Kaishan Group inks a JV Agreement with Sonsuz Enerji on Transmark Turkey Gülpınar

    Kaishan Group Co., Ltd (“the Company”)’s Singaporean wholly-owned subsidiary OME Eurasia Pte., Ltd (“OME Eurasia”) signed a Share Subscription and Shareholders Agreement (“Agreement”) with Sonsuz Enerji Holding B.V.(“Sonsuz”) of Transmark Turkey Gülpınar Yenilenebilir Enerji Üretim Sanayi ve Ticaret Anonim Şirketi (TTG or target company”). OME Eurasia will contribute up to US$21,000,000 to TTG in stages to acquire 49% of TTG’s shares upon satisfaction of the conditions precedent to the Closing.

Briefing of the Seller and TTG

    Sonsuz Enerji Holding B.V., incorporated in the Netherlands, is the sole parent company of TTG. Sonsuz is a member company of the Transmark Group, with its business in geothermal energy exploitation and submarine cable and connector system equipment manufacturing, installation and service. Transmark Group holds several concessions for exploration and production of geothermal energy in Türkiye and Chile.

    TTG is Sonsuz’s special purpose entity for the development of geothermal resources in the Gülpınararea in Türkiye and is qualified to develop geothermal resources in the Ayvacik district in the province of Çanakkale, Türkiye, and to construct a power plant of up to 19 (3.2+15.8) MW (nameplate power) (the “Transmark GPP”). In November 2019, TTG and OME Eurasia signed the “EPC Service contract for the 3.2MW geothermal power plant (“Phase I”) was put into commercial operation in June 2021.In addition to the Phase I power plant, TTG has the following key permits:

ØGeneration license (19MW), valid till Feb 2043, subject to facility completion by 25^th May 2024;

ØEasement for geothermal resource operation and electricity production activities on designated parcels of land in Ayvacik District, Çanakkale Province, valid until February 2043;

ØEnvironmental, construction, zoning, tax incentives and other necessary certificates or licenses.

The Transmark GPP is entitled to the legacy YEKDEM^[1] system of Türkiye, in which selling power at $105/mWh (feed-in) up to 31^st Dec 2030. Upon the expiry of YEKDEM term, TTG may sell power on the spot market.

Picture 1: TTG’s geothermal exploitation license (inside the blue boundary). Transmark GPP is located in license Block E .

Briefing of the Transmark GPP

1) Project Development

    The Transmark GPP is located in Biga Peninsula; the movement along the southern segments of the North Anatolian Fault Zone and Kestanbol Fault system have created the permeability controlled by the geothermal structure in the region, establishing the thermal circulation of deep, hot geothermal fluids to shallower levels. There are more than 5 geothermal projects under operation and/or development in Çanakkale Province where the project is located.

Figure 2: Fault Distribution Map for Biga Peninsula. The Transmark GPP is located in the red box.

    There are many wells in and around the E-Block to provide control points to the geological-, geophysics- and geochemistry data of the reservoir. In addition to the existing three wells in Phase 1 Power Plant, there is a 12 MW geothermal power plant to the north of the E Block and more than 20 intermediate-to-deep wells are located in the vicinity. TTG’s independent consultant believes that the heat resource temperature (125 ℃) and heat resource flow (34.5kg/s/MW) expected in the Development Plan are within a reasonable range; Subject to a 20-year life time, the P90 and P50 estimate of the Transmark GPP’s power capacity is 18 MW, and 27 MW respectively.

    The total capital investment of Phase 2 Power Plant is budgeted at USD 58 Million, with a projection of 5 production wells and 3 injection wells. The existing teams of Sonsuz and TTG are responsible for subsurface engineering, and OME Eurasia and the Company’s teams are responsible for the design, manufacturing and installation of modular power plants. Phase 2 is expected to reach Commercial Operation in 2024.

2) Phase 1 Power Plant

    One production well and one re-injection well are used in the Phase 1 Power Plant, with the brine temperature at approximately 113.5 ℃ since its commercial operation in June 2021. TTG operation team regularly records production and injection well parameters, fluid chemistry composition and carbon dioxide concentration.

    The average availability factor of Phase 1 Power Plant exceeds 98%, and the efficiency of the modular power plant supplied by the Company exceeds the guaranteed performance curve in the EPC Contract. As the first hybrid cooling geothermal power plant in Türkiye, Phase 1’s power generation efficiency in summer is significantly higher than some air-cooled neighboring plants.

    Most geothermal concessions in Türkiye have relatively high carbon dioxide content. Phase 1 Power Plant manages to keep the non-condensable gas in the liquid state, and by maintaining relatively high pressure, 100% of the brine and non-condensable gases are re-injected. So far, Phase I Power Plant is one of the few truly ‘green’ geothermal power plants with little carbon emission in the country. The expansion of the Transmark GPP will continue to maintain the very low carbon footprint.

Figure 3: A look of Transmark Phase 1 Power Plant, Turkey's first geothermal power plant with "hybrid cooling" and one of the few geothermal power plants with very little carbon dioxide emission in the country.

3) Block S and W

   In addition to E-Block where Transmark GPP is located, the geothermal development license also includes S- and W-Block nearby, with 4 shallow wells in S-Block.Compared with similar geothermal systems in Türkiye, the power density of S- and W-Block ranges from 3 to 5 MW/km² (subject to temperature at 120 to 130 ℃), and the geothermal reservoir potential may reach more than 80 MW. Since there is no evidence directly indicating the heat resource temperature (no drilling) in major area of the blocks, and the known information of the geological permeability system is less, the resource potential is only within the preliminary prediction range.

The Transaction

    OME Eurasia’s maximum equity commitment shall be limited to a total amount of USD 21,000,000, to be contributed to TTG in stages according to the completion of specific Condition Precedents, signing of the Mandate Letter and periodical cash calls approved by the General Assembly. The Transaction also requires an agreement in writing on the main commercial terms of the 15.8 MW (nameplate power) geothermal power plant EPC contract (OME Eurasia as the equipment supplier or EPC contractor).

    As one of the few legacy projects with the previous favorable YEKDEM ($105/mwh), a power plant in operation and key licenses and permits for expansion ready, the Transmark GPP is unique. The existing successful collaboration between OME Eurasia and Sonsuz on Phase 1 accumulated experience for two teams and laid a good foundation for the expansion, which is appreciated by the two teams.

    Türkiye has the 4^th biggest geothermal installation capacity. As the country with the fastest growing geothermal industry in the past decade, it has developed a talent pool for reservoir engineering, civil construction and geothermal plant construction at international standard. The Transaction helps the Company to diversify its geothermal assets, establish its reserve of expertise and knowledge to support the Company’s strategy in the region (Eastern Europe-Türkiye-Eastern Africa), and ink additional market share as the geothermal plant modular equipment supplier.

^[1] The YEKDEM system was only applied to geothermal plants that started commercially operation before 30^th June 2021. Plants that put into commercial operation after that apply to the new YEKDEM system for renewable energy (published in Feb 2021) for a period of 10 years, whose tariff is adjusted for 3 months. The latest YEKDEM tariff for geothermal is 1.26 TL/kwh (around $0.068/kwh).