Key representations, warranties and indemnity clauses foreign investors should negotiate when buying a power plant in Turkey, including licenses, land, grid rights, EPC claims, financing, tax and regulatory liabilities.

Buying a power plant in Turkey requires more than agreeing on the purchase price and transferring the shares of the project company. For a foreign investor, one of the most important parts of the transaction is determining who bears the financial consequences if the information provided by the seller proves incorrect after closing.

This risk allocation is principally achieved through representations, warranties and indemnities contained in the Share Purchase Agreement or other acquisition agreement.

A power plant can appear commercially sound during due diligence while containing risks that cannot be completely verified before closing. A generation license may contain historical compliance issues, project land may be subject to undisclosed claims, an EPC contractor may have raised additional payment demands, equipment warranties may be weaker than represented, or the project company may face tax liabilities relating to previous years.

The purchase agreement should therefore convert the findings of legal, technical, financial and tax due diligence into enforceable contractual protection.

For foreign investors acquiring solar, wind, hydroelectric, geothermal, storage-integrated or other electricity generation projects in Turkey, generic corporate warranties are rarely sufficient. The acquisition agreement should contain provisions specifically designed for the energy project being purchased.

Why Are Representations and Warranties Important in a Turkish Power Plant Acquisition?

Due diligence reduces acquisition risk, but it cannot eliminate it.

The buyer reviews the documents available before closing, while the seller usually possesses substantially more historical information about the project. Representations and warranties are therefore used to require the seller to confirm important facts concerning the company and power plant.

For example, the seller may warrant that the project company holds all material regulatory authorizations required for its operations, that there are no undisclosed proceedings threatening those rights and that information supplied regarding project capacity is accurate.

If that statement proves materially incorrect after closing, the buyer may have contractual remedies depending on the wording of the agreement.

The SPA should therefore answer a fundamental question:

If something represented by the seller proves incorrect after closing, who bears the resulting loss?

Corporate Ownership Warranty

The seller should generally confirm that it legally owns the shares being sold and has the authority to transfer them.

The buyer should seek appropriate protection concerning matters such as ownership, share capital, outstanding options, pledges and third-party rights.

This is particularly important where the project has previously undergone several financing rounds or shareholder restructurings.

A foreign buyer should not discover after closing that another shareholder, lender or third party claims rights over the acquired shares.

Generation License Representations

For a licensed power plant, the generation license is one of the project’s most important legal assets.

The acquisition agreement should address the status of the license and information concerning the licensed project.

Depending on the transaction, the seller’s representations may cover the identity of the license holder, licensed capacity, license term, material amendments and disclosed regulatory proceedings.

The buyer should also ensure that representations correspond with the actual regulatory status identified during due diligence.

A general statement that “the company complies with applicable law” is usually less useful than carefully drafted project-specific warranties.

Regulatory Compliance Warranty

The seller may be required to represent that the project company has materially complied with the regulatory obligations applicable to its electricity generation activities, subject to negotiated qualifications and disclosures.

This area deserves particular attention because historical violations may become visible only after the acquisition.

Potential problems can include reporting failures, non-compliance with construction milestones, inaccurate regulatory submissions or administrative investigations.

Where due diligence identifies a specific historical problem, relying solely on a general compliance warranty may be insufficient. A specific indemnity may be more appropriate.

Installed Capacity and Acceptance Status

The SPA should clearly distinguish between licensed capacity, constructed capacity, accepted capacity and operational capacity.

Suppose the buyer values a project as a fully operational 150 MW facility.

After closing, it discovers that part of the capacity had not completed the required acceptance procedures.

That difference can materially affect expected revenue.

The seller’s representations should therefore correspond with the capacity assumptions incorporated into the buyer’s financial model.

Grid Connection Representations

A power plant’s economic value depends heavily on its ability to deliver electricity to the grid.

The buyer may therefore seek warranties concerning material grid arrangements, connection capacity, connection point and disclosed restrictions.

The seller should also disclose material disputes with the relevant network operator and known circumstances affecting the project’s ability to use its connection rights.

This issue becomes especially important where the acquisition price is calculated using assumed annual generation and export figures.

Land Ownership Warranties

The buyer should verify that the project company has legally sufficient rights to use the land required for operation of the facility.

Representations can address ownership, leases, easements, access roads and material encumbrances.

A wind farm may require rights over turbine foundations, roads, crane areas, underground cables and transmission routes. A solar facility may occupy dozens of separate parcels.

An undisclosed land problem affecting only one strategic parcel can interfere with the operation of the entire project.

Land Lease Warranties

Where project land is leased, the SPA should address the material lease arrangements.

The buyer should know whether any lease is close to expiration, subject to termination or affected by outstanding disputes.

If a project is valued on a 20-year operating model but an essential land lease expires substantially earlier, the buyer may be purchasing a project whose legal operating life is shorter than expected.

Where necessary, extension of critical leases can be made a condition precedent to closing.

Environmental Representations

Environmental compliance can create substantial post-closing exposure.

The seller may provide representations concerning applicable environmental approvals, known violations, administrative penalties, pending proceedings and disclosed environmental claims.

The precise wording should reflect the characteristics of the generation technology.

Environmental risk in a solar project may differ significantly from the risks associated with geothermal, hydroelectric or thermal generation.

Zoning and Construction Warranties

The buyer should establish that the power plant has been constructed consistently with the material approvals applicable to the project.

The SPA may therefore contain representations concerning zoning, construction permissions and project approvals.

This becomes particularly important where the facility has undergone capacity expansion or major technical modification.

The existence of a generation license should never be treated as automatic proof that every construction and planning requirement has been satisfied.

EPC Contract Representations

For recently constructed projects, the EPC agreement can contain significant economic value.

The seller should disclose material EPC disputes, amendments, waivers, settlements and outstanding claims.

Suppose the project was completed eight months late and the project company originally possessed a substantial delay claim.

If the seller waived that claim shortly before the acquisition, the buyer should know this before determining the purchase price.

Equipment Warranty Representations

Solar modules, wind turbines, inverters, batteries, transformers and other major equipment may benefit from manufacturer or contractor warranties.

The buyer should establish:

which warranties remain valid, how long they continue, whether claims have already been made, whether any claims have been rejected and whether the acquisition affects the warranty.

The SPA should prevent the seller from representing equipment as fully warranted when important warranty periods have expired.

Existing Equipment Defects

Known defects should be separately disclosed.

For a solar plant, these may involve abnormal module degradation or inverter failures.

For a wind farm, they may involve blades, gearboxes, generators or foundations.

For battery storage, they may involve capacity degradation or performance problems.

Where a significant defect already exists, the buyer should consider a specific indemnity rather than relying solely on a general equipment warranty.

O&M Agreement Warranties

The seller should disclose material issues involving operation and maintenance arrangements.

Relevant matters can include outstanding payments, termination notices, performance disputes and failures to satisfy availability guarantees.

The buyer should also investigate whether the acquisition triggers change-of-control rights under the O&M contract.

A project without continuing technical support can have materially different value from the asset originally modeled.

Electricity Revenue Representations

The seller may provide historical production and revenue information during the sale process.

The acquisition agreement should clearly address the extent to which the buyer can rely on that information.

Where the valuation depends on a particular electricity-sale arrangement or support mechanism, the relevant contractual and regulatory basis should be verified.

The seller should not be permitted to market projected revenues as though they were guaranteed historical facts.

PPA Warranties

Where the project has a Power Purchase Agreement, the SPA should address its status.

Representations may cover whether the PPA remains in force, whether material defaults exist and whether termination notices have been received.

The buyer should separately investigate whether the acquisition requires counterparty consent.

If the PPA materially increases project value, obtaining necessary consent can become a condition precedent.

Project Finance Representations

Power plants frequently carry significant secured debt.

The seller should accurately disclose the financing structure, outstanding debt and security package.

Relevant security may include:

Share Pledges → Mortgages → Account Pledges → Receivables Assignments → Insurance Assignments → Project Asset Security.

The buyer should know precisely which security will remain after closing and which security must be released.

No Undisclosed Debt Warranty

Financial statements do not always reveal every project obligation clearly.

The SPA should therefore address undisclosed indebtedness and liabilities.

Particular attention should be given to shareholder loans, accrued contractor claims, unpaid land rents, guarantee obligations and related-party liabilities.

The purchase-price mechanism should clearly determine how debt and cash are treated.

Tax Warranties

In a share acquisition, historical tax liabilities remain inside the target company.

The seller will therefore commonly provide tax representations covering periods before closing.

The buyer should also require disclosure of tax audits, assessments and disputes.

Where due diligence identifies a particular tax exposure, a separate tax indemnity may provide stronger protection than a general tax warranty.

Employment Warranties

The seller should disclose employment disputes, unpaid employee entitlements and material occupational health and safety incidents.

This is particularly important for projects involving construction and high-risk technical activities.

A serious workplace accident occurring before closing may result in proceedings that continue long after the buyer acquires the company.

Litigation Representations

The seller should disclose existing and threatened litigation involving the project company.

Potential disputes can involve:

landowners, contractors, equipment suppliers, employees, lenders, regulators, insurers, electricity purchasers or shareholders.

The wording should not be restricted solely to cases already filed before a court.

Material written claims and threatened proceedings may also need to be disclosed.

Insurance Representations

The buyer should understand whether material project risks remain insured.

The seller may warrant the existence of disclosed policies and provide information concerning claims.

Historical insurance claims can also reveal technical problems that would otherwise remain hidden.

Repeated claims involving the same turbine, inverter or transformer should trigger additional technical investigation.

What Is an Indemnity Clause?

A warranty and an indemnity perform different functions.

A warranty generally confirms a state of affairs. If the representation proves incorrect, the buyer may pursue the contractual remedies available under the SPA.

An indemnity, by contrast, is normally designed to allocate the financial consequences of a specifically identified risk.

For example, due diligence discovers an ongoing tax investigation relating to periods before closing.

Instead of relying only on a general tax warranty, the buyer can negotiate a specific indemnity requiring the seller to compensate the buyer for agreed losses arising from that investigation.

This provides more targeted contractual protection.

When Should a Foreign Buyer Request a Specific Indemnity?

Specific indemnities are particularly useful where due diligence has identified a concrete risk that cannot be eliminated before closing.

Examples may include:

Pending Tax Assessment → Existing Environmental Investigation → Land Litigation → EPC Dispute → Equipment Defect → Employee Claim → Regulatory Investigation → Historical Permit Problem.

The indemnity should clearly identify the covered event and the losses included.

Poorly drafted indemnities can create new disputes concerning their scope.

Regulatory Indemnity

Suppose due diligence reveals that the project company failed to comply with a regulatory obligation before closing.

The regulator has not yet imposed a penalty.

The buyer may nevertheless face the financial consequences after becoming shareholder.

A specific regulatory indemnity can allocate that historical risk to the seller.

Land Dispute Indemnity

Assume a wind project is involved in litigation concerning access to several turbines.

The seller expects to win, but the case remains unresolved.

The buyer may proceed with the acquisition while requiring the seller to bear specified losses if the dispute adversely affects the project.

EPC Defect Indemnity

Known construction defects can also justify specific protection.

If the parties cannot resolve the defect before closing, the buyer can seek an indemnity covering repair costs, lost generation or other agreed losses resulting from the identified problem.

Tax Indemnity

Tax indemnities are particularly important in share acquisitions because the target company continues to exist after closing.

The parties may agree that the seller bears specified tax liabilities attributable to pre-closing periods.

The agreement should carefully define covered taxes, exclusions, claim procedures and cooperation obligations.

Warranty Limitations

Sellers rarely provide unlimited warranties.

The SPA usually contains negotiated limitations concerning the seller’s liability.

These can include:

De Minimis Threshold → Basket → Liability Cap → Time Limit → Disclosure Qualification → Knowledge Qualification → Mitigation Requirements.

Foreign investors should examine these provisions as carefully as the warranties themselves.

A broad warranty can become commercially meaningless if liability limitations prevent practical recovery.

Liability Cap

The parties may agree on a maximum aggregate liability.

Different caps can apply to different categories.

For example, fundamental warranties concerning ownership of shares may receive stronger protection than ordinary business warranties.

Specific indemnities can also have separate caps.

Time Limits

Warranty claims usually must be brought within an agreed period.

Tax, regulatory and environmental matters may justify different survival periods from ordinary commercial warranties.

The buyer should ensure that the claim period is long enough for hidden liabilities realistically to become visible.

Knowledge Qualifications

A seller may seek language such as:

“So far as the Seller is aware…”

This substantially changes the allocation of risk.

The buyer should determine which warranties genuinely require a knowledge qualification and how the seller’s knowledge is defined.

Disclosure Letter

The seller normally qualifies warranties through disclosures.

For example, the SPA may state that no litigation exists, while the disclosure letter identifies three pending cases.

Those disclosed cases then require separate assessment.

The buyer should therefore review the disclosure letter with the same care as the SPA.

Conditions Precedent Should Work Together With Warranties

Some risks should not merely be covered by compensation after closing.

They should be resolved before closing.

Potential conditions precedent include:

Regulatory Approval → Lender Consent → Release of Share Pledge → Critical Land Lease Extension → PPA Consent → Required Corporate Approval → Release of Material Encumbrance.

The distinction is important.

If a problem can prevent the power plant from operating, receiving compensation later may not adequately protect the buyer.

Warranty Bring-Down at Closing

There can be several months between signing and closing.

The buyer should therefore consider requiring relevant warranties to remain accurate at closing.

If a serious regulatory investigation begins after signing but before completion, the buyer should not automatically be forced to close as though nothing had happened.

Escrow and Purchase Price Retention

A contractual claim is only useful if the seller can actually pay it.

Foreign buyers should therefore consider whether part of the purchase price should remain in escrow or be retained for an agreed period.

This can be particularly valuable where the seller will distribute sale proceeds or cease operations immediately after closing.

Security for warranty and indemnity obligations should be considered alongside the substantive clauses.

Example: Hidden Regulatory Violation

A foreign investor buys a licensed solar project.

Six months after closing, an administrative investigation reveals a pre-closing regulatory violation.

If the SPA contains a properly drafted regulatory warranty and specific protection for historical compliance, the buyer may have a contractual claim against the seller.

Without appropriate contractual protection, the buyer may effectively bear the entire economic loss.

Example: Undisclosed Turbine Defect

A foreign investor purchases an operating wind farm.

After closing, several turbines suffer the same gearbox failure.

Internal documents later reveal that the seller knew of recurring failures before the transaction.

Detailed equipment representations, disclosure obligations and indemnity provisions can become critical in determining who bears the resulting repair and business interruption losses.

Example: Project Land Litigation

The seller discloses ongoing litigation concerning an important project parcel.

Because the buyer knows about the litigation, a generic “no litigation” warranty will not protect it.

The parties may instead negotiate a specific land litigation indemnity allocating the identified risk to the seller.

The Most Important SPA Protections for a Foreign Power Plant Buyer

A carefully structured acquisition agreement should consider protection concerning:

Share Ownership → Generation License → Regulatory Compliance → Capacity and Acceptance → Grid Connection → Land → Environmental Approvals → Construction → EPC → Equipment → Warranties → O&M → Electricity Revenue → PPA → Financing → Debt → Tax → Employment → Litigation → Insurance → Specific Indemnities → Liability Caps → Claim Periods → Disclosure → Conditions Precedent → Escrow.

The wording should always reflect the actual project.

Copying warranties from a generic company acquisition agreement can leave substantial energy-specific risks uncovered.

Frequently Asked Questions

1. What is a representation and warranty in a power plant acquisition?

It is a contractual statement made by the seller concerning the target company or project. If the statement proves incorrect, the buyer may have remedies under the acquisition agreement.

2. What is the difference between a warranty and an indemnity?

A warranty generally confirms a particular state of affairs, while an indemnity typically allocates the financial consequences of a specified risk or event.

3. Should the seller warrant the generation license?

License status and material regulatory compliance are normally critical issues and should be addressed specifically in the transaction documentation.

4. Can the buyer request an indemnity for an existing lawsuit?

Yes. Known litigation is a common example of a risk that may be addressed through a specifically negotiated indemnity.

5. Should EPC defects receive separate protection?

Potentially yes, particularly where material defects are already known before closing.

6. Can warranty liability be capped?

Yes. Sellers commonly negotiate liability caps, thresholds and claim periods. Their commercial effect should be carefully reviewed.

7. What happens if a problem is disclosed before signing?

A disclosed matter may fall outside general warranty protection. The buyer should therefore determine whether it requires a specific indemnity, price adjustment or pre-closing solution.

8. Should lender consent be a warranty or a closing condition?

Where lender consent is necessary for the acquisition, obtaining it before closing will often provide stronger protection than merely relying on a warranty.

9. Can part of the purchase price be retained for warranty claims?

Yes. The parties may negotiate escrow or retention arrangements to provide financial security for potential post-closing claims.

10. What is the biggest mistake foreign investors make when negotiating power plant warranties?

Using generic M&A warranties without adapting them to energy-specific risks such as licensing, grid capacity, land, acceptance, equipment performance, EPC claims and regulatory compliance.

Legal Support for Power Plant Acquisitions in Turkey

A well-drafted power plant acquisition agreement should convert every significant due diligence finding into an appropriate warranty, indemnity, closing condition, purchase-price adjustment or security mechanism. Discovering a risk during due diligence has limited value if the acquisition agreement does not determine who bears that risk after closing.

Firat Fesih Kaya Law Office assists foreign investors, international energy companies and renewable-energy investors with power plant acquisitions in Turkey. Firat Fesih Kaya can assist with legal due diligence, SPA negotiations, energy-specific representations and warranties, indemnity structures, regulatory risk allocation, project contracts and transaction closing.

The objective is simple: risks created before closing should not unexpectedly become the foreign buyer’s financial responsibility after closing.

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