Turkey is developing its legal frameworks for nuclear power. It has announced a programme of three new (approx. 5,000 MW) plants and has held a competition for the development of these. To establish its new industry, Turkey will need to hire and train people to constitute the public sector side of the industry, complete the development of its international and domestic legal frameworks and secure investors willing to build and operate new plant.
Turkey is competing with other states; many countries are chasing the same scarce human resources and places in the technology suppliers’ production lines and contractors’ order books. Its success will depend on the rigour with which it implements its legal and commercial framework. This may be a significant challenge.
Turkey’s poor track record of bringing forward nuclear projects and its “stop-start” record with privatisations may not contribute to investor confidence. Its new electricity market structure has recently seen highly volatile trading and may also be seen as insufficiently mature to be relied upon by merchant nuclear plant.
Turkey has made several previous attempts to establish nuclear power, leaving a considerable legal legacy: some 35 national laws, regulations and communiqués. However, these do not yet constitute a regime which is sufficiently complete, transparent and understandable to facilitate new build.
Recently, a nuclear law has been enacted and regulation to supplement it. Several sets of regulations are under development and various decisions have been announced concerning Treaty developments.
The Nuclear Law addresses some important areas, policy and specific details concerning Turkey’s first nuclear projects, but not with the clarity and detail which investors expect. It builds on earlier laws but is confusing in the way it does so.
The Nuclear Law provides principles for decommissioning responsibility and funding. Operators must decommission their plants. A Special Reserve Account for Decommissioning (SRAD) is to be established. Operators will pay a US$0.15/kWh generated levy into this. If SRAD proves insufficient to meet the operator’s decommissioning obligations, Government may contribute up to 25 per cent of the funds in the account. If available funds remain insufficient, the operator must meet the balance of the costs.
Almost identical arrangements are provided for the National Radioactive Waste Account (NRWA), to fund waste management and disposal. Again, there is a US$0.15/kWh levy, a 25 per cent Government top-up and residual operator liability.
Neither of these arrangements is yet comprehensively provided for. It is not clear, for example: how the funds in each account are to be accumulated and held (though it appears that they are to be administered by the Ministry and Undersecretariat of the Treasury);
what happens to surpluses; how funds can be accessed by the operator when discharging its responsibility; what the investment policy of the funds will be; who takes the risk of underperforming investments; whether the funds can be aggregated for all the operator’s plants or whether there must be a separate fund for each plant, etc.
In March TETAS launched a competition for the first plant, at Mersin, with capacity of 4,000MW +/-25 per cent to be operational by 31 December 2020. One bid from a Russian consortium (ASE and InterRao) was received and is under consideration. Competition documents included a draft offtake contract.
Turkey faces some tough legal challenges to secure nuclear development:
- Establishing its legal framework. Ensuring that the many laws established over 40 years create a coherent regime will be difficult. They do not fit well together and overall are hard to understand and incomplete. For example, implementation of the Paris Convention is sparse. The Nuclear Law says that the Paris Convention applies but not how, making it hard for investors to understand how these crucial arrangements work under Turkish Law.
- Concerns with the TETAS offtake contract:
- The strength of TETAS’s financial covenant. TETAS is not separately rated and Government support for its payment obligations will probably be needed.
- The contract has a maximum term of 15 years (commencing on plant commissioning, expiring no later than 31 December 2030). Developers may proceed without a TETAS offtake contract as merchant plant immediately, rather than from 2031. A maximum of 15 years is probably too short.
Developers will probably not take merchant risk either from the outset or after only 15 years.
- The contract does not address detailed risk allocation in the depth and commercial manner expected by international investors.
- Potential EU accession. If Turkey accedes to the EU, this may happen just as the first nuclear plant is being commissioned. Accession will involve membership of the EU Emissions Trading Scheme (EU ETS). How nuclear will be addressed within the EU ETS is not yet certain (this is an issue affecting nuclear investment elsewhere) and could significantly affect nuclear economics.
- Arrangements for funding decommissioning and waste/spent fuel management costs. Developers may be willing to take some risk of decommissioning costs exceeding SRAD funds, though perhaps not un-capped risk. It is highly unlikely that the current proposals for uncapped residual operator liability for waste costs if accumulated NRWA funds are insufficient, would be acceptable.
- Nuclear indemnity. Although Turkey is a signatory to the Paris Convention, the international nuclear framework that this provides has some notable gaps. Turkey should probably expect to have to provide a nuclear indemnity to cover these (and, potentially, any shortfall in insurable risks).