Turkish Renewable Energy Market Investment Opportunities and Incentives

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1 REPUBLIC OF TURKEY PRIME MINISTRY ISPAT Turkish Renewable Energy Market Investment Opportunities and Incentives March 2014

2 Turkish Electricity Market Growth Potential 6th biggest electricity market in Europe...and fastest growing market after China Installed Capacity Electricity Demand (TWh) 112 GW % GW 160 GW 7.7% % 64 GW GW GW 118 GW * 2011 values Source: EIA, Privatization Administration of Turkey, MENR

3 Turkish Electricity Market International landscape Energy sector takes the lead in M&A market Many international companies active in the sector M&A Deal value in 2013 is $6.1B with 29 deals $5.7B from privatizations in the utility sector Deals in the renewable energy companies signal good market conditions Deals expected in solar after the tender process Source: Deloitte, PwC, Central Bank of the Republic of Turkey

4 Turkish Electricity Market Ongoing Liberalization Breakdown of Installed Capacity (by fuel type)* Breakdown of Installed Capacity (by generator type)* Domestic coal; 14.2% Other; 2.8% Wind; 4.2% Hydro; 34% Starting from 1990 s, BOT, TOR and BOO models were adopted and electricity was sold to government entity through longterm contracts. Imported coal; 6.5% Natural gas; 38.3% Since 2001, these models are not used. Private investors can sell generated electricity in market-terms. Gov't Contracted (BOO, BOT, TOR); 16% Autoproducers; 6% EUAS (Gov t); 40% Total installed capacity 64 GW * As of January 2014 IPP; 38% IPP share increased from 32% to 60% in 10 years

5 Turkey s journey to a liberal energy market A streamlined process with the latest Electricity Market Law Introduction of a pre-licensing procedure for the pre-construction stage Energy stock exchange EPIAS to create a more competitive market No need for a generation license if installed capacity is under 1 MW 100% of electricity can be sold to the grid at FIT rate Limit can be increased to 5MW by Council of Ministers

6 Turkish Electricity Market Strategy Strategy To ensure supply security and increase supply quality To keep costs and prices at a competitive level to support economical growth To minimize the negative effects on the environment 2023 Targets Full utilization of economically and technically feasible hydraulic potential and indigeneous coal reserves to decrease the share of gas in generation mix below 30%. Utilization of renewable energy potential in a cost effective manner and achieving below targets: Share of renewables in generation mix will be increased to at least 30%. Installed wind capacity target is 20,000 MW. Installed geothermal capacity is 600 MW. Installed solar capacity target is 3,000 MW. Introduction of nuclear energy

7 Renewables Investment Opportunities and Timeline HYDRO 40 GW potential; about 18 GW operational 20 GW to be developed by IPP s by 2023 WIND 48 GW potential; 3 GW operational, about 11 GW licensed License applications for 3 GW in April 2014

8 Renewables Investment Opportunities and Timeline SOLAR 380 billion kwh/y potential; 3 GW utility-scale target License applications for 600 MW in June 2013, bid in 2014Q2 (est.) GEOTHERMAL 600 MW target; 300 MW operational BIOMASS 8.6 MTOE potential; 15.6 MW operational

9 Renewables Incentives FIT scheme Differentiated FIT scheme based on RER type (Table I) Extra premiums for domestic components (Table II) Connection priorities Lower license fees: Only 1% of licensing fee Exemption to pay annual license fee for 8 years in operation License exemptions in exceptional circumstances, and Various practical conveniences in project preparation and land acquisition.

10 UScent/kWh Renewables FIT Scheme 25,0 20,0 15,0 10,0 DC #7 DC #6 DC #5 DC #4 DC #3 DC #2 DC #1 FIT 1,3 1,0 1,0 1,3 0,8 0,7 0,7 1,3 0,5 0,4 0,5 0,9 3,5 2,0 1,3 0,4 0,8 0,8 1,3 2,4 1,3 2,4 13,3 13,3 13,3 5,0 10,5 7,3 7,3 0,0 Hydro Wind Geothermal Biomass PV CSP

11 Regional Investment Incentive Scheme (app. for equipment manufacturing) V.A.T. Exemption (for the imported and domestically provided Machinery and Equipment) Customs Duty Exemption (for the imported Machinery and Equipment) Reduced Corporate Income Tax (C.I.T. between %2 - %10) Social Security Premium Support (Employer s and Employee s Share, for 2 12 years) Land Allocation Interest Support Income Tax Withholding Allowance VAT Refund for Construction Expenses