This document summarizes a presentation on wind power financing and investing in Turkey. The key points are: 1) Turkey has a very favorable wind regime for wind power generation with high average capacity factors. However, subsidies are insufficient to make all projects financially viable. 2) Onshore wind power is growing significantly in Turkey, driven by climate change concerns, energy security, and domestic industry support. Offtake agreements and turbine choice are important factors in project success. 3) Access to financing remains challenging due to risk aversion among banks following the 2008 credit crunch. Transactions require a club of lenders and more equity. Project and sponsor quality are critical for attracting capital.

1. ExCo 05 // 20-22 September 2011
CEM02
 February
September 21, 2011,Istanbul15, 2011
Presentation
Wind Power Financing &
Investing in Turkey
Author
Amit Bando,
Executive Director

2. ExCo 05 // 20-22 September 2011
01
What is IPEEC?
1

3. ExCo 05 // 20-22 September 2011
IPEEC is a high level international forum
 Provides global leadership on energy efficiency by identifying
and facilitating government implementation of policies and
programs that yield high energy-efficiency gains.
 Aims to promote information exchange on best practices
and facilitate initiatives to improve energy efficiency.
 Formally established in 2009 at the G8 summit in L'Aquila,
Italy and resulting from the Heiligendamm Dialogue Process.
2

4. ExCo 05 // 20-22 September 2011
IPEEC is an autonomous entity
Members account for over 75% of world GDP and energy use.
EU
Germany
United Kingdom
Italy
France
Russia
Canada
Japan
USA
Republic of Korea
Mexico
China
India
Brazil
Australia
The IPEEC Secretariatis located in Paris, France
3

5. ExCo 05 // 20-22 September 2011
IPEEC - guiding principles
 Improving energy saving and energy efficiency is one of the quickest, greenest,
and most cost-effective ways to address energy security and climate change as
well as to ensure sustainable economic growth
 All countries, both developed and developing, share common interests in
improving their energy efficiency performance


There is abundant potential for international cooperation among them
Will contribute to improvement of energy efficiency at the global level
 Developed countries need to play an important role in cooperation with
developing countries

Accelerating dissemination and transfer of best practices, efficient
technologies and capacity building in developing countries
4

6. ExCo 05 // 20-22 September 2011
02
Wind Power in Turkey
5

7. ExCo 05 // 20-22 September 2011
Wind Value Chain is Increasingly Split Up
 Two distinct segments developing: onshore and offshore
6

8. ExCo 05 // 20-22 September 2011
Onshore – Continued Growth, New Frontiers
 Most installed capacity in Europe

Inside Europe fastest growth moving from traditional wind power
producers (Germany & Spain) to new countries (France, UK, Italy
and Ireland)
 Fastest growth in US and Asia (particularly China and India).
 Factors that impact growth:





Value chain bottlenecks
Grid access limitations
Legislation / Subsidies
Cost relative to fossil fuels
Availability of capital (credit crunch).
7

9. ExCo 05 // 20-22 September 2011
Onshore Wind Power – Subsidy Overview
 Wind strength&subsidy regime define the onshore wind project economics
13

10. ExCo 05 // 20-22 September 2011
Market drivers
 Wind strength and electricity shortages
 Turkey‟s generally very favourable wind regime, with a long coastline,
causes wind farms to register a high average capacity factor of 30-35%
(globally 20-25%). This is a very important factor in the economic
viability of a wind farm.
 Export Credit Agencies can make robust projects work in difficult credit
environments
 Regulatory drivers:



Climate change concerns
Security of domestic energy supply
Domestic industry support
9

11. ExCo 05 // 20-22 September 2011
Market drivers (continued)
 Energy prices:


High price paid for electricity on the wholesale market
 However, state price guarantees insufficient to make projects
financially viable in certain locations
Increasing demand of energy: Turkey may face electricity shortages
in the short to medium term future.
 Grid strength is an issue, could be solved by partnering
 Financial structure:


Combine guaranteed price with upside from wholesale market
Mezzanine tranches (between senior debt and equity) to boost equity
returns
10

12. ExCo 05 // 20-22 September 2011
Market drivers (continued)
 Selling Carbon Credits to boost revenues:





Turkey ratified Kyoto Protocol in August, 2009.
VCM is only 1% of Global Carbon Markets – it is 100% of market in
Turkey (70% of VCM projects are of Turkish origin)
Private sector has a “niche” position – learning-by-doing since 2005
IRR with carbon income is 5% higher than IRR without carbon
income
Price of VERs in the range of 5-10 Eur/tCO2e provide additional
boost to wind power projects in Turkey.
11

13. ExCo 05 // 20-22 September 2011
Financial Market
 Market dynamics have changed since 2008.
 Banks have become increasingly risk averse and focussed on core
clients.
 Internal approval processes are uncertain and conservative.
 Bank balance sheets are highly constrained and lending to new clients
or new sectors is virtually non-existent.
 Banks are unwilling or unable to offer underwriting.

Given market circumstances, with specific reference to PF deals in the
Renewable sector, transactions will need to be arranged on a club basis.
12

14. ExCo 05 // 20-22 September 2011
Financial Market (continued)
 Debt financing is likely to remain constrained and will require the
collective use of balance sheet across a large group.

As a result deals will be smaller to ensure liquidity can be found. This will result in
larger lead groups and organised club deals.
 Underwriting will not return until balance sheet constraints are rectified
and confidence and liquidity is restored in the market.

When this occurs, all underwritten transactions will need to have full market flexon pricing, fees and structure.
 Limited recourse
financing instead of non-recourse financing is an option
to enhance availability of debt for strong sponsors.
13

15. ExCo 05 // 20-22 September 2011
Limited Risk Appetite - Focus on Project and
Sponsor Quality
 A strong focus on quality of the project developer and financial sponsor.
 Utilities will be in a stronger position to attract finance.
 Due diligenceis increasingly important in terms of technology risk and
forecast assumptions.

Unproven technologywill prove increasingly difficult to attract debt capital.
 Pricing - given banks higher costs of funds and capital costs, margins
and fees will need to increase to maintain, let alone attract liquidity.
 Tenor - given the cost to banks of sourcing longer term capital, there is
substantial pressure to lend on a short term basis only.

Transaction tenors are expected to shorten (as much as is feasible).
14

16. ExCo 05 // 20-22 September 2011
Limited Risk Appetite - Focus on Project and
Sponsor Quality (continued)
 Structure – back to basics!





Stronger focus on forecast assumptions and due diligence.
Loan life coverage will increase
Strong desire for amortisation
Increased focus on cash sweeps and dividends
Transactions will require more equity.
 Cost of credit is a significant driver of value.

Given the high cost of capital and shortage of liquidity, transaction
IRRs will come under pressure.
15

17. ExCo 05 // 20-22 September 2011
Likelihood of success
 Location, turbines, contracts, management
 Geographic Location


Wind resources
Grid Export Capacity
 Off take arrangements



Prevailing Tariff
Counter Party
Strong PPA (Power Purchase Agreement)
16

18. ExCo 05 // 20-22 September 2011
Likelihood of success (continued)
 Turbine Choice



Capex and Opex
Technology
Project Life (including re-powering potential)
 Other Project Specific Factors


Project Team and Project Sponsors
Financing and Security Structure
17

19. ExCo 05 // 20-22 September 2011
Risks and opportunities when financing wind energy
 Overall - growth is expected to continue
Opportunities:
 Decreasing cost of wind energy generation through
technical developmentscould make it even more
economically viable globally
 The need to improve grid access is becoming a focus for
governments
 Wind turbine production is increasing globally
 Repowering could be a new market in „old‟ wind countries
18

20. Risks and opportunities when
ExCo 05 // 20-22 September 2011
financing wind energy (continued)
Risks:
 Dependence on government support
 Public opinion - increasing opposition against onshore
wind farms
 Permitting and regulatory challenges
 Landscape and nature conservation
 Safety, radar interference, etc.
 Grid infrastructure limitations

Slow pace of grid improvements
Electricity price effects
 Turbine availability, increasing turbine prices&other value
chain bottlenecks

19

21. ExCo 05 // 20-22 September 2011
Overall – A Great Opportunity
Wind energy is
 One of the cheapest forms of renewable energy
 Large-scale
 Fairly mature technology (on-shore)
 Quick to install.
 In principle, wind turbines do not harm the environment but
they are not without their public opinion issues.
 Wind energy will grow in the coming years, both on- and
offshore. This presents a great opportunity.
20

22. ExCo 05 // 20-22 September 2011
Thank you
For more information, contact the IPEEC Secretariat:
Amit Bando, Executive Director: amit.bando@ipeec.org
contact@ipeec.org
9 rue de la Federation, 75739 Paris Cedex 15, France
www.ipeec.org
21