to Turkish lira is mandatory loads an unnecessary currency risk onto the investor. What matters is that the foreign currency component of the cost is demonstrable from the contract and its annexes.
Where the price is to be set in Turkish lira: The contract must expressly provide escalation formulas setting out how currency and cost movements are reflected. Otherwise, in a severe currency shock the contractor will seek adaptation or rescission under Article 138 of the Code of Obligations on excessive difficulty of performance, and the site risks being abandoned. An escalation formula is the most effective way of managing that risk in advance.2. Delay Liquidated Damages
The guaranteed completion date is the date on which revenue from electricity sales begins. Every day of construction delay is a day on which the investor must service debt without that revenue.
Rates: For delays attributable to the contractor's own failures or to its subcontractors, rather than to administrative processes, a daily delay payment is due. This is commonly set between 0.1% and 0.3% of the contract price per day.The cap: Delay damages cannot be unlimited. In EPC contracts they are typically capped at 10% to 20% of total project value. Where the cap is exceeded, the investor should be entitled to terminate for default.Extension of time: Unforeseen archaeological finds, delays by the transmission operator in providing connection, or exceptional weather should entitle the contractor to an extension of time. Whether they should also carry additional cost is the point most heavily negotiated; the investor's position is that time relief and cost relief are separate questions and should not be granted together by default.3. Performance Ratio and Availability Guarantees
Completion of construction is not enough; a turbine or panel array must deliver the promised output.
Performance ratio in solar: The contract should record a guaranteed performance ratio: 80%, for instance.Availability in wind: The percentage of the year during which turbines are guaranteed to be operational, typically around 97%.Performance damages: If output during the testing period falls below the guaranteed level, the lost generation revenue is converted into a performance liquidated damages payment recoverable from the contractor. Lenders require these guarantees as a condition precedent to financial close.4. Who Bears Permitting Risk?
Building a solar plant involves an extensive permitting process: approval of zoning plans, an "EIA Not Required" decision, forestry and agricultural land permissions from the Ministry of Agriculture and Forestry, and project approvals from EPDK and the distribution company.
As a rule, obtaining official permits falls to the investor as employer.However, preparing the architectural, electrical and structural drawings required for those permits accurately and in compliance with the regulations should sit squarely with the EPC contractor. A project approval refused for months because of a defective drawing is the contractor's failure.5. Single Point of Responsibility for Subcontractors
No EPC contractor manufactures its own panels, inverters or cable; it buys them from suppliers.
The risk: When a panel catches fire or an inverter fails, the EPC contractor cannot step aside and say the fault lies with the supplier. The EPC contractor should be directly and jointly liable to the employer for the acts of subcontractors and manufacturers, as a single point of responsibility.6. Dispute Resolution
In large energy projects the parties cannot afford five years of litigation over a delay.
Recommended structure: The contract should first refer the dispute to a dispute adjudication board composed of qualified engineers, and provide that unresolved disputes go to arbitration before ISTAC or, for cross-border transactions, the ICC. The availability of interim relief in arbitration prevents unjustified interference with the site.This article is prepared for general information on energy sector dynamics and does not constitute a legal opinion on a specific investment.
Last updated: 10 August 2026.
