What happens when a Turkish energy project defaults on financing? A 2026 guide for foreign lenders and investors covering loan acceleration, step-in rights, share pledges, mortgages, account pledges, receivables, direct agreements and enforcement.

Energy projects in Turkey are frequently financed through substantial long-term debt. Solar, wind, hydroelectric, geothermal and battery-storage projects may require tens or hundreds of millions of euros of financing before meaningful operating revenue is generated.

For lenders, the fundamental project-finance assumption is that repayment will come primarily from the project’s future cash flow and secured assets rather than solely from the sponsors’ general balance sheets.

A financing default can therefore become much more complicated than an ordinary unpaid bank loan.

The lender must determine whether to accelerate the debt, enforce security, take control of project cash flows, exercise step-in rights, require additional sponsor support or restructure the financing while preserving the project’s generation license and operating value.

The critical principle is simple:

The lender usually obtains greater value by preserving an operating energy project than by destroying the project through poorly coordinated enforcement.

What Is an Energy Project Financing Default?

A financing default occurs when the project company breaches an obligation under its financing documents.

The most obvious example is failure to make a scheduled principal or interest payment.

However, project-finance agreements normally contain many additional Events of Default.

These may include:

Payment Default – Financial Covenant Breach – Insolvency – Cross-Default – License Loss – Material Project Contract Termination – Failure to Complete Construction – Failure to Maintain Insurance – Unauthorized Share Transfer – Failure to Maintain Security – Misrepresentation – Abandonment of the Project.

The precise definition depends on the loan agreement.

Payment Default

Suppose a Turkish solar project must make a EUR 3 million semi-annual debt-service payment but lacks sufficient cash.

The lender should first establish whether the failure constitutes an immediate Event of Default or whether the finance documents provide a grace period.

A payment default can potentially trigger:

Default Interest → Drawstop → Cash Sweep → Acceleration → Security Enforcement.

However, lenders do not necessarily accelerate immediately.

If the project remains economically viable, restructuring may generate a substantially better recovery.

Financial Covenant Default

A project may continue paying debt while nevertheless breaching financial covenants.

One of the most important indicators is the Debt Service Coverage Ratio.

For example:

Required DSCR: 1.30x

Actual DSCR: 1.08x

The financing documents may restrict dividend distributions, require additional reserves or trigger other lender protections before an actual payment default occurs.

This gives lenders an opportunity to intervene before the project becomes insolvent.

Why Energy Project Defaults Are Different

A conventional corporate borrower may own assets that can simply be sold.

An energy project is different.

Its value may depend on an interconnected package consisting of:

Generation License + Land Rights + Grid Connection + Power Plant + Equipment + PPA + Electricity Revenues + Permits + O&M Contract + Insurance + Financing Structure.

Separating these components can destroy value.

For this reason, enforcement must be designed around preservation of the project as an operating business.

The Security Package

A typical Turkish energy project financing may include several layers of security.

Depending on the transaction, lenders may seek:

Share Pledge

Mortgage

Movable Asset Security

Bank Account Pledge

Assignment or Security Over Receivables

Insurance Proceeds

Project Contract Rights

Sponsor Guarantees

Shareholder Support Undertakings

Direct Agreements

No single security instrument should automatically be assumed sufficient.

The lender should examine the entire package.

Share Pledge

A pledge over shares in the project company can be particularly valuable.

Instead of enforcing individual project assets, the lender may seek control over the company owning the project.

Conceptually:

Project Company Shares → Enforcement → Change of Control → Project Preserved Inside SPV.

This can preserve contracts, employees, land rights and operational infrastructure more effectively than piecemeal asset enforcement.

However, energy-sector regulatory restrictions must be considered before any enforcement strategy that would change ownership or control.

Regulatory Limits on Share Enforcement

A power generation company is not an ordinary commercial company.

Its ownership structure can be subject to electricity-market licensing rules.

EPDK’s current licensing framework requires licensed generation companies to comply with specific corporate and share-transfer requirements, and the applicable licensing procedures expressly contemplate regulatory rules for share transfers, mergers, divisions and project or facility transfers.

Accordingly:

Share Pledge Enforcement ≠ Automatic Regulatory Transfer.

Before enforcement, lenders should determine whether EPDK approval, notification or another regulatory procedure is required.

Generation License Cannot Be Ignored

The generation license may represent one of the project’s most valuable regulatory rights.

But lenders should not treat it as if it were an ordinary movable asset that can simply be seized and privately sold.

EPDK confirms that electricity generation requires a production license following completion of the applicable preliminary-license process and that licensing is governed by the Electricity Market Licensing Regulation.

Therefore, enforcement must be structured around the regulatory status of the licensed company and facility.

Mortgage Over Project Real Estate

Where the project company owns land or other mortgageable immovable property, lenders may obtain a mortgage.

Following default, the secured creditor may pursue foreclosure according to the applicable enforcement rules.

However, land value alone may represent only a fraction of total project value.

A 100 MW solar project may be worth significantly more as an operating licensed generation facility than as land plus separately sold equipment.

That is why foreclosure should be coordinated with the broader project strategy.

Equipment Security

Energy projects contain valuable equipment:

Solar Modules

Wind Turbines

Transformers

Inverters

Battery Systems

Switchgear

Generation Equipment

Security may be established over qualifying movable assets under the applicable legal framework.

Again, enforcement value should be compared with going-concern value.

Selling turbines individually may recover substantially less than maintaining an operational wind project.

Project Bank Accounts

Control over project cash is one of the most important lender protections.

Project financing commonly uses structured accounts such as:

Revenue Account

Operating Account

Debt Service Account

Debt Service Reserve Account

Insurance Proceeds Account

Distribution Account.

The financing documents establish the payment waterfall.

Following default, distributions to shareholders may be blocked while cash is redirected toward debt service.

Cash Waterfall

A typical project-finance waterfall can conceptually operate as:

Project Revenue → Taxes → Operating Costs → Senior Debt Service → Required Reserves → Permitted Distributions.

Sponsors therefore receive distributions only after senior obligations have been satisfied.

This structure gives lenders significant protection before formal enforcement becomes necessary.

Debt Service Reserve Account

A DSRA can provide temporary protection where project cash flow falls below expectations.

For example, the account may contain enough money to cover several months of scheduled debt service.

This gives lenders and sponsors time to address temporary problems without immediately pushing the project into enforcement.

However, use of the reserve may trigger a requirement to replenish it.

Assignment of Electricity Receivables

Electricity-sale revenue is often one of the project’s most valuable assets.

The financing structure may therefore provide security over receivables arising from:

PPA Payments

Bilateral Electricity Sales

Market Revenues

Other Project Receivables.

Following default, lenders may seek to redirect secured receivables toward repayment, subject to the security documentation and applicable law.

PPA Revenue

Where a project has a long-term PPA, preserving that agreement can be critical.

Suppose a solar project owes EUR 70 million to lenders but has a highly favorable ten-year PPA.

If enforcement causes termination of the PPA, project value may collapse.

The lender should therefore review:

PPA Default Provisions → Financing Consent → Assignment Restrictions → Change-of-Control Provisions → Direct Agreement → Step-In Rights.

Direct Agreements

Direct agreements are among the most important tools in sophisticated project financing.

A direct agreement creates a relationship between lenders and a key project counterparty.

These agreements may involve:

EPC Contractor

O&M Provider

Offtaker

Landowner

Major Equipment Supplier

or another essential project participant.

The objective is usually to prevent immediate termination of a key project contract after project-company default.

What Are Step-In Rights?

Step-in rights allow lenders, or a designated replacement party, to intervene when the project company defaults under a key project agreement.

For example, an O&M agreement may provide:

Project Company Default → Notice to Lenders → Standstill Period → Lender Cure Opportunity → Possible Substitution → Termination Only After Process Ends.

This gives lenders time to preserve the project.

Why Step-In Rights Matter

Without step-in rights, a project can enter a destructive chain reaction.

Loan Default → Project Contract Default → PPA Termination → O&M Termination → Revenue Collapse → License Risk → Security Value Collapse.

Direct agreements attempt to interrupt that sequence.

The lender’s objective is to stabilize the project before value disappears.

Step-In Does Not Mean Automatic Ownership

Foreign lenders should distinguish contractual step-in rights from ownership of the licensed project.

A lender may have contractual rights to cure a default or arrange substitution.

That does not necessarily permit the lender simply to assume the generation license or operate the project indefinitely without complying with regulatory requirements.

Regulatory approvals remain critical.

EPDK Approval and Substitution

This issue is particularly important for licensed generation projects.

EPDK’s licensing procedures specifically regulate applications involving share transfers, mergers, divisions and facility or project transfers.

Accordingly, direct agreements should be drafted so that contractual standstill periods provide sufficient time to obtain any necessary regulatory approvals.

A step-in right that expires before regulatory approval can realistically be obtained may have limited practical value.

Standstill Period

A direct agreement should normally prevent the counterparty from terminating immediately.

For example:

Project Default → 15-Day Notice to Lender → 60-Day Lender Cure Period → Additional Substitution Period Where Required.

The exact periods depend on the project.

Complex regulatory substitution may require significantly longer periods than an ordinary payment cure.

Lender Cure Rights

Some defaults can be cured directly.

If the project company owes the O&M contractor EUR 500,000, the lender may decide that paying the amount is preferable to losing an essential operating contract.

Other defaults cannot easily be cured by payment.

A serious technical breach may require appointment of a replacement operator.

Direct agreements should address both scenarios.

Replacement of the Project Company

In extreme circumstances, lenders may seek substitution.

This can involve a new sponsor or replacement project vehicle acquiring the relevant project position, subject to legal and regulatory requirements.

The lender’s commercial objective is usually:

Replace Failed Sponsor, Not Destroy Viable Project.

This is one of the central concepts of project-finance enforcement.

Sponsor Support

Project financing may also include sponsor support undertakings.

Sponsors may be required to provide additional funding for:

Cost Overruns

Construction Delays

Debt Service Shortfalls

Equity Commitments

Reserve Replenishment

Completion Support.

Before enforcing project assets, lenders should determine whether additional sponsor funding can be required.

Equity Cure Rights

Some financing structures allow sponsors to inject additional equity to cure financial covenant breaches.

For example:

DSCR Breach → Sponsor Equity Injection → Financial Ratio Recalculated.

This can prevent unnecessary acceleration where the underlying project remains viable.

Cost Overrun Support

Construction-stage projects are particularly vulnerable to cost overruns.

Suppose a battery-storage project originally budgeted at EUR 80 million ultimately requires EUR 95 million.

The loan agreement may require sponsors to fund the additional EUR 15 million before lenders provide further debt.

Failure to provide required equity can itself become an Event of Default.

Completion Default

Lenders usually pay particular attention to project completion.

A project that has not achieved commercial operation cannot generate the revenue required to repay debt.

Financing documents may therefore establish:

Scheduled Completion Date

Long-Stop Date

Completion Tests

Required Permits

Performance Tests

Minimum Capacity.

Failure to achieve completion by the long-stop date can trigger serious lender remedies.

Regulatory Completion Risk

Completion risk must also be coordinated with licensing requirements.

EPDK’s current licensing framework requires production-license applicants to submit a project completion schedule, while generation licenses remain subject to completion-related regulatory requirements.

A lender restructuring a delayed project should therefore review both financing deadlines and regulatory deadlines.

Extending the loan maturity does not automatically extend an EPDK deadline.

Cross-Default

Energy project companies frequently have several financing arrangements.

A default under one major agreement may trigger a cross-default under another.

For example:

Senior Loan Default → Hedging Default → Working Capital Default → Sponsor Facility Default.

The lender group should coordinate enforcement.

Uncoordinated creditor action can destroy value.

Intercreditor Agreements

Where several lenders participate, an intercreditor agreement becomes critical.

It can determine:

Payment Priority

Voting Rights

Enforcement Control

Standstill

Security Agent Powers

Subordination

Distribution of Enforcement Proceeds.

Minority lenders may not have an unrestricted right to commence independent enforcement.

Security Agent

Syndicated financing commonly uses a security agent structure.

The security agent holds or administers security for the lender group to the extent permitted by the applicable legal structure.

Turkish project-finance practice recognizes enforcement through security-agent arrangements, although the structure should be carefully designed for each category of Turkish security.

Acceleration

Following an Event of Default, lenders may have the contractual right to accelerate the financing.

This means amounts that would otherwise mature over many years become immediately due.

Conceptually:

Future Principal + Accrued Interest + Other Due Amounts → Immediately Payable.

Acceleration is powerful but should be used strategically.

Once accelerated, consensual restructuring may become more difficult.

Default Interest

Financing documents commonly impose increased interest following default.

For a large project loan, default interest can accumulate rapidly.

Borrowers considering prolonged negotiations should therefore calculate the increasing debt rather than focusing only on the original principal.

Enforcement of Security

If restructuring fails, lenders may proceed against collateral.

Turkish project-finance enforcement can involve foreclosure of mortgages and pledges and enforcement against other secured assets according to the applicable legal regime. Secured lenders generally need to follow the enforcement route applicable to the specific collateral rather than treating the entire security package as one asset.

This is why security perfection before default is critical.

Security Perfection Review

After default occurs, lenders should immediately verify:

Was Security Validly Created?

Was Registration Completed?

Were Required Notices Given?

Is the Security Still Effective?

Does It Cover the Current Debt?

Are There Prior Ranking Creditors?

Discovering a perfection defect after default can dramatically reduce recovery.

Priority of Creditors

A lender should determine where it ranks relative to:

Other Banks

Tax Claims

Employees

Equipment Financiers

Mortgage Holders

Other Secured Creditors

Enforcement Creditors.

A valuable project does not guarantee full recovery if senior or competing claims absorb its value.

Insolvency and Concordat

If the project company enters serious financial distress, Turkish insolvency procedures can affect individual enforcement.

The lender should immediately determine whether there is a concordat application, bankruptcy risk or another insolvency proceeding.

Security position becomes particularly important.

Waiting until the insolvency process is advanced can substantially limit strategic options.

Restructuring Before Enforcement

Not every default should result in foreclosure.

A viable renewable project may suffer temporary difficulties because of:

Construction Delay

Curtailment

Temporary Low Electricity Prices

Unexpected CAPEX

PPA Payment Delay

Regulatory Change

Temporary Grid Problems.

Possible restructuring tools include maturity extension, principal grace periods, temporary covenant waivers, additional equity, revised reserve requirements and partial debt repayment.

The lender should compare restructuring recovery with enforcement recovery.

Waiver Versus Amendment

A temporary breach may justify a waiver.

A structural financial problem usually requires amendment.

For example:

One-Time DSCR Breach → Waiver

but

Permanent Revenue Reduction → Loan Restructuring.

Repeated waivers without addressing the underlying problem can merely postpone default.

Enforcement Against Shares

Where share-pledge enforcement is contemplated, the lender should analyze the regulatory consequences before commencing.

The objective may be to transfer ownership to a suitable purchaser rather than have the lender itself become the long-term owner.

Potential buyers can include:

Existing Sponsor

Strategic Energy Investor

Infrastructure Fund

Another Renewable Developer.

A controlled sale can sometimes produce significantly higher recovery than distressed asset enforcement.

Change of Control

Finance enforcement can trigger change-of-control provisions under project contracts.

The lender should review:

PPA

EPC

O&M

Land Agreements

Equipment Warranties

Insurance

Grid Documents.

Security enforcement that preserves the generation company but accidentally terminates its PPA can still destroy project value.

Foreign Lenders

International banks and financial institutions can participate in Turkish project financing, subject to the applicable regulatory and transaction structure.

Foreign-law loan documentation can also be used in cross-border transactions where legally appropriate.

However, Turkish-law security over assets located in Turkey generally requires careful compliance with Turkish security and enforcement rules.

Foreign lenders should therefore distinguish:

Law Governing Loan Agreement

from

Law Governing Turkish Security.

Arbitration

International financing and project agreements may contain arbitration clauses.

Disputes concerning acceleration, guarantees, sponsor support or direct agreements may therefore proceed through arbitration depending on the relevant contract.

However, enforcement against Turkish collateral can still require Turkish-law procedures.

The dispute-resolution strategy and collateral-enforcement strategy should be coordinated from the beginning.

Example: Solar Project Misses Debt Service

A foreign-financed solar project cannot make its scheduled EUR 4 million debt-service payment because its offtaker has failed to pay several electricity invoices.

The plant itself remains operational and profitable.

Immediate foreclosure may be commercially irrational.

The lenders could instead investigate the PPA receivable, block shareholder distributions, use reserve accounts and require a restructuring while preserving the operating project.

Example: Wind Project Fails Before Completion

A wind project runs out of funding at 80% completion.

The EPC contractor threatens termination.

The lenders should review sponsor completion support and the EPC direct agreement.

If the remaining EUR 20 million investment can create an operating asset worth substantially more than the outstanding debt, completing the project may generate a better recovery than immediate enforcement.

Example: O&M Contractor Threatens Termination

A project company has failed to pay its O&M provider.

The direct agreement requires notice to lenders before termination.

The lenders may cure the payment default and preserve operations while restructuring the project.

This is precisely why step-in arrangements are negotiated before financing closes.

Example: Sponsor Abandons the Project

The sponsor refuses to provide required cost-overrun funding and effectively abandons the project.

Lenders may investigate enforcement of sponsor undertakings, share security and substitution mechanisms.

Any ownership or project transfer must be coordinated with applicable electricity-market licensing requirements.

Example: Foreign Lender Wants to Sell the Project

After default, a foreign lender identifies a strategic investor willing to acquire the project.

The lender should structure the transaction around share-security enforcement, project contracts, regulatory approvals and debt release.

The highest recovery may come from an organized project sale rather than piecemeal enforcement.

Lender Due Diligence Before Financing

The best enforcement strategy begins before the loan is signed.

Lenders should examine:

Generation License – EPDK Compliance – Land Rights – Grid Connection – EPC – O&M – PPA – Construction Budget – Sponsor Strength – Insurance – Revenue Model – Environmental Permits – Share Structure – Existing Security – Project Accounts – Enforcement Restrictions.

EPDK’s licensing framework continues to impose detailed requirements concerning production licenses, company structure, completion schedules, guarantees and corporate changes, making regulatory due diligence particularly important in energy finance.

Major Financing Default Red Flags

Foreign lenders should act quickly where there is repeated DSCR failure, depletion of reserve accounts, unpaid EPC invoices, sponsor refusal to inject equity, missed construction milestones, threatened PPA termination, regulatory non-compliance, license risk, insurance lapse, unauthorized asset transfers, unpaid taxes, multiple creditor enforcement proceedings or attempts to move project revenues outside secured accounts.

These signs may indicate that temporary underperformance is becoming a serious enforcement problem.

2026 Lender Enforcement Strategy

A structured response should generally follow:

Identify Default → Check Grace Period → Block Distributions → Preserve Cash → Review Security Perfection → Review Direct Agreements → Notify Sponsors → Analyze Cure Rights → Review EPDK Requirements → Value Project as Going Concern → Compare Restructuring and Enforcement → Exercise Step-In Rights if Necessary → Accelerate Debt if Appropriate → Enforce Security → Coordinate Regulatory Transfer → Sell or Restructure Project.

The sequence is important.

Enforcing security before understanding regulatory consequences can reduce the value lenders are trying to recover.

Frequently Asked Questions

1. Can a lender accelerate an energy project loan after default?

Potentially yes, where an Event of Default has occurred and the financing agreement permits acceleration after any applicable grace or cure period.

2. What are lender step-in rights?

Step-in rights allow lenders or their designated party to cure project-company defaults or intervene before important project agreements are terminated.

3. Can lenders take control of a Turkish energy company?

Potentially through properly structured security and enforcement mechanisms, but electricity-market licensing, ownership and regulatory requirements must also be satisfied.

4. Can a generation license simply be pledged and sold like ordinary property?

It should not be treated as an ordinary transferable asset. Enforcement involving a licensed generation project must be coordinated with the applicable electricity-market licensing regime.

5. Can lenders enforce a share pledge?

Potentially yes, subject to the security documents, Turkish enforcement rules and any applicable energy-sector regulatory requirements.

6. Can project bank accounts be secured?

Project-finance structures commonly include security and control arrangements over project accounts, subject to applicable Turkish law and documentation.

7. What happens to the PPA after financing default?

The financing default does not automatically terminate the PPA. However, cross-default, change-of-control and direct-agreement provisions must be reviewed carefully.

8. Is restructuring better than security enforcement?

It can be. Where the project remains economically viable, restructuring may produce substantially higher lender recovery than distressed enforcement.

9. Can foreign lenders enforce Turkish project security?

Potentially yes, but Turkish assets and security interests must be enforced according to the applicable Turkish legal framework.

10. What is the biggest mistake lenders can make after an energy project default?

Treating the project as a collection of separate assets without first calculating its going-concern value and the regulatory consequences of enforcement.

Legal Support for Energy Project Financing Defaults in Turkey

Energy project financing defaults require coordinated analysis of finance documents, Turkish security law, electricity-market regulation, project contracts and insolvency risk.

Firat Fesih Kaya Law Office assists foreign investors, international lenders, project companies and energy-sector participants with project-finance disputes in Turkey. Firat Fesih Kaya can assist with financing defaults, lender step-in rights, direct agreements, share pledges, mortgages, project receivables, sponsor-support disputes, restructuring, security enforcement and distressed energy-project transactions.

The central objective should be to preserve the value of the project while protecting creditor rights. In many cases, the most effective strategy is not immediate liquidation but control of cash flows, contractual step-in, regulatory coordination and an orderly restructuring or sale of the operating energy asset.

Phone: +90 312 434 22 22
Mobile Phone: +90 532 769 22 22
Email: info@firatfesihkaya.av.tr
Address: Mevlana Boulevard No: 221, Yildirim Tower, Balgat, Cankaya / Ankara, Turkey