Energy LawEVALUATION OF RENEWABLE ENERGY SUPPLY AGREEMENTS

The Government of the Republic of Turkey has provided many subsidies to investors in order to break the installation costs, market uncertainties, possible risks and devaluation effects of renewable energy facilities. Over the past, renewable energy plants have also been mostly funded by these subsidies. In this process, there is a safe environment with fixed figures in the field of energy supply. The most important of these incentives made in the energy sector was undoubtedly the YEKDEM project. Government incentives were provided by guaranteeing purchases at the same price for 10 years.

The Renewable Energy Resources Support Mechanism is filling its milestone by the end of this year from subsidies to the green energy field by the Government of the Republic of Turkey. With the YEK Law No. 5346, “. From 18/5/2005, the effective date of this law, to 31/12/2020, the production facilities that have entered or will enter the operation and are covered by this law will be applied for 10 years.” From this point of view, Renewable Energy Supply Agreements (YETA); It has the potential to produce projects that are a continuation of the investments initiated by the YEK Support Mechanism.

What is the Renewable Energy Supply Agreement?

Renewable Energy Supply Agreements; are contracts in which the buyer commits to purchase the renewable energy project output at a fixed price for a certain period of time. It provides consumers with protection against future energy price increases by fixing some or all of the annual electricity costs. These agreements provide investors with some protection against fluctuations in the global economy, but are of great importance in terms of encouraging investments in the energy field.

Renewable Energy Supply Agreements can be the subject of all kinds of renewable energy sources. But recently solar panels or wind generators; it is used more often for renewable energy supply.

The turning point in the use of Edible Energy is undoubtedly the fact that in 2014 a hundred large companies from around the world came together to form the RE100 association. Large companies committed to supplying 100% renewable electricity; as soon as possible (no later than 2050) they have set a public target to supply global electricity consumption from renewable sources. These associations and their goals have increased the demands of renewable energy and most companies have started to work in this field. These include General Mills, Microsoft, Telstra, Coca Cola Amatil, General Motors, Ikea and Google.

In parallel with the market needs, technological infrastructures and established characteristics of the countries, Renewable Energy Supply Agreements can appear in different forms. The species with the most common Renewable Energy Supply Agreements; physical abilities and financial abilities depending on procurement characteristics. The basic logic of physical COMPETENCE; it is the direct transfer of some or all of the energy generated by the manufacturer plant to the consumer company at a fixed price per MWh during the agreed period. Renewable Energy Supply Agreements that find assets in this form are long-term agreements and contracts are usually concluded for periods exceeding 10 to 15 years. In physical Renewable Energy Supply Agreements, energy is transmitted directly to a single receiver. From this point of view, it can be said that physical abilities are the closest species to the main purpose of Renewable Energy Supply Agreement energy plants. As a matter of fact, the principle of directness is at the heart of these agreements. If there is an energy consumer in physical Renewable Energy Supply Agreeements, all the requirements of the manufacturer plant are fulfilled and the activity stage can be reached in a short time.

Renewable Energy Supply Agreements are now common in renewable energy businesses due to reduced government subsidies. Renewable Energy Supply Agreement practices provide an environment for lenders such as banks to invest in a renewable project without subsidies. Banks that provide credit flow during the investment process want to secure themselves. In this respect, the financing dimension can be easily exceeded by proving that renewable energy related to Renewable Energy Supply Agreements has a long-term buyer at a fixed price. Thus, renewable investments are allowed by providing income certainty to investors and lenders in non-subsidized markets through Renewable Energy Supply Agreement contracts. Again, with the end of legal subsidies in an existing plant, the continuity of the facility is maintained by providing financing through Renewable Energy Supply Contracts.

In financial COMPETENCE, energy is not physically bought and sold. These agreements are a difference agreement. Financial ABILITIES operate under a contractual structure under which the contractor and generator agree on a defined ‘strike price’ for power generated by a renewable power plant. Each of the parties then makes separate agreements with electricity suppliers/services to sell/purchase the electricity price/service (as applicable). Financial YETA contracts; it is aimed at protecting against future financial risks. If the spot price exceeds the strike price defined by the YETA during a settlement period; the generator must pay the authority the excess amount that occurred during that period. If the electricity market price is lower than the strike price, the supervisory authority completes the missing amount corresponding to the electricity produced at that time.

The benefits of the Renewable Energy Supply Agreement include long-term price security, opportunities to finance investments in new power generation capacities, or reducing the risks associated with electricity sales and purchases. As government subsidies are abolished, long-term price certainty will become more important than ever. YETA is a tool that can be used to provide long-term secure income to projects. This can be in the form of a fixed price, a floating price in a band, or a floor price.

Under yeta agreements, some of customers’ retail costs are fixed and depend on the cost of production. Only a fraction of the costs vary and these variables depend on market conditions. Thus, any organization that wants to negotiate a supply agreement with a renewable energy generator secures some of its economic costs.

YETAs allow direct contracting between renewable energy project operators and authorized persons. The parties may negotiate the terms of this agreement at any time. YETAs are contracts dominated by the principle of directness, on which parties can negotiate freely, rather than unspecified auctions. Due to these features, YETA contracts seem very attractive to investors and consumers.

Supply contracts for the use of Edible Energy; It is aimed at reducing carbon emissions in a transparent and traceable way and aims to contribute to sustainability goals. One of the reasons yetas are preferred is undoubtedly the importance of the concept of green energy today. In this period when green energy is of great importance, most international companies; Through the RE100 organization, it took action with a focus on the “Zero Carbon” goal. Global companies such as IKEA, Apple, Adobe and Bloomberg, which are part of re100 in our country, also have “Clean Energy”, “Zero Carbon” commitments. Due to these commitments, it is seen that consumption companies are turning to YETA contracts with the aim of reducing carbon emissions.

Certainty and transparency on security of supply and energy costs also make YETA (PPA) contracts preferable. From this point of view, the uncertainty of the ups and downs of project revenues is eliminated and thus it provides easier guarantee of debt and equity financing. In addition, a certain source of physical electricity can occur with certain regional characteristics and guarantee of origin. Customers can use their brand to make it more sustainable and greener.

The open-ended design of the contract also provides a great advantage for individual plant operators to reflect the preferences of electricity consumers. Consumers who are parties to this agreement; it will not be held responsible for burdens such as YEK price, which is one of the additional fees reflected in the invoices today.

In summary, Renewable Energy Supply Agreements (YETA) are attractive to investors due to their ability to be signed at fixed prices, to be transparent and predictable, and to be able to participate more in market risks and opportunities.

In addition to these advantages, it is necessary to mention its disadvantages. YETAs (PPAs) address multiple areas; complex contracts that require many risk analyses to address contractual obligations. Therefore, it requires a lot of negotiation before it is finalized. Overlooking or inadequately negotiating a contractual provision may affect the total revenue of energy supply projects to be made. The long term specified in the YETAs may be a disadvantage for the parties. Moreover, there may be fluctuations in the amount of electricity generation.

Negotiating and securing a valid and acceptable Renewable Energy Supply Agreement is an important step in the development of an energy production facility. YETA agreements contain many critical terms and conditions. The negativity of these terms must be minimized by the provisions of the contract. For this reason, the articles and conditions contained in yeta contracts should be evaluated after an efficient analysis and taken as a whole. As CLA Partners firm, legal consultancy services are provided to the parties negotiating on the Renewable Energy Supply Agreements such as evaluation of the existing project needs of YETA contracts, states of responsibility, risk analysis, etc.

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