The Need for Robust Legal & Regulatory Frameworks to Promote Renewables Riccardo Puliti

1. The Need for Robust Legal & Regulatory Frameworks to Promote Renewables Riccardo Puliti Managing Director, Energy & Natural Resources VI KAZENERGY Eurasian Forum Astana, 5 October 2011

2. Agenda • What is EBRD? • Experience in Renewables • Regulatory Frameworks and Regulatory Risk • Sustainable Policy Instruments • Transparent & Predictable Legal Framework • Case Studies

3. Foundation of Operations • Apply sound banking principles to all projects • EBRD does not subsidise • Advance the transition to a full market economy • Priority to promote private sector involvement and market expansion • Support, but not replace, private investment: additionality • Act as a catalyst for higher and riskier involvement of financiers • Achieve environmentally sound and sustainable development

4. Where EBRD Operates

5. Experience in Renewables • EBRD was an early mover in Renewable Energy (RE) in its countries of operations • hundreds of projects screened, dozens analysed, many rejected, but several successful transactions • Extensive knowledge of the market and main players • Early and steep learning curve • Knowledge of RE regulation • As an equity investor in and lender to RE projects, EBRD understands the importance of legal & regulatory arrangements in this sector

6. Experience in Renewables Renewable Energy financing by geography (2009-2010) • EBRD signed • In 2010 €220m for 6 RE deals with project value of €820m • In 2009 €186m for 6 RE deals with project value of €540m • 2011 YTD €311m of financing for 6 RE deals with potentially project value of €700m • EBRD has been most active in projects in Poland, Hungary, Bulgaria and Turkey • Strong pipeline of projects in Romania, Georgia, Poland, Bulgaria and Turkey Source: EBRD, Unaudited data as at 31 December 2010

7. Regulatory Certainty is Key! • The Renewable Energy sector is unique as it is policy-driven • Investors therefore face regulatory risk for debt repayment and equity return • This does not mean regulatory frameworks should never be amended: • But should not be changed retroactively to existing projects • Investors will require stability in the level of support available from the time of investment • Renewable Energy technologies have been moving down a steep cost curve • Economic support is an interim solution for RE, not expected forever • Yet most projects today still require financial support mechanisms • Renewables projects are capital intensive and have long asset lives (often 20+ years) • Therefore, the assets in question require long-term regulatory certainty to attract financing

8. Regulatory Risk – the EU Experience • The European Union has ambitious 20/20/20 targets, that require large capacity increases in Renewable Energy (20% reduction in GHG, 20% of energy in EU from RE, and 20% reduction in primary energy us through energy efficiency) • The countries most likely to meet those targets (e.g. Germany) are those that have created a stable, predictable investment climate • Numerous examples of retroactive tariff cuts in Europe (see Czech and Spanish solar PV) have undermined the credibility of policy support to the sector in the eyes of investors • Certain infrastructure funds stopped investing in Renewables • Bank financing for projects dried up while existing policies were revised • Regulatory certainty is just as important as the chosen instrument itself!

9. Sustainable Policy Instruments • Kazakhstan is moving towards implementation of feed-in-tariff • There is a trade-off in setting the level of economic support for Renewables projects • If level of support is too low (e.g. feed-in-tariff, Green Certificate price) investment will not take place • If level of support is too high, the country will attract opportunistic investors seeking high returns, facilitating unsustainable bubble in the sector • Getting the level of support right is important (EBRD is assisting through Technical Cooperation)

10. Transparent & Predictable Framework • We can distinguish between (at least) two phases in renewable project life: (i) Construction / operation phase, and (ii) Development phase • In the Development phase transparency and predictability in the permitting process is crucial • Several permits are required in most jurisdictions as Renewable Energy development is more complicated than e.g. real estate : it involves high structures, grid connection often in environmentally sensitive areas • For foreign investors it is important to understand what permits and approvals will be required by what authority at what time • e.g. aviation authorities (due to height of structures), Ministry of Defence (wind farm impact on radar), environmental authorities • Complex legal frameworks are one reason why development phase is usually undertaken by local developers, rather than foreign companies

11. Kazakhstan was successful in establishing a sustainable regulatory framework in the Natural Resources sector Limited restrictions on ownership of subsoil assets and a predictable tax regime have attracted significant foreign investment Transparency was enhanced by the implementation of EITI principles by oil & gas operators and more recently in mining Priorities was put on the development of local content EBRD is supporting efforts to improve further regulation through Technical Cooperation funds to improve Health, Safety and Environmental standards in mining and reduce accidents in mines Cooperation with the Government to develop emergency response capacity in the Caspian Sea and enhance co-ordination with neighbouring countries Example of Natural Resources

12. ConclusionStrategic Priorities for Kazakhstan • Kazakhstan is making good progress in developing a comprehensive Renewable Energy strategy and has significant potential across diverse Renewable Energies • Through Technical Cooperation EBRD has supported development of Renewable Energy legislation in Kazakhstan: review of primary legislation will pave the way for feed-in-tariff to be implemented by year-end 2011 • Going forward, key themes will include: • Searching for an adequate and yet sustainable level of economic support • Promoting policy / regulatory certainty • Ensuring transparency & predictabilityin the legal framework to facilitate the development phase

13. Case Studies

14. Margonin wind farm - Poland Facility Details • In 2010 EBRD financed the 120MW Margonin wind farm, the largest operational wind farm in Poland • Margonin is controlled by EDP Renovaveis, the world’s 3rd largest onshore wind farm operator • First wind farm in CEE to be financed on a limited recourse basis without a long-term, fixed-price arrangement for electricity sales. • Total debt size of PLN 535m (€135m equivalent)financed by EBRD, EIB and commercial banks, including Bank Millennium S.A., BESI and Unicredit’s Pekao Borrower Relax Wind Park I sp. zo.o. Sponsor EDPR Lenders • EBRD: €45m • EIB: €45m • Commercial Banks:€45m Structure - Project finance - Without long-term fixed-price sales contract for electricity

15. Rotor Wind Farm - Turkey Facility Details • The EBRD signed its first Turkish deal in May 2009 after launching operations there in October 2008 • The Bank is lending €45m for the financing of Rotor Wind Farm, which will be one of the largest wind farms in Turkey (135MW) • The total investment cost is estimated to be > €200m, including €70-75m of Sponsor equity • Awarded European Onshore Wind Deal of the Year 2009 by Project Finance Magazine • Progressed from EBRD initial approval to signing in four months Borrower Rotor Elektrik Uretim AS Sponsor Zorlu Enerji - EBRD: €45m - IFC: €55m - EIB: €30m Lenders Tenor - IFC, EBRD: 12 years + 1 year grace • EIB: 10 years +1 year grace Structure - Project finance - EIB loan guarantees from HSBC Bank plc and DenizBank A.S.

16. Saturn Biomass - Poland Facility Details • The Bank financed the first large scale biomass fired power plant owned by a local investor in Poland • The CHP facility provides heat and energy to Mondi Swiecie, the largest Polish paper producer, and operates under a long-term off-take agreement • The transaction was structured as project finance exceeding €100m and was successfully closed despite the financial turmoil • Three month lead time: - Initial approval May 2009- Signing August 2009 Borrower Saturn Management Sponsor Polish Energy Partner Lenders - EBRD: €30m - Commercial Banks:€56m • EBRD: 8.5 years • Commercial Tranche 6.5 years Tenor Structure - Project finance - Very strong off-take contract with Mondi Swiecie

17. Riccardo Puliti Managing Director Energy & Natural Resources Email: pulitir@ebrd.com Thank you