Renewable Energy Opportunities

8/12/2019 Renewable Energy Opportunities

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Renewable EnergyInvestment Opportunities

in Emerging Markets

GLOBAL

ENVIRONMENT

FUND





Renewable Energy Investment Opportunities in Emerging Markets i

Synopsis

Recent years have sparked new interest in the potential return on investment from the renewable energy markets.The implementation of the Kyoto Protocol, and the first billion dollar renewable energy IPO, combined with growing public impetus towards the use of renewable energy, has motivated much investor interest. An increasingnumber of private equity investment funds are focusing on the sector, and a growing base of institutional investorshave set aside allocations in such funds as part of their alternative asset strategies.

Clearly, renewable energy is an important component for diversification of the overall energy mix, and is now a fundamental requirement for any nation’s energy portfolio. The drivers for renewable energy’s new ascendance arelong and likely to be enduring: short-term national and international policy environments are supportive; thereis growing interest from consumers, politicians and the capital markets; the technology in many sectors is welldeveloped; the world is experiencing accelerating energy demand; many governments have concerns about energysecurity and trade balances; and changes to long term energy prices mean that some renewable energy technologiesare becoming cost-competitive with traditional energy in some markets, even without regulatory support.

The same drivers exist to support high growth rates for the renewable energy sector in emerging markets. There isno question that growth in energy demand, fears of the environmental impact of traditional energy generation and growing cost pressures are set to see the governments of emerging markets, as in the developed world, commit to thedevelopment of renewable energy generation capacity.

This paper reviews current renewable energy activity and investment in key emerging markets, combining consensus forecasts on renewable energy growth, the likely cost of financing that growth, and the extent to which local governments are prepared to ensure that growth. It analyzes the potential private equity investment strategies in projects and local developers in selected developing and transition economies, identifying the most attractive bycountry, sector and type of investment in the short to medium term.

One thing is clear—the renewable energy sector in emerging markets is not yet a homogenous or well articulatedsector—the right combination of country, technology and asset class is still required to generate significant returns.Barriers still slow the emergence of the sector. For example, there are capacity constraints developing both for siliconin the solar PV market and for turbines in the wind market; there are legislative uncertainties as Kyoto currentlyhas no successor; capital market interest and understanding needs to be developed; and, most importantly, gridlevel management and power storage needs to be improved.

There are a series of milestones that need to be passed before renewable energy reaches its logical share of the energy generation capacity in most emerging markets. Capacity restraints need to be removed, a supportive regulatoryenvironment post 2012 must be established, local legislative uncertainty must be overcome and, long-term, fullyliquid secondary markets must emerge in asset and bond finance in renewable energy.



ii Renewable Energy Investment Opportunities in Emerging Markets



Renewable Energy Investment Opportunities in Emerging Markets iii

foreword: a new era of investing in renewableenergy in emerging markets

By Jeffrey Leonard, Chief Executive Officer Global Environment Fund

At Global Environment Fund, we have always believed in the promise of clean and renewable energy, both

as an attractive investment opportunity and as an increasingly important component of the global energy

infrastructure to help improve energy security and reduce the environmental footprint. Throughout the

18 years that GEF has been investing in the sector, we have sought to identify investment opportunities

in technologies that can be applied today, seeking incremental improvements immediately rather than the

uncertain promise of technological breakthroughs many years later. Equally as important, we have worked

hard to identify the right target companies with real cash flows and strong partners to put our investors’ cap-ital to work with controlled risk. As we look at today’s emerging markets landscape, it is clear that renewable

energy is becoming an appreciable part of the solution to overcome significant environmental and energy

security constraints. GEF is positioned to bring its substantial experience in these countries to realize attrac-

tive long-term returns in clean energy investments.

A History of Commitment and Successful Investment

The dramatic growth of the global economy in the 1990s meant increased demand for energy. Despite a

decline in energy intensity in much of the world, high economic growth in emerging markets translated

into exploitation of every available cost-effective energy source, often with little thought to the environmen-

tal cost. While renewable energy received more attention than it had in the past, it was clear that the market

had not yet fully embraced many of these alternative resources. Costs remained too high relative to fossil

fuels, and a lack of political will stymie large-scale development of renewable power.

At the same time, we could see change on the horizon. As China, India, Brazil and other major emerging

markets became major industrial powers; we understood that rapid growth was straining the environment

in dramatic ways. The greenhouse effect, deforestation and air pollution generated concern in developed

and emerging markets alike. Moreover, the environmental damage resulting from poorly regulated, fossil

fuel power generation began to act as a drag on economic growth. Some estimates put the natural resource,

human health and asset degradation in China from environmental damage at between 3-10% of GDP every

year, much of which is a result of power plant pollutants.

Recognizing these economic fundamentals, the GEF Emerging Markets team over the past eight years

sought investment opportunities in areas where improvements to the environment could be immediately

realized within the commercial and regulatory environment available at that time, focusing in particular on

natural gas production and hydroelectric power generation. For instance, GEF undertook a major natu-

ral gas investment in India which provided significantly greater development of reserves and production

in India – providing an energy source with much lower pollutants and greenhouse gas emissions than the

dominant coal alternatives.



iv Renewable Energy Investment Opportunities in Emerging Markets

We are proud that the domestic natural gas sector in India – stimulated in part by our investment – is con-

tributing significantly to both the economic development and environmental quality. Hundreds of Indian

industrial facilities have transitioned from naphtha and coal to cleaner burning natural gas. In Delhi, 15 mil-

lion inhabitants live in a dramatically healthier and cleaner environment because compressed natural gas now

fuels all buses, taxis and three wheel rickshaws. As gas markets have matured and renewable technologies have

become more cost-competitive, GEF has increased its investment focus on purely renewable sources of cleanenergy, such as wind, small hydroelectric, solar, biomass and biogas. Furthermore, these renewable technologies

also help enable a demand-side infrastructure with a lower environmental footprint. For instance, GEF is now

a significant investor in an Indian manufacturer of electric-powered automobiles, bringing the next generation

of environmental improvements to the Indian market as well as to Western markets.

Favorable Market Conditions

GEF takes extraordinary care in selecting markets, industries, partners, and investment targets. In the past,

we have avoided putting our investors’ capital to work in overbought sectors, instead focusing on mar-

ket fundamentals, asset values and growth opportunities. As this paper demonstrates, we believe that the

confluence of several developments in our target markets present significant investment opportunities in therenewable energy space:

• The economics of renewable energy have become more competitive in light of falling capital costs and

high fossil fuel prices

• Rapid economic growth in emerging markets has led to increased energy demand

• Environmental concerns are driving a regulatory environment favorable to alternative energy sources

• Energy security concerns have come to the forefront, spurring utilities and governments to require a

larger share of power from renewable sources.

The growth of energy demand in emerging markets is projected to outstrip growth in developed economies:

two-thirds of demand growth will come from emerging markets. China and India have spent billions todevelop energy infrastructure at home and to ensure access to resources abroad. While the vast majority of

this investment has been directed at fossil fuels, these nations are increasingly coming to realize that this is

not enough to meet demand. At the same time, the environmental consequences of reliance on fossil fuels

have become all too apparent.

History shows that increased environmental awareness and a demand for higher human health standards go

hand in hand with economic development. This phenomenon is readily apparent throughout the emerging

markets. While the Kyoto Protocol did not require developing countries to commit to greenhouse gas emis-

sions reductions targets, it provided a global framework from which these nations can benefit from foreign

investment in renewable energy, primarily through the Clean Development Mechanism. Perhaps more

importantly, this agreement marked a significant change in the global mindset regarding the consequencesof fossil fuels and the desirability for alternatives.



Renewable Energy Investment Opportunities in Emerging Markets v

Market-Specific Approach

In addition to an exploration of the fundamentals behind these important industry developments, this paper

highlights the potential for market-specific opportunities. One of the key findings is that the types of opportuni-

ties for successful investment in renewable energy are very specific by region and country. For example, biofuels

are experiencing rapid growth in Brazil due to underlying economic fundamentals specific to Brazil, while in

Eastern Europe cogeneration and biomass present compelling opportunities due to the legacy of inefficient,

Soviet era energy systems. Market-specific opportunities must be assessed in light of indigenous resources,

government policy, infrastructure and economics. Feed-in tariffs, tax incentives and subsidies to support to

construction costs are all becoming more common government approaches to stimulate investment in renew-

able energy, but the long-term economic fundamentals still need to be carefully assessed.

GEF’s top-down investment approach analyzes each market individually, in light of global trends in renew-

able energy. In so doing, our team identifies the most attractive sectors in each market, generally charac-

terized by high growth prospects, reasonably priced assets, favorable investment incentives and attractive

returns. In short, GEF does not follow the pack. We apply our sector expertise and experience to identify

the best market opportunities by region before these may be widely evident in the market itself.

Successful Investment Strategy

It is a great credit to my colleagues and fellow investment professionals that GEF over the last 18 years has

refined a strategy and methodology for emerging market investing that has sought to take advantage of

growth and mitigate risks in the renewable energy industry. This investment strategy is based on a few key

principles:

• Identify the core drivers within a given country that are spurring the development of the most promis-

ing renewable energy technologies;

• Invest in fairly priced businesses with a strong asset base and positive cash flow poised to take advantage

of these drivers to expand;

• Control risks as much as possible on the front end by careful structuring;

• Recruit the best management teams, especially with a keen understanding of latest technologies and

industry dynamics from U.S. and European operations in the same sectors;

• Be active, sector-experienced investors, working regularly with management and the board of directors

to ensure realization of the business strategy.

Said another way, GEF first tries to narrow the universe of investment opportunities to a few core countries

and environmental sectors that can take advantage of the kinds of growth opportunities documented in this

white paper. Through its research and relationships, the GEF team then targets companies that have a solid

asset base and cash flow to realize the growth of the business. Downside risk is mitigated by negotiating fair

valuations at the outset and carefully structuring ownership rights. Yet even with this rigorous process of

structuring investments, emerging markets present far too many challenges and bumps in the road to allow

a simple buy-and-hold strategy. By working as active investors with talented managers, GEF is able to bring

value and expertise to its portfolio companies, helping position them to outperform even the high rates of

sector growth that are being seen in emerging markets.



vi Renewable Energy Investment Opportunities in Emerging Markets

The Story Continues

As this paper makes clear, renewable energy is the fastest growing part of the energy generation mix world-

wide. While each market is moving at its own pace, growth has increased substantially throughout the

emerging markets. The GEF team takes particular pride in providing strong investment returns that have a

positive impact on the natural environment. We expect renewable energy to continue to be a big part of this

success.

We are very grateful to Chris Greenwood and the rest of the staff at New Energy Finance for their work on

this paper and helping us hone our thinking on renewable energy investing in emerging markets.



Renewable Energy Investment Opportunities in Emerging Markets vii

table of contents

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x

1. Introduction - Why Look At Renewable Energy Investment In Emerging Markets? . . . . . . . . . . . . . . . . 1

Global Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

The Improving Outlook for Renewable Energy: Key Drivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Growing Energy Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Long Term Energy Price Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Falling Cost of Renewable Energy Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Growing Search for Energy Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Environmental Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Potential Renewable Energy Solutions for Emerging Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

2. Emerging Markets Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Renewable Energy in Emerging Markets: The Improving Investment Climate . . . . . . . . . . . . . . . . . . . . 13

Energy Needs in Emerging Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Developed World Support for Renewable Energy in Emerging Markets . . . . . . . . . . . . . . . . . . . . . . . . . 15

Accelerators and Support Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Power Generation Promotion Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Domestic Policy Targets for Renewable Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Technology Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Kyoto Accord CDM/JI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Investment Opportunities in Electricity Markets and Grid Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . 19

Potential Barriers to Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

3. Global Investment Activity In Renewable Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Public Sector Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Private Sector Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Investment Trends in the Renewable Energy sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

4. Renewable Energy Opportunity In Selected Emerging Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Turkey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59



viii Renewable Energy Investment Opportunities in Emerging Markets

Table 1: Energy Growth and Projected Renewable Energy Share in Emerging Markets . . . . . . . . . . . . . . 3

Table 2: Renewable Energy Technologies - Capital Costs and Cost Trends . . . . . . . . . . . . . . . . . . . . . . . . 6

Table 3: Renewable Energy Policies & Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Table 4: Selected Emerging and Transition Economies Renewable Energy Targets . . . . . . . . . . . . . . . . . 18

Table 5: Selected Venture Capital and Private Equity deals in 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Table 6: Selected Renewable Energy Mergers and Acquisitions in Emerging Markets . . . . . . . . . . . . . . . 27

Table 7: Selected Emerging Markets Clean Energy IPOs and Secondary Placements . . . . . . . . . . . . . . . 33

Table 8: Country Attractiveness for Renewable Energy Capital Investment . . . . . . . . . . . . . . . . . . . . . . 37

Table 9: Forecast Renewable Energy Generation Capacity by Leading Sectors (2020) . . . . . . . . . . . . . . 38

Table 10: Sector Attractiveness within Each Developing Country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Table 11: Selected Renewable Energy Projects Under Development in Brazil . . . . . . . . . . . . . . . . . . . . . 41

Table 12: Selected Renewable Energy Projects Under Development in China . . . . . . . . . . . . . . . . . . . . 43

Table 13: Selected Renewable Energy Projects Under Development in India . . . . . . . . . . . . . . . . . . . . . 48

Table 14: Selected Renewable Energy Projects Under Development in Mexico . . . . . . . . . . . . . . . . . . . . 53

Table 15: Selected Renewable Energy Projects Under Development in Poland . . . . . . . . . . . . . . . . . . . . 55

Table 16: Selected Renewable Energy Projects Under Development in Thailand . . . . . . . . . . . . . . . . . . 58

Table 17: Selected Renewable Energy Projects Under Development in Turkey . . . . . . . . . . . . . . . . . . . . 60

Table 18: Renewable Energy Policies and Measures in Developing Countries . . . . . . . . . . . . . . . . . . . . . 61

Table 19: Country Attractiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Table 20: Consensus Forecasts - Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Table 21: Consensus Forecasts - China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Table 22: Consensus Forecasts - India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Table 23: Consensus Forecasts - Mexico, Poland, Thailand, Turkey . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Table 24: Brazil Country Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Table 25: Brazil Energy Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Table 26: China Country Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Table 27: China Energy Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

Table 28: India Country Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Table 29: India Energy Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Table 30: Mexico Country Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Table 31: Mexico Energy Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Table 32: Poland Country Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Table 33: Poland Energy Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Table 34: Thailand Country Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Table 35: Thailand Energy Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

Table 36: Turkey Country Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Table 37: Turkey Energy Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75



Renewable Energy Investment Opportunities in Emerging Markets ix

Figure 1: Global Investment in Renewable Energy in 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Figure 2: Range of Total Energy Cost by Source (USD cents/kWh) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Figure 3: Growth in Energy Demand by Source (1Mtoe = 11.63TWh). Source = IEA . . . . . . . . . . . . . . 14

Figure 4: Global Project Investment (Asset Financing) Activity in Renewable Energy in 2005 . . . . . . . . 26

Figure 5: Global Venture Capture / Private Equity Investment in Clean EnergyCompanies 2001 to 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Figure 6: Global M&A Activity in Renewable Energy 2001 - 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Figure 7: Global Renewable Energy IPOs and Secondary Offerings 2001-2005 . . . . . . . . . . . . . . . . . . . 32

Figure 8: Brazil Energy Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Figure 9: China Energy Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

Figure 10: India Energy Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Figure 11: Mexico Energy Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Figure 12: Poland Energy Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Figure 13: Thailand Energy Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Figure 14: Turkey Energy Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Disclaimer:

The White Paper is not intended to be financial or definitive but rather a vigorous assessment of the potential barriers and support

for the development of renewable energy in a selected of developing economies. It has been understood that investing in emerging

markets entails macroeconomic, currency and political risks that are in addition to any risks that may be associated with renew-

able energy. It is not intended to be used as a tool for basing final investment decisions upon, and in all cases the reader must

conduct sufficient additional analysis and obtain appropriate professional advice before proceeding with any investment decisions.

The authors do not and cannot in any way supervise, edit or control the content of any information or data accessed through the

details contained within the White Paper and shall not be held responsible in any way for content or information accessed. The

authors, along with contributors and agents, are released from and indemnified against all actions, claims and demands which

may be instituted against the authors arising out of this White Paper or of any other person for whose acts or omissions the user

of the report is vicariously liable. The views expressed in this publication are those of the authors at the time of writing are not at-

tributable to any other party. Every effort has been made to correctly attribute sources of information. No responsibility is taken for

incorrect attributions which may have inadvertently occurred. While considerable care has been taken to ensure the accuracy of the

White Paper, NEF would be pleased to hear of any errors or emissions, together with the source of any new information.





Renewable Energy Investment Opportunities in Emerging Markets 1

1. introduction why look at renewable energyinvestment in emerging markets?

Global Overview

In 2005, global annual investment in the renewable energy sector stood at just over USD 44bn1, of which

USD 18.2bn was invested in the development of grid-level renewable energy generation projects. If growth

continues at current rates total investment is expected to reach USD 100bn by 2010.2

Figure 1: Global Investment in Renewable Energy in 2005

Source: New Energy Finance

Note: Figures marked * are based on the New Energy Finance Desktop (Clean Energy Organization & Deal database); all other figures areindustry estimates based on various sources.

Note: Global investment in renewable energy has been broken down into venture capital and private equity investments in companies; equity placements on the world’s stock markets; corporate research and development budgets; corporate plants and equipment (on-balance sheet

activity); government research and development programs; investment in grid-connected renewable energy project development; investmentin distributed power generation; and mergers and acquisition activity (this is identified separately as it is not investment into the industryspecifically, but between industry players and may not be re-invested in renewable energy).

________________

1,2 New Energy Finance Research on Global Investment March 2006

$1.6bn*

Totaldeals

$59.2bn

M&ATotalinvestment

Capacitysubtotal

Distributedprojects

Assetfinance

VC/PE Publicmarkets

CorpR&D

Gov’tR&D

Techsubtotal

$4.3bn* $4.0bn

$6.0bn

$18.2bn*

$18.9bn

$7.0bn $25.2bn

$15.1bn*

CorpP&E

$3.0bn

$44.1bn

Total global

investment in

clean energy

in 2005:

$44.1bn



2 Renewable Energy Investment Opportunities in Emerging Markets

The IEA has predicted that the compound annual growth rate of world power generation capacity to 2030

will be around 2.6%, against an average GDP growth rate of 3.0%. According to the Commission on

Sustainable Development, emerging markets are set to account for at least USD 6 trillion of the USD 17

trillion required to meet global energy development requirements in that period.

The development of renewable energy generation capacity is almost certain to grow at a much fasterrate—for example; solar photovoltaic installations are expected to growth at an average annual rate of 60%3

from 2000 to 2004.

In the near term, New Energy Finance analysis suggests that overall investment growth in renewable energy

generation will continue at an average of 18% CAGR until 2010. The world’s developing economies, which

combine rapid GDP growth with accelerating energy demand, appear to offer the greatest opportunities for

high levels of sustainable growth and investment.

The Improving Outlook for Renewable Energy: Key Drivers

The interaction of a number of global and country-specific drivers has radically changed the outlook for world energy markets, resulting in a more favorable investment climate for renewable energy. While market

assessments vary, most commentators agree on the fundamental drivers behind the evolution of the renew-

able energy sector:

• Many emerging markets are undergoing rapid economic growth, leading to an increase in energy demand ;

• Higher demand has contributed to an increase in fossil fuel energy costs (particularly for crude oil),

which appear likely to remain at their new higher levels for the foreseeable future;

• At the same time, the cost of renewable energy technologies has begun to fall. In some emerging mar-

kets renewable energy sources are increasingly cost competitive on purely commercial grounds;

• It has become more difficult to ensure security of domestic energy supply . This is a significant policy

driver not only for emerging markets, but also for the world;

• Environmental concerns at the local and global level are increasing the pressure to develop non-fossil

fuel renewable energy sources. Growing international concern about the impact of climate change has

magnified investment interest.

________________

3 REN21 Renewable Energy Policy Network. 2005. “Renewables 2005 Global Status Report.” Washington DC: WorldwatchInstitute




Growing Energy Demand

Energy is central to economic development: there is a clear correlation between energy consumption and

living standards. In the developing world, renewable energy is an essential component of sustainable eco-

nomic growth. Use of renewable energy also reduces reliance on the purchase of expensive fossil fuels while

contributing to the successful development of domestic energy industries.

Renewable energy will play an important role in meeting the increased demand for energy over the next

20 years. Since 1980, total global energy demand has grown by almost 50%. The demand for electricity

has grown even faster, with the most dramatic increase in developing countries. This trend is projected to

continue, as GDP growth in the developing world outstrips growth in developed countries. More than half

of the world’s rural population has no access to modern forms of energy; distributed energy based on renew-

able sources is a critical tool in providing access to electricity and other forms of energy.

While already substantial, investment opportunities in renewable energy will continue to increase. Two-

thirds of the world’s new energy demand is expected to come from the developing world, which will ac-

count for almost half of total global energy demand by 2030. At least 15% of this increase is expected to be

met by renewable sources. Major investment is required to expand the world’s total electricity generation

capacity, which is expected to reach 2,500GW by 2010 and 2,850GW by 2020.4 The World Bank expects

that approximately one-third of the required investment will be directed toward renewable energy assets in

the developing world (see Table 1).

Table 1: Energy Growth and Projected Renewable Energy Share in Emerging Markets

Country Actual Electricity Projected Electricity Projected Electricity Target Renewable

Consumption 2005 (TWh) Consumption 2010 (TWh) Consumption 2020 (TWh) Energy Capacity

2020 (GW)

Brazil 373.5 457 697 14.5

China 2,170 (2004) 2,801 3,816 102India 418.3 (2003) 773 1150 16.4

Mexico 193.9 (2004) 327.6 (2013) n/a 4.1

Poland 144.8 n/a 293.0 (2025) 5.3

Thailand 107.3 (2003) 189.9 (2015) n/a 3.45

Turkey 110.9 n/a 240.0 4.93

Sources: Energy Information Agency (EIA); International Energy Agency (IEA); Brazilian Ministry of Mines and Energy (MME);Mexican Ministry of Energy (Secretaria de Energia, SENER); PowerGen/Turkish Ministry of Energy and Natural Resources (Enerji veTabii Kaynaklar Bakanligi); NEF Poland Focus Report; CIA World Fact Book.

________________

4 OECD/IEA World Energy Outlook 2004




Long Term Energy Price Trends

There are two primary issues that will impact long-term energy pricing: an increase in the cost of fossil fuel

energy and a decrease in the cost of commercial renewable energy. As global energy demand increases and

the global supply of fossil fuels begins to dwindle, the pricing equation is likely shift in favor of greater reli-

ance on renewable energy.

Traditionally the cost of oil, coal and natural gas has been considerably lower than alternatives. However, the

changing fundamentals of the energy market are driving a shift toward cost-competitive renewable energy

sources (see Figure 2).

Fossil-Fuel Energy Costs

The changing economics of global energy markets have increased the commercial viability of renewable

energy. For example:

• Oil prices have nearly doubled over the last couple of years;

• Natural gas prices are rising;

• Growing environmental and efficiency demands have increased the capital construction costs of coal-

fired power plants;

• Ageing power stations around the world need to be replaced; and

• Electricity grid networks need to be upgraded and modernized.

Increased Cost of Oil

Taking oil as an example, crude oil prices are now around USD 60.00 per barrel. In September 2004, the

price of a barrel of standard crude oil on NYMEX was less than USD 25.00.

There are a number of reasons for continued upward cost pressure, including: increased demand, dimin-

ishing reserves of easily accessible and refinable oil, increasing costs of extraction, geopolitical pressure and

environmental concerns.

• Increased demand: Oil prices have been driven higher by sharply increasing global demand. Demand

drivers include higher levels of economic growth, (especially in rapidly-developing countries such as

China and India), greater need for electricity and continued proliferation of automobiles.

• Diminishing reserves: The global supply of oil is finite; the question is how much oil may be extracted in a

cost-effective manner. In 2004, 30 billion barrels of oil were consumed worldwide, while only eight billion

barrels of new oil reserves were discovered.5 While many dispute the Hubbert peak theory (which holds

that, at a given point, the available supply of oil will peak and then fall away), in 2004 the IEA’s World

Energy Outlook said that “oil production is in decline in 33 of the 48 largest oil producing countries.”

________________

5 IEA




• Increased costs of extraction: The costs associated with the production, refinement, transport and stor-

age of oil, continue to increase leading to higher world oil prices. While oil can still be produced from

many fields, the cost of extraction increases over time (where the cost of extraction is defined as the En-

ergy Return on Investor (EROI), which is the number of barrels of oil used in the extraction, transport

and refinement of oil). While this trend occurs in all oil fields, it is a much bigger issue in fields now

being explored, which are significantly more difficult to access. Canada’s tar sands, for example, havebeen viewed as non-commercial due to a refining cost of USD 60.0 per barrel.

• Geopolitics: Geopolitical developments affect both the level and volatility of oil prices. Most recently,

conflict in oil-exporting countries, supply disruptions in the Gulf of Mexico and Nigeria, and concerns

about Iran’s foray into uranium enrichment have sent oil futures higher. Political turbulence in the ma-

jor oil producing regions of Venezuela and the Middle East, both major oil regions, have also contrib-

uted to long-term concerns over access to petroleum resources.

• Environmental concerns: Environmental concerns are playing an increasingly important role in deter-

mining whether oil may be accessed in a sustainable manner and cost-effective. An excellent example

if the ongoing debate in the United States over the refusal to allow drilling for oil in protected nature

reserves such as the Alaska National Wildlife Refuge. Opposition to exploitation of oil reserves on en-

vironmental grounds, even where oil supplies have been confirmed, is becoming increasingly common

throughout the world.

Taken together these supply and demand factors are ensuring continuing pressure on the price of oil, are

not likely to dissipate in the short term and, in fact, some commentators believe that the era of cheap oil is

effectively over.

Falling Cost of Renewable Energy Technology

Depending on the technology, renewable energy costs are either stable or moving down a steep cost curve.

This is in stark contrast to the rising prices of more traditional energy resources (see Table 2). Perhaps more

importantly, the most significant costs associated with renewable energy capacity development consist of

capex construction, operations and maintenance. Renewable energy fuel costs are zero and/or negligible, as

opposed to those of fossil-fuel based generation plants, which are substantial.




Table 2: Renewable Energy Technologies – Capital Costs and Cost Trends

Technology Global Average Capital Cost (USD) Cost Trends Risks to Cost Curve

Mini-hydro 1.9m per MW Stable – established technology Likely to remain stable

Wind 1.2m per MW Costs have halved since 1990. Turbine Issues regarding

size has increased from 600kw to connection of offshore wind

average 1.5MW and above. Cost farms to the grid.reductions are expected to continue

due to site optimization, improved

design and electronics. Offshore wind

is expected over the long term to

decrease following the onshore wind

market.*

Biomass 2.7m per MW Stable but expected to fall over time Likely to remain stable with

as new technologies are introduced a downward curve as

and commercial scale generation is improved technology is

increased. implemented

Geothermal 1.8m per MW High capital upfront costs, which Likely to remain stable, orhave declined since the seventies. drop as Hot Dry Rock (HDR)

Stable cost which could decrease due technology becomes

to improved exploration techniques, commercial, widening

cheaper drilling techniques and better geothermal resource.

heat extraction.

Solar PV 2.4m per MW Costs have declined roughly 20% Dependent on the supply of

for every doubling of installed capacity silicon. Costs can rise due

(about 5% per year). Price is expected to market factors.

to drop due to new materials, design,

process and improved efficiency.*

Solar Thermal N/A Stable and set to fall due to increase Stable

in scale and improvements in technology.

Biofuels 0.5 per litre Ethanol can range from 23-30 cents Affected by commodities

per litre, with Biodiesel at 40-80 cents market interests, there are

per litre. Technology and production ongoing issues regarding

efficiencies are expected to continue the use of edible feedstock.

to force down the price.1

Marine 4.2 per MW Stable and falling due to technological Current cost is high – likely

developments. to follow a similar path to

the development of offshore

wind


Note: 1 Further explanation below




Figure 2: Range of Total Energy Cost by Source (USD cents/kWh)

Source: Various

Note: Solar – Minimum cost is USD 22.0 cents/kWh. Maximum cost is up to USD 84.0 cents/kWh

Note: Total Cost included Capital costs, Operation & Maintenance, and Fuel (where required)

• Wind : In the U.S., for example, the cost of producing electricity from utility-scale wind turbines has

dropped by 80% over the last twenty years, due in part to significant improvements in performance.

Many small, expensive turbines have been replaced by larger MW-class turbines. In the early 1980s,

when the first utility-scale wind turbines were installed, wind-generated electricity cost as much as USD

cents 30/kWh. Now, state-of-the-art wind power plants in the U.S. are generating electricity at less

than USD cents 5/kWh. Costs are continuing to decline as more windfarms are built, which are larger

in terms of both number of turbines and scale of turbine generation capacity. This is a pattern that we

expect to see followed around the world.

• Solar : According to the retail price index of solar PV, the cost of this technology has fallen to roughly

USD 5.40 per watt in the U.S. and EUR 5.80 in Europe, compared to USD 30 per watt in 1975. In

fact, the recent price of electricity produced from solar PV fell as low as USD 3.00 per watt before

rising due to higher demand. Nevertheless, continued progress in solar technology, from thin-film to

solar concentrators, is likely to reduce prices. The combination of improved, lower cost performance is

mainly due to advances in cell materials, module packaging and manufacturing processes.

• Ethanol: Ethanol is used increasingly as an additive to motor vehicle fuels in several markets, and may

be cost-competitive with oil at USD approximately 40-50 per barrel. Several countries, led by Brazil

and the United States, have identified ethanol as an important component of a renewable energy port-

folio and have made major strides in reducing production costs.

C o a l

N a t u r

a l G a

s H y

d r o

N u c l e

a r O i l

B i o m a

s s

G e o t h

e r m a l

S o l a r

W i n d

O n - S h o r e

2.54.0

2.02.0

10.0

4.0

5.0

22.0

4.04.5

5.5

4.04.0

12.0

8.08.07.0

0.0

5.0

10.0

15.0

20.0

25.0

Average Cost

U S D c e n t s / k W h




Similar advances have helped reduce the cost of renewable energy technologies, such as biomass and geo-

thermal, in lockstep with gains in efficiency and reliability of these technologies. At the same time, the costs

of off-grid distributed renewable energy generation are also expected to continue to fall, primarily due to

advances similar to those in on-grid technology.

The long term energy price trend is upwards, and it is likely that we will see continual increases in the costsof most fossil fuel sources. Oil prices are set to continue to rise; while natural gas is far cheaper, it shares

many of the same geopolitical and supply tensions as the oil market. Coal is inexpensive to mine, but the

devastating environmental effects of coal-fired electricity generation have led to expensive efforts to imple-

ment pollution-reduction technologies. As a result, power station construction costs have risen.

Even if the price of oil begins to fall, the cost of electricity generated from the majority of renewable energy

sources is expected to continue to fall (or at the very least, remain stable), thanks to technological develop-

ments, new investment and government incentives.

Growing Search for Energy Security

Energy is a fundamental driver of growth and development around the world, and the use of energy hasbeen steadily expanding along with the global economy. Reliable access to affordable energy is a key enabler

of growth. At the same time, poor access to energy and high prices have the potential to hinder growth. This

is true especially for developing countries.

International competition for energy resources has become more pronounced. The markets for oil, on

which most of the world’s transportation depends, and natural gas, on which a growing share of the world’s

electric power production depends, are increasingly characterized by intense competition.

Greater competition for finite fuel supplies may lead to higher prices, which curb economic growth and dis-

proportionately affect developing economies least able to absorb rising costs. Competition may also take the

form of increased geopolitical tension between countries that own domestic oil and gas supplies and thosethat do not possess these assets.

Energy security has grown in importance as communities, regions, and nations come to understand the ne-

cessity of a reliable fuel and electricity supply. Raw cost per MWh of energy is no longer the only indicator

of competitiveness: all countries require energy to fuel economic growth and in order to secure that supply.

Many countries are now looking to optimize the exploitation of their domestic resources while expanding

and diversifying their international energy supply options.

One way to achieve greater energy security is to develop greater fuel diversity and to reduce dependence on im-

ported fossil fuels, which may be subject to rapid price fluctuations and supply disruptions. This is a significant

issue around the world today, with many countries rushing to install natural gas-fired electricity generation ca-pacity because of its current low capital cost (compared to coal or nuclear). As world gas demand increases, the

prospect of supply interruptions and fluctuations will continue to grow, increasing the value of fuel diversity.

Western Europe, which has long depended on imported gas from Russia, Algeria and a few smaller suppli-

ers, is especially vulnerable. In principle, dependency on natural gas is easier to manage than dependency on

oil: natural gas has rival fuels for each of its major uses. In electric power generation, countries must preserve

diversity—ensuring, for example, that advanced coal and renewable technologies remain viable.




When valuing energy in today’s markets one needs to include an element relating to Energy accessibility and

reliability must be thoroughly assessed when valuing energy in today’s market. Accessibility and reliability

can range from access to feedstock to availability during grid disruptions, as well as the ability to ease grid

requirements during periods of peak demand. This is a critical issue in emerging markets, where energy

demand is increasing more rapidly than in the developed world.

Environmental Concerns

A growing global awareness of environmental issues—focusing on the impact of pollution, resource scarcity

and the implications of climate change—has led to a growing recognition renewable energy generation is an

essential element in sustainable GDP.

International concern about the rise in global CO2 emissions led to the implementation of the Kyoto Ac-

cord, an international treaty designed to reduce emissions of greenhouse gases.

Renewable energy generation, which has a much lower environmental impact per unit of energy produced

than conventional power plants, is one potential response to these environmental concerns. Environmentalimpact costs are becoming an increasingly important factor in resource planning decisions from national to

utility level planning.

The rapidly expanding economies of China and India are already showing a swift increase in CO2 emissions.

China, which is already the world’s second largest polluter, has increased its emissions by 33% between

1992 and 2002, while India’s emissions have grown 57% in the same period. This trend will continue as

economic activity grows. This increase in emissions has taken place despite improvements in energy effi-

ciency by China over the last decade. In 1992, a dollar of GDP was associated with the production of 4.8Kg

of CO2. By 2002, every dollar of GDP was associated with 2.5kg of CO

2.6

The dramatic growth of power demand in developing countries has accelerated concern about the prolif-eration of large coal-fired power plants; at the same time, it has made solar, wind, hydrogen and biomass

increasingly attractive alternatives. Biofuels are also attractive for the transportation sector, as they reduce

both pollutant emissions and dependency on fossil fuels.

Potential Renewable Energy Solutions for Emerging Markets

For the purposes of this paper, we are addressing the opportunity in renewable energy, rather than the wider

clean energy market. One way to improve a country’s emissions profile is to switch power plants from coal

to natural gas, since the level of emissions from a natural gas fired power plant are lower. Clean coal tech-

nologies are likely to be of great interest in the medium term; however, the focus of this paper is on those

energy sources that can be developed domestically, requiring no international purchase of additional supply.

________________

6 World Bank: Little Green Data Book. May 2006




Renewable energy projects can offer a number of significant benefits in developing nations and emerging

markets, where large central power plants are typically the backbone of the national power system. Renew-

able projects can complement conventional thermal power projects by:

• Reducing emissions of greenhouse gases and other air pollutants;

• Providing, clean, sustainable and cost effective power in rural areas not served by the power grid;

• Utilizing indigenous resources in countries where fossil fuels are imported, or exported, for hard cur-

rency; and

• Developing diversified power sources that can sustain economic growth when fossil fuel supply decreas-

es or becomes prohibitively expensive.

The complementary nature of renewable projects has been increasingly recognized by conventional energy

companies which have entered the renewable energy power project field.

The key areas in which renewable energy can make a meaningful contribution to meet the developing

world’s energy needs are:

• Grid-connected generation demand;

• Distributed generation demand,

• Mobile generation demand; and

• Transportation fuels.

The expansion of the developing world’s renewable energy markets are predominantly driven by high rates

of GDP growth, which translates, among other things, into the need for additional supplies of electricity

and fuels for transport. Therefore, this paper looks at opportunities in the most relevant sectors, including:

Wind, marine, solar, geothermal, mini-hydro, biomass, biogas, and biofuels.

• Wind.

Wind has been the most successful and widely-adopted renewable energy technology over the

last twenty years. The next decade will see continued activity, particularly in developing countries and

offshore. The Wind sector includes manufacturers of components and subassemblies of wind turbines,

as well as turbines themselves. A large part of this sector is comprised of various developers, generators,

utilities and engineering firms that are exploiting opportunities to build wind farms around the world.

• Marine. This category covers all technologies relating to the extraction of energy from the sea. Specific oppor-

tunities include energy generated from waves as well as tide (via tidal barrages or tidal flow generators). Note

that exploitation of marine-derived biomass would be categorized as “biomass,” rather than “marine.”

• Solar. Solar includes all technologies that capture energy directly from the sun, either using photovoltaic

(PV) material or passive technology such as a concentrator or Stirling engine. While the solar energy

sector is already substantial, cost reductions achieved through new technologies or economies of scale in

manufacturing should expand solar’s reach over the coming decades.




• Geothermal. Geothermal power has long played a part in the energy portfolio of countries such as Ice-

land and Japan, which possess high-enthalpy geothermal resources. The highest temperature resources

are generally used only for electric power generation, while low and moderate temperature resources

can be divided into two categories: direct use and ground-source heat pumps. However, recent advances

suggest that geothermal energy could play an increasing role worldwide. First, new drilling techniques

allow users to tap into resources that have traditionally been out of reach. Second, innovative methodsfor extracting power from lower temperature geothermal fields now allow productive use of resources

that were not economically viable in the past.

• Mini-hydro (<50MW). There have been important technological advances in small-scale and low-head

hydroelectric power. Advances in equipment (such as the development of Gorlov’s helical turbine) and

design practices have enabled the utilization of low head sites,7 enabling mini-hydro to become even

more economically, technically and environmentally sound. Small scale hydro power is undergoing a

renaissance and will continue to be a major contributor to the global deployment of renewable energy.

• Biomass, Solid Waste and Biogas. This category includes production and consumption of solid and

gaseous fuels derived from biomass. Solid biomass may include a number of specially-grown crops, such

as elephant grass or coppiced willow, as well as crop residues, such as straw. We include in this sector

processors of other waste matter for energy generation, such as sewage waste, chemical by-products and

biogas produced from municipal waste, as their exploitation often involves the same technologies as

grown-for-purpose biomass.

• Biofuels. This category refers to liquid transportation fuels, including biodiesel and bioethanol. These

fuels may be derived from a range of biomass sources, including sugar cane, rape seed, soybean or cellu-

lose. We exclude producers of base biomass but include suppliers of everything from processing tech-

nologies and equipment. We also include the logistics of distribution, manufacture of energy systems

specially adapted for the use of biofuels, as well as the services on which they depend.

________________

7 Most mini-hydro is low head. In low head (the vertical distance through which the water falls) situations, low water velocityimplies the need for large flow rates and hence large machines to recover a modest amount of power. A number of differentmeans of exploiting low head hydro, such as converting into airpressure energy, and the development of smaller and moreefficient turbines are set to enable the development of a vast number of suitable low head hydro sites, and their respectiveuntapped source of renewable energy.







2. emerging markets overview

Renewable Energy in Emerging Markets: The Improving Investment Climate

The shift in the economic perception of renewable energy has stimulated interest in the potential return on

investment. In the developed world a series of landmarks, such as the implementation of the Kyoto Protocol

and the first billion dollar renewable energy IPO (the IPO of Norwegian solar wafer, cell and module manu-

facturer REC on the Oslo Stock Exchange in May 2006 raising USD 1.2bn), combined with a growing

public impetus towards the use of renewable energy, has driven investor interest.

The number of funds focusing on the sector is on the increase, and traditional limited partners such as

Mitsubishi, BOC and Coca-Cola are increasing their exposure. The majority of private funds are focused

on private equity opportunities in the sector and 65% of all such funds focus on investment in companies

rather than projects, with over USD 2.8bn currently under management8.

Growing interest in the potential of renewable energy has led to increasing interest in developments in

emerging markets, as well as within the more developed economies.

While it is understood that investing in emerging markets entails macroeconomic, currency and political

risk, the question that needs to be answered is what are the incremental risks and/or benefits of investing in

renewable energy. To what extent does the political will exist at the domestic level to encourage renewable

energy growth over a significant period of time? This is vital, given the proven importance of appropriate

legislation to renewable energy growth in developed markets.

It is a given that efficient management of resources is linked to economic competitiveness. At the same time,

renewable energy is seen in many regions as a potentially large source of job creation and economic develop-ment because it tends to harness under-utilized domestic resources.

This realization has led national and local governments to seek to lure renewable energy companies and

facilities to locate within their borders. Local economic development objectives can also be served by clean,

affordable and resource-efficient technologies that can be deployed at the town and village levels. Biomass,

solar, and small-scale hydro, for example, are among the technologies with the potential to provide new

economic opportunities and improved quality of life for the two billion people in the world who still lack

access to electricity.

What makes the emerging markets attractive as an investment opportunity are the combination of improv-

ing fundamentals and competitive prices. The growth in renewable energy in the developed world has beenrapid, and there are continuing developments in terms of fiscal and policy support.

The main difference between emerging markets and the developing world in terms of energy trends is sim-

ply that, in emerging markets, the same drivers for the development of renewable energy generation capacity

are increasingly more powerful.

________________

8 New Energy Finance Funds Briefing March 2006




Energy Needs in Emerging Markets

It is obvious that a country’s energy needs, energy mix and energy economics are most directly relevant to an

assessment of the return an investor can anticipate from financing renewable energy generation.

With the United Nations predicting world population growth from 6.0 to 7.5 billion by 2020, demand

for energy will increase substantially over that period. Both population growth and increasing standards of

living for many people in developing countries will cause strong growth in energy demand, expected to be

50%, between now and 2030.

As noted in Section 1, two-thirds of the world’s increasing energy demand is expected to come from the de-

veloping world (reaching nearly half of total global demand by 2030). Oil and gas imports from the Middle

East and North Africa are expected to rise still further, creating greater dependence for IEA countries and

large importers like China and India. Energy-related CO2 emissions are expected to climb—by 2030, they

will be up to 52% higher than today.

Electricity demand is increasing much more rapidly than overall energy use, and is projected to grow glob-

ally at 2.8% per year to 2010, and substantially more to 2020. Currently some 2 billion people have no ac-

cess to electricity, and it is a high priority for governments in the developing world to address this lack, only

adding to the growth in demand.

Installed renewable energy generation capacity totaled 160GW in 2004 (excluding large hydro and biofuels).

The emerging markets, including China, had 70GW of the total, or 44% 9. Whilst, therefore, up to 85% of the

world’s increased demand for energy is expected to be met by fossil-fuels, the renewable energy sector will also

need to grow rapidly to help meet the various economic and environmental priorities already described (see

Figure 3). For the investment community this will undoubtedly represent a significant opportunity.

Figure 3: Growth in Energy Demand by Source (1Mtoe = 11.63TWh). Source = IEA

________________

9 REN21 Renewables 2005 Global Status Report

7,000

6,000

5,000

4,000

3,000

2,000

1,000

01970 1980 1990 2000 2010 2020 2030

Oil

Natural Gas

Coal

Other Renewables

Nuclear PowerHydro Power




Developed World Support for Renewable Energy in Emerging Markets

For the international community, the success of any attempt to limit the world’s CO2 emissions comes

down to one basic question: How does the world address the emission of India, China and Brazil? Whether

or not one fully ascribes to the theory of man-made climate change, it is a fact that the climate has already

absorbed the developed world’s emissions to date; increasing emissions from the developing world over the

next thirty years could accelerate climate change to the point of no return.

These three large, rapidly-industrializing countries have a combined population of more than 2.5 billion. If

these economies produce only half of the UK’s annual emissions per capita, world emissions will increase by

nearly 40%. If the per capita rate of emissions reaches that of the U.S., the world’s current CO2 emissions

will be double the current level. Few, if any, reputable scientists believe that the world’s climate could with-

stand this increase in atmospheric CO2 concentrations. What the 2.5bn people in India, China and Brazil

do is, put simply, three times as important as what the 850m people do in the U.S., Europe and Japan.

Recognition of this problem has led to the Kyoto Protocol being agreed and signed, which limits emissions

growth and targets international emissions reductions by each developed country. However, under the cur-

rent international regulatory environment, no emerging market economy has any requirement to cap emis-

sions and it is unrealistic to expect the developing world to shoulder the main burden of mitigating future

emissions growth. The Kyoto Protocol, while welcomed, may make no effective difference to the regulatory

environments in emerging markets.

Yet predominantly the only way to resolve infrastructural, contractual and off-take issues is following legisla-

tive action (with enforcement clauses) from the local, regional and/or national governments. Obviously the

international focus on the limiting of CO2 emissions has helped create a framework wherein there is grow-

ing support for renewable energy development, but it is questionable as to what the direct impact will be.

Despite a decreasing cost curve in renewable energy technologies, there is no question that at this stage of

development of the renewable energy markets, sustainable high-growth in the sector requires national or

local legislative and fiscal support. The emerging markets set to show the strongest growth will be those with

legislation in place, driven by the economic priorities and objectives of the country itself.

Accelerators and Support Mechanisms

A series of accelerators and support mechanisms are already in place to drive the development of renewable

energy in emerging markets. While the mechanisms in place can differ from country to country, under-

standing the depth of a country’s commitment to the development of renewable energy generation capacity

is one of the primary indicators as to levels of potential return.




Power Generation Promotion Policies

At least 48 countries have some type of policy (aside from setting specific targets) to promote renewable

energy generation, 14 of which are developing countries (see Table 3). The mechanisms which have been

put in place to meet these objectives include:

• Feed-in tariff: A mechanism that sets a fixed price at which power producers can sell renewable powerinto the electric power network. Some schemes provide a fixed tariff, while others provide fixed premi-

ums added to market or cost related tariffs.

• Renewable portfolio standard: A standard requiring that a minimum percentage of generation sold or

capacity installed be provided by renewable energy. Obligated utilities are required to ensure that the

target is met, either through their generation, power purchase from other producers, or direct sales from

third parties to utility customers.

• Capital subsidies, grants or rebates: One-time payments by the government or utility to cover a per-

centage of the capital cost of an investment, such as a solar water heating system or a biogas digester for

the home.

• Investment, excise or other tax credits: Allow investments in renewable energy to be fully or partiallydeducted from tax obligations or income.

• Tradable renewable energy certificates: Each certificate represents the certified generation of one unit

of renewable energy (usual 1 MWh). Certificates allow the trading of renewable energy obligations

among generators or utilities.

• Energy production payments or tax credits: Annual tax credit provided to the investor in or owner of a

qualifying property or project, based on the amount of electricity generated by that facility.

• Net metering: Allows a two-way flow of electricity between the electricity grid and customers with own

generation. The customer pays for the net electricity used in each billing period (when consumption

exceeds generation on site, the meter runs forward – when generation exceeds consumption the meter

runs backwards and power flows to the grid).




Table 3: Renewable Energy Policies & Measures

Country Feed- Renewable Capital Investment Sales Tax, Tradeable Energy Net Public Public

In Tariff Portfolio Subsidies, Excise or Energy Tax Renewable Production Metering Investment, Competitive

Standard Grants or Other Tax or VAT Energy of Tax Loans, or Bidding

Rebates Credits Reduction Certificates Credits Financing

EU-10

Czech Rep. • • • • • •

Estonia • • •

Latvia • • •

Lithuania • •

Poland • • • • •

Slovak Rep. • • •

Slovenia •

Other

Argentina • •

Brazil • •

Cambodia •

China • • • • • •

Costa Rica •

Guatemala • •

India * * • • • • •

Indonesia •

Mexico • •

Nicaragua • •

Philippines • • •

Sri Lanka •

Thailand • • • •

Turkey • •

* Some States/Provinces within the Country have State/Province-Level Policies, but no National Policies

Source: Various




Domestic Policy Targets for Renewable Energy

By mid-2005 at least 43 countries had a national goal or target for renewable energy supply, including 10

developing countries. Most national targets are for shares of electricity production, ranging from 5-30%.

These targets are usually expressed as a desire to achieve a certain level of renewable energy by a set future

date. Some targets are legislated while others are set up by regulatory agencies or ministries, and can there-

fore have varying levels of enforceability between countries (see Table 4).

Table 4: Selected Emerging and Transition Economies Renewable Energy Targets

Emerging and Transition Economies Renewable Energy Targets

Brazil Additional 3300 MW from wind, small hydro, biomass by 2016;

15% of primary energy supply by 2020

Bulgaria 11% of gross electricity consumption from renewable sources by 2010

China 3.3GW by 2006 from wind, biomass and mini-hydro. To reach 30GW of wind by 2020

Czech Republic 5-6 % of TPES by 2010

8-10% of TPES by 2020

8% of electricity output by 2010

Dominican Republic 500MW wind power by 2015

Estonia 5.1% of electricity output by 2010

Latvia 6% of TPES (excluding large hydro) by 2010; 49.3% of electricity output by 2010

India 10% of additional electricity capacity by 2012 (excluding large hydro):

increasing to 20% by 202

Lithuania 12% of TPES by 2010; 7% of electricity output by 2010

Malaysia 5% of electricity generation by 2005

Mali 15% of primary energy supply by 2020Philippines 4.7GW of installed generation by 2013

Romania 22% of energy production by 2010

Slovak Republic 31% of electricity output by 2010

Slovenia 33.6% of electricity output by 2010

South Africa 9,300GWh or 0.8 Mtoe RE contribution to the final energy consumption by 2013

Thailand 8% of primary energy by 2011 (excluding rural biomass)

Turkey Targeted 2% of electricity from wind by 2010

Source: IEA , EBRD, Government announcements




Technology Transfer

The Asia-Pacific Partnership on Clean Development and Climate (AP6) is an intriguing concept, set up to

facilitate technology transfer. Its purpose is to help the developing economies of China and India in particu-

lar make their great industrial leap forward by using the best, most environmentally sound technologies the

world can offer.

Composed of six countries – the U.S., China, India, Australia, South Korea and Japan – the group was

conceived in 2005, but only had its first working meeting in April 2006. While it espouses a noble purpose,

no concrete plans for how this might be achieved have been released. It has no emissions targets, mandates

no deadlines and has no incentives planned to encourage emissions control. One selling point is the AP6

theory, based on computer modeling, which projects that if China and India were to adopt current best

practice techniques for all new power plants, worldwide greenhouse gas emissions would reduce by 1.5%.

However, until some concrete targets are set, it can only be considered as a positive indicator of sentiment.

Kyoto Accord CDM/JI

One of the most frequently cited forms of support is the Kyoto Protocol’s Clean Development Mechanism

(see page 23 for details). However, in Phase I no emerging markets were given caps for their emissions and

there is no suggestion that emerging market signatories will accept such caps. Given the extreme volatil-

ity of the carbon market and the fact that the CDM currently ends in 2012, the CDM is not considered a

primary driver of sustainable growth in renewable energy investment in emerging markets.

Investment Opportunities in Electricity Markets and Grid Infrastructure

To understand the challenges faced by renewable energy in establishing a more meaningful role within exist-

ing systems of electricity generation and distribution, there are two distinct areas which must be addressed.

The first is the physical grid infrastructure itself. Currently these tend to be built around the model of

large scale generating plants, often sited far from regions of highest demand, and linked to consumers via a

waterfall of high-transmission cables and transformer substations that gradually attenuate voltage to accom-

modate the needs of heavy industry and commercial and domestic users.

In emerging markets, this infrastructure may neither be robust nor reach the whole population10. Trans-

mission is therefore a key constraint for many renewable energy projects. Optimum wind and geothermal

power resources are frequently found inconveniently far away from existing transmission lines. For that

power to be useful, a grid connection must be put in place to ensure transmission of the power from point

of generation to point of use.

The second issue is the business structure within a given electricity market. In China for example, there is

tension between the market-oriented deregulated coal price and a highly regulated wholesale price of power.

If power prices are capped, it can prove difficult to develop profitable power projects.

________________

10 The lack of a robust and extended grid infrastructure can provide support for the development of distributed generationprojects.




The economics of a grid-connected renewable energy project can depend on numerous factors. These

include the costs of purchasing, installing, and connecting the system to a utility, operating the system itself

and the value of any net electricity production sold to the utility. The value of power sales and the intercon-

nection and transaction costs charged to the project owner by the utility, depend on the results of negotia-

tions with the utility.

In emerging markets it can prove difficult to get power purchase agreements (PPAs) signed at a price which

makes the project profitable. Even if the agreement is signed, there can be problems in ensuring payment

when the local utility is either state-owned or inefficient, or doesn’t have sufficiently strong credit to reassure

project financiers and banks.

However, in a regulatory framework where the utility is required to purchase renewable energy, once the price

has been agreed, it can be argued that the developer’s position is stronger than that of a mainstream power

producer in an environment where the development of renewable generation is a matter of national policy.

Globally, renewable energy technologies have been attacked as being intermittently available, and therefore

difficult for any grid to manage – i.e. the problems that arise when attempting to match electricity deliveryto load, made far more complicated when handling intermittently generated power. In India for example,

the grid is known to have required wind power producers to predict the amount of power generated and

when, before authorizing a grid connection, thereby not having to authorize that connection. One way

around this problem is to develop sufficiently robust energy storage devices.

Opportunities in Distributed Generation

One area with high potential growth is that of small and mini-grid power generation. Combined cycle CHP

plants can lead to a decrease in emissions and costs, as waste-heat recovery systems, such as Stirling engines,

compressors and vaporizers, can increase the value of the project.

For many users distributed generation can lower costs, improve reliability, reduce emissions and expand theirenergy options. Stakeholders in distributed generation can range from energy companies, equipment suppli-

ers, energy users and financial and supporting companies. Governments and regulators can also use distributed

generation as a means of bringing power to rural populations. The combination of the use of a sustainable

non-fossil fuel and local rural power generation results in social, economic and technical benefits which makes

distributed renewable energy projects highly desirable for emerging markets and developing countries.

Potential Barriers to Development

On the minus side of the equation, there are a number of barriers to achieving sustainable growth in renew-

able energy within emerging markets that need to be appraised before investing in any particular technology

or market. These fall into two major categories—either barriers for non-domestic investors to participate, or

barriers to the development of renewable energy itself.

Economic and Institutional Barriers

Because of their very nature renewable energy projects face a number of financing hurdles, including:

• Barriers due to higher capital costs and credit risk issues in developing countries;

• Competing against subsidized use of indigenous fossil fuels;




• Much early backing came from international multilateral agencies, and statutory limitations in the

method by which multi-lateral agencies share project financing, and time consuming and expensive

reviews of projects, which may delay and even preclude project implementation.

Many renewable energy generation projects are characterized by high initial capital costs, expressed on a

cost/kilowatt basis. Problems with commercial financing can result from the higher up-front costs of renewable

energy projects, as many commercial institutions view this as increasing the project’s financial risk profile.

Institutional barriers may also exist with the power markets in emerging and developing countries due to

national policies under which fossil fuel power is sold at subsidized prices to take account of low wages etc.

In markets where there are major coal resources (such as China and Poland), there are strong economic factors

pressuring governments into supporting those industries. No government particularly wants to be responsible

for necessary reforms, if those reforms mean that large numbers of the population will be out of work, or that

energy prices to the business and domestic user could dramatically increase. As a result the full economic cost

of renewable energy can compare unfavorably with an artificially low price of subsidized electricity.

Those markets where growth is likely to be sustainable will be those markets where counteracting pressure

will be sufficiently strong to ensure that support is given to the development of renewable energy genera-

tion. For example Poland’s recent accession to the EU means that there are external political, regulatory

and legislative pressures to reform its coal industry and support renewable energy development.

In China, by comparison, although there are no such external pressures, the medium and long term eco-

nomic cost of pollution generated by its coal-fired power stations means that there is serious economic pres-

sure to find alternative generation sources –ones that do not rely upon the import of energy.

The enforceability of contracts, the time it takes to resolve legal issues within any given environment, levels

of corruption within the country and the efficiency of the electricity system, as well as the credit-worthinessof local utilities and the willingness of local banks to provide finance, will all have an impact on the risk of

doing business in a given market. In many of the emerging markets, there is an increasing focus on opening

markets up to and encouraging foreign investments.

China, for example, has a poor record on the protection of intellectual property (IP). However, according to

Ian Harvey, Chairman of the UK’s Intellectual Property Institute, there has been recognition inside China

of the fundamental importance of IP to economic growth. In 2004, more patent litigation cases were filed

in China than in any other country. More than 95% of these cases involved Chinese parties only, demon-

strating just how important it has become to defend IP in the domestic arena. In the 5% of patent litigation

cases brought by foreigners, over 80% found in favor of the foreign patent holder, compared with 30%-

40% in the U.S. “This is counter to the all-to-common view that foreign patents cannot be enforced inChina,” said Mr Harvey.

Every country within the emerging markets will have sets of conflicting pressures, and the most successful

markets will be those where the balance of pressure is in favor of development. These markets are likely to

show long-term sustainable high growth in renewable energy development.




Kyoto and the CDM Financing Opportunity

The Kyoto Protocol was adopted at the Third Session of the Conference of the Parties (COP) to the

UN Framework Convention on Climate Change (UNFCCC) in 1997 in Kyoto, Japan. It contains

legally binding commitments, in addition to those included in the UNFCCC. Country signatories

to the Protocol agreed to reduce their anthropogenic emissions of greenhouse gases (CO2, CH4,

N2O, HFCs, PFCs, and SF6) by at least 5% below 1990 levels in the commitment period 2008 to

2012. It became law in February 2005, following ratification by Russia.

The Kyoto Protocol sets binding greenhouse gas emissions targets for countries that sign and ratify the

agreement. The gases covered under the Protocol include carbon dioxide, methane, nitrous oxide, hydro

fluorocarbons (HFCs), per fluorocarbons (PFCs) and sulphur hexafluoride. While developing countries do

not now have specific emissions targets, they are committed under the 1992 Climate Change Convention to

taking measures to limit emissions; the Protocol will open up new avenues for assisting them to do so.

The Clean Development Mechanism (CDM) is one of the means by which signatory countries tothe Kyoto Protocol can manage to meet and/or manage their target emissions. It was proposed as

a means of enabling the financing of renewable energy projects in developing countries. The Joint

Implementation mechanism enables transition economies to benefit from the transfer of emissions

credits, as well as the emerging markets.

The World Bank Bank’s Carbon Finance Unit issued analysis in May 2006 showing growth in traded

volumes for European Union Allowances (EUAs) and Certified Emission Reductions (CERs) created

by Clean Development Mechanism (CDM) projects located in developing countries that have rati-

fied the Kyoto Protocol (KP). These transactions were valued at USD 10.9bn in 2005.

Traded volumes of carbon dioxide equivalent (CO2e) emission reductions created by projects grew by240%, from 110m tonnes in 2004 to 374m tonnes in 2005. Approximately 346m tonnes (or 93%)

of this volume was created from CDM projects hosted by developing countries that ratified the Kyoto

Protocol. The value of trade in project-based transactions in 2005 totaled USD 2.7bn. In the first quar-

ter of 2006, approximately 79m tonnes were traded, with a value of approximately USUSD 0.9bn.

The difficulty in factoring CDM and JI opportunities into the financing of renewable energy in

emerging markets is the potential volatility of the price of carbon. The main source of purchase data

comes from the EU-ETS, where the price was around EUR 30 for a tonne of carbon until the end of

April 2006, when it dropped to EUR 11 in three days.

This followed leaks of emissions data from countries prior to the first official report on country emis-sions under Kyoto (15 May 2006), where it appeared that may many countries were to report emis-

sions well within their national allocations. Naturally, this meant that demand for credits for Phase

I would be low to non-existent. While many have already been purchased by the World Bank and

other carbon funds, it provides major downward pressure on the tradable price of a carbon credit.




There are different ways of predicting the ongoing price of carbon credits, and a number of different

factors affect the potential price. If the price of a carbon credit in Europe was costed as the replace-

ment cost of changing from a coal-fired burn to a combined-cycle gas turbine or CCGT system,

then the logical cost of a tonne of carbon credits would be around EUR 70.0.

A glut of credit supply in Europe could have a serious impact on the price of CDM credits. With

CDM credit supply on the increase from CDM projects around the world, the demand/supply balance

is likely to have a major impact on future prices. If one were to price the cost purely on a supply/de-

mand basis, it is possible that the price of a tonne of carbon would be as low as EUR 5.0. If this were

the case within the EU-ETS, the knock-on effect on the price of a CDM credit would be considerable.

Another problem is that there is currently no successor in place for the Kyoto agreement, which

means that financing can only be factored in until 2012. It is quite possible that financial instru-

ments other than the CDM will be used for financing climate technology transfer.

Given the inherent volatility in a nascent market where the market mechanisms are not yet clear, theCDM opportunity has not been factored in as a major driver for sustainable high growth in renew-

able energy in emerging markets. At best it can currently be considered as a providing of minor addi-

tive or supplementary finance.

Carbon Trading in the EUThe European Union Emissions Trading Scheme (EU ETS) establishes emission reduction require-

ments for approximately 11,000 large industrial and electricity generating sources accounting for

nearly half of Europe’s emissions of carbon dioxide (CO2). Phase 1 of the EU ETS started in Janu-

ary 2005 and runs through 2007. Phase 2 corresponds to the 2008-2012 first commitment period

of the KP. European Union allowances are EU ETS compliance instruments which are allocated by

EU governments to regulated installations. They can be purchased by entities with short positions tocomply with their reduction targets.

The market for EUAs experienced explosive growth in 2005, increasing from approximately 9m tonnes

in 2004 to over 322m tonnes in 2005—a nearly 35-fold increase. Prices also increased dramatically

during 2005, moving from EUR 7.0 (USD 9.0) to a high of approximately EUR 30.0 (USD 37.0).

This increase was driven by factors such as: rising natural gas prices which increased the need for

coal-fired generation, the relative absence in the market of some sellers from Eastern Europe due to

delays in bringing their emissions registries on line, delays in creating project-based supply, and other

regulatory delays. In 2005, the value of EUA trades in 2005 totaled USD 8.2bn. The EU market

saw continued expansion in the first quarter of 2006, with approximately 203m tonnes traded at avalue of approximately USD 6.6bn.

It should be noted that China created 66% of the project-based reductions traded. Asia created 73%

of the project-based reductions that were traded during 2005 and Q1 2006. China alone created

66%, up from only 5% in 2004. India’s share decreased from 43% in 2004 to only 3% in 2005 and

Q1 2006. Latin America accounted for 17% of traded volumes, down from 25% in 2004. Projects

located in Brazil created 10% of traded volumes—second after China.







3. global investment activityin renewable energy

Public Sector Finance

Emerging economies are still a relatively nascent market for renewable energy development, especially in

comparison with the developed world. Initially one of the drivers of development of renewable energy in

emerging markets was multilateral, bilateral and other public financing, which was around USD 500m at

the end of 2004. The commitment of the multilateral agencies to a project was often required to bring in

private investment, as these agencies frequently have more clout when in negotiation with governments

whose utilities are, for example, in default on PPAs.

A significant portion of public funding is used to support training, policy development, market facilitation,

technical assistance, and other non-investment needs. The three largest sources of funds were the German

Development Finance Group (KfW), the World Bank Group and the Global Environment Facility. How-

ever, in many ways its most important role is to provide added reassurance for the private investor until an

industry or market becomes fully commercial.

KfW approved about USD 180m for renewables in 2004, including USD 100m from public budgetary

funds and USD 80m from market funds. The World Bank Group committed an average of USD 110m

per year to new renewables between 2002 and 2004, while the Global Environment Facility allocated an

average of USD 100m per year during the same period, to co-finance renewable energy projects imple-

mented by the World Bank, United National Development Program (UNDP), United Nations Environ-

ment Program (UNEP) as well as other agencies.

Indirect or associated private-sector financing is often equal to or several times greater than the public fi-

nance from these agencies, as many projects are beginning to be explicitly designed to attract private invest-

ment. In addition, there has been recipient country government co-financing.

Private Sector Finance

As the markets have developed, there has been increasing interest from the international financial markets.

With investment in the global renewable energy industry continuing to accelerate, it is logical that savvy

investors would begin to look for new markets to address.

In the developing world there are considerable drivers for market development, as well as specific policiesand fiscal support in a number of countries, and private finance is expected to accelerate. Renewable energy

is still supported by subsidy and policy in the developed world and by analyzing historical and current mar-

ket response to the fiscal and policy environment, one can identify trends which might be replicated in the

emerging markets.




Figure 4: Global Project Investment (Asset Financing) Activity in Renewable Energy in 2005


Note: Brazil = USD 256m (3); Mexico USD = 127.8m (2); Japan = USD 125.8m (3); India = USD 193m (12)

Numbers in brackets = (No. of deals)

The financial community has advanced enthusiastically to exploit the opportunities presented by the build-

out of renewable energy generation plants and biofuel production capacity. USD 18.3bn of new build andrefinancing transactions were completed in 2005 (see Figure 4). The majority (71.4%) was for development

in the most established technology, wind. Biofuels, biomass and waste-to-energy financing trailed at 18.7%

while geothermal and mini-hydro and marine and solar accounted for just 5.1% and 4.8% respectively.

There has been no sign of a decrease in the number of deals in 2006, although a number of very large deals

in 2005 may cause a dip in total volume for full year 2006. However, an estimated USD 2bn in financing

was closed in Q1 2006. Project (asset) finance by commercial banks continues to be a popular method of

both financing construction and refinancing existing projects, as it offers opportunities not only for lever-

aged investments by utilities and developers, but also the investment of new money by private equity inves-

tors. These sponsored an estimated USD 2.7bn across sectors in 2005 (compared to USD 7.7bn by utilities

and USD 4.6bn by project developers in the same period).

In 2005, developed countries, particularly the U.S. (USD 5.3bn), Spain (USD 4.0bn), and Germany (USD

1.1bn) saw the most activity, but there has been rapid growth in the Chinese wind market with an estimated

USD 743m invested in 2005. This activity, sponsored by the major Chinese utilities and energy investment

companies, has resulted in a build out of manufacturing capacity in the region by turbine manufacturers seek-

ing to overcome local sourcing regulations. Elsewhere uncertainty of the PTC extensions in the U.S. and fierce

competition between turbine suppliers have meant that securing turbines has become an issue for even the largest

AMER AMER

ASOC

Spain

United Kingdom

Germany

PortugalItaly

Netherlands

EMEA Others

United

States

AustraliaASOC Other

France

CanadaAMER Other

USD 18,220m (302)

USD 9,890m (167)

USD 5,970m (82)

USD 2,438m (55)

2005 EMEA 2005 AMER 2005 ASOC 2005




companies seeking rapid build out of their pipeline developments. However, consolidation in the manufacturing

industry and continued regulatory support in key markets looks set to stabilize turbine production and facilitate

rapid build out. Attention has increasingly been paid to securing development sites—“super developers” with

strong financial backing have emerged and substantial portfolios have been traded and acquired.

Similar depth is developing in the biofuels markets with production build out accelerating in response tohigh oil prices and government mandated fuel mix requirements. The price of commodities such as oil,

sugar, soy beans, grain and maize will be an important factor for the sustained development of future capac-

ity. Developing and transition countries are better positioned to take advantage of this than they are of wind

where demands on transmission infrastructure are a determining factor. As such investments have been

seen not only in the North America and Europe but also South America, South Africa, India, Malaysia and

Indonesia amongst others.

Asset financing in the renewables sector has not been confined to investments in large scale plant and infra-

structure. Captive or “on-site” generation for industrial purposes in developing countries has seen increased

activity building on and increasing the efficiency of existing models. For example in the paper and sugar

industries the sources of fuel are by-products of the industrial processes, and intensive industries such asmining, cement and steel manufacturing. Countries such as India, Morocco and Peru have seen or are likely

to see significant developments in both captive wind and biomass electricity generation assets. Models pio-

neered in developing or transition countries are also being transferred to developed countries suffering from

high energy prices, such as the UK.

See country summaries (starting on page xx) for a list of selected asset financings by emerging market.

Figure 5: Global Venture Capture / Private Equity Investment in Clean Energy Companies 2001 to 2005


Numbers in brackets = (Total no. of deals)

2001 2002 2003 2004 2005

Asia/Oceana

Europe/ME/Africa

North America




Renewable energy equity investment continued to increase in 2005 from previous years. In 2005, the fourth

quarter showed an especially high amount of investment (USD 848m), mainly due to a few large deals in

power infrastructure asset or generating companies (see Figure 5). In terms of technology deals, we did not

see real growth from the beginning of 2005, with quarterly investments staying within a range of USD 200-

300m. The number of deals also remained quite stable at around 30 deals per quarter.

Private equity investments in capacity generation are mainly going into the wind, biomass and biofuels

sectors, in a relatively small number of high value deals. Investments in technology companies are more

numerous but remain on a smaller scale. The fuel cell and solar markets are continuing to dominate tech-

nology venture capital investment but, while these sectors remain important, investors are also gaining more

interest in opportunities in Generation Efficiency and Energy Storage technology.

Traditionally, the U.S., and North America as a whole, has attracted a very large part of venture capital invest-

ment, followed by the UK. Within continental Europe, Germany has received the largest amount of investment.

In terms of investment stage, in 2005, investment tended towards later stage deals (Series C, D) and re-

duced investment into early rounds (Series A, B).

While the number of deals in emerging markets remained relatively small in comparison to the rest of the

world, recent months have seen private equity investments in Indian, Chinese and Taiwanese companies in

the solar, biofuels and wind sectors.

With increasing valuations in developed markets, private equity investment in emerging markets may pro-

vide affordable access to the renewable energy markets to new investors in the sector.

Table 5: Selected Venture Capital and Private Equity Deals in 2005

Organisation Country Type of deal USD (m) Sector Investor Status

Zhong Hang (Baoding) China Convertible 2 Wind Tersus Energy (formerly Completed

Huiteng Windpower MCC Energy) Plc

Equipment Co Ltd (HT Blade)

Beijing PowerU Technology China Series A / First 2 Generation Tsinghua Venture Capital Completed

institutional round Efficiency Management Co Ltd

Peak Pacific Investment China Asset/capacity 5 Generation Emerging Power Completed

Company Ltd. investment Efficiency Partners Ltd

Shanghai JTU PV China See d / angel N/A Solar Shanghai Jiao Tong Completed

Technology Co Ltd University

Tianjin Jinneng Solar China Seed / angel N/A Solar Tianjin Jinneng CompletedCell Co Ltd Investment Company

Shriram EPC Ltd (SEPC) India Asset/capacity 23 Wind Bessemer Venture Partners Completed

investment

Su-Kam Power Systems Ltd. India Asset/capacity 10 Solar Reliance Capital Asset Completed

investment Management Limited

TurboTech Precision India Other equity 0.6 Generation International Finance Completed

Engineering Private Limited investment Efficiency Corporation (IFC)




Organisation Country Type of deal USD (m) Sector Investor Status

Naturol Bioenergy Ltd India Debt/venture 18.5 Biofuels Industries Development Announced/

leasing Bank of India filed

Naturol Bioenergy Ltd India Series A / First 12.5 Biofuels APIDC Venture Capital Announced/

institutional round filed

Suzlon Energy Ltd India Series B / Second 21.3 Wind ChrysCapital Investment Completedinstitutional round Advisors

Suzlon Energy Ltd India Series A / First 21.3 Wind Citigroup Venture Capital Completed

institutional round International (CVCI)

Reva Electric Car Co India Other equity 15.3 Fuel Cells AEV LLC Completed

investment

Praterm Polish Heating Poland Asset/capacity 6.9 Generation Environmental Investment Completed

Group investment Efficiency Partners (EIP)/AIB WBK

Fund

Thai Biogas Energy Thailand Other equity 4 Biofuels Emerging Power Partners Ltd Completed

Company Ltd. (TBEC) investment

Figure 6: Global M&A Activity in Renewable Energy 2001 - 2005


Numbers in brackets = (Total no. of disclosed deals/Total no. of deals)

2001 2002 2003 2004 2005

Projects

Technology/Service Supplier

Capacity/Infrast. Companies

$2,598m (15/24)

$3782m (15/29)

$5,929m (37/70)

$7,254m (43/87)

$15,081m (72/168)




After hitting a record volume in deal value in Q4 2005 at USD 4.3bn (see Figure 6), corporate M&A activity

in renewable energy experienced a record number of deals in Q1 2006, with equity in 44 renewable energy

companies swapping hands. At the same time however, deal value almost halved against the previous quarter.

In Q4 2005, four deals amounted to over USD 2.6bn, whereas in Q1 2006, only one acquisition (when Ger-

many solar cell manufacturer ErSol bought U.S.-based waste silicon processor Silicon Recycling Services) wasdisclosed above USD 100m. The amount of Shell Solar’s divestment from its North American silicon opera-

tions has not yet been disclosed (it has agreed to sell the business to German PV manufacturer Solar World).

Wind power companies deals have led the trend in the past few years, with 37% of the deals which took

place in the renewable energy sector, but the solar and biofuels sectors seem to have taken over in the last

three months, with, respectively 34% and 27% of activity.

Over the past four quarters, institutional investors, large utilities and power producers have preferred ac-

quisitions in the wind sector, but major food and the oil companies have acquired significant stakes in the

biofuels sector, and some smaller optical companies found interesting synergies in the solar sector.

Most importantly, those three sectors showed an intense activity of vertical and horizontal integration, with16 acquisitions between companies within the wind sector, 15 within the biofuels sector, and especially 28

within the solar sector during the last 4 quarters.

Financial investors have gained a substantial return of USD 6.8bn, while strategic divestments generated

3.7bn, and individual founders sold stakes worth USD 2.1bn.

The strength of activity in the M&A arena suggests a market where consolidation, market access and as-

sured feedstock supply are the main drivers. Given activity in the last few months, it will prove interesting

to watch how these trends are played out in emerging markets over the next three years.

In the last two months French utility Velcan bought its way into the Indian market with the acquisition ofSatya Maharshi Power Corporation, and in China Deli Solar USD is set to buy Beijing Four Seasons Solar

while GE Energy bought a major stake in Xin Hua Control Engineering.




Table 6: Selected Renewable Energy Mergers and Acquisitions in Emerging Markets

Organisation Country Type of deal USD (m) Sector Acquirer Status

ELO Sistemas e Tecnologia Brazil Service Company N/A Generation Itron Inc Announced/

Ltda Efficiency filed

Grupo Corona Brazil Capacity/Infrast. Companies N/A Biofuels Cosan Announced/

filed

SeaWest do Brasil Ltda Brazil Capacity/Infrast. Companies N/A Wind EcoInvest Completed

Beijing Four Seasons Solar China Capacity/Infrast. Companies N/A Solar Deli Solar Announced/

Power Technology Co Ltd (USA) Inc filed

Xin Hua Control China Technology Supplier N/A Generation GE Energy Completed

Engineering Co., Ltd. Efficiency

Beijing Full Three China Capacity/Infrast. Companies N/A Generation China Shoto Plc Completed

Dimension Power Efficiency

Engineering Co Ltd (FTD)

Able New Energy Co Ltd China Capacity/Infrast. Companies N/A Electricity Ultralife Completed

Storage Batteries IncHydroelectric company China Capacity/Infrast. Companies N/A Mini-hydro Distributed In active

in BaoDing, Hebei, China Power Inc planning

Nanjing Chemical Industry China Technology Supplier N/A Biofuels Engelhard Completed

Corporation (NCIC) Corporation

China Xinjiang Sunoasis China Financial Investment N/A Solar ND Completed

Co Ltd

Zibo Enterprises Co Ltd China Technology Supplier N/A Electricity ZAP Completed

Storage

GE Hydro Asia Co Ltd China Capacity/Infrast. Companies N/A Mini-hydro GE Energy Completed

(formerly Kvaerner Power

Equipment Co., Ltd

(Kvaerner Hangfa))

Shanghai Solar Energy China Technology Supplier N/A Solar Shanghai Completed

S&T Co Ltd (SEC) Aerospace

Automobile

Electromechanical

Co Ltd (SAAE)

Satya Maharshi Power India Capacity/Infrast. Companies N/A Biomass & Velcan Energy Completed

Waste India Ltd

LM Glasfiber India Capacity Asset N/A Wind Siemens PG Completed

Wind Power

Division (formerlyBonus Energy A/S)

NEPC India Ltd India Capacity/Infrast. Companies N/A Wind Southern Announced/

Windfarms filed

Pvt Ltd

Delta PV Pvt Ltd India Capacity/Infrast. Companies N/A Solar Webel SL Energy Postponed/

Systems Ltd cancelled

MVV Eternegy Polska Sp zoo Poland Capacity/Infrast. Companies N/A Wind Iberdrola SA Announced/

filed




Figure 7: Global Renewable Energy IPOs and Secondary Offerings 2001-2005


Numbers in brackets = (Total no. of IPOs/Total no. of Secondary Offerings/Total no. of Convertibles & Other)

Total investment into the 10 main renewable energy sectors (solar, wind, power storage, financial services,

biofuels, generation efficiency, fuel cells, geothermal, hydrogen, biomass and waste) on the world’s senior

public markets in 2005 was USD 4.7bn, with Solar taking the lead (USD 2.0bn), followed by Wind (USD1.1bn) and Power Storage (USD 0.5bn) (see Figure 7).

European stock markets performed far more strongly than the North American markets, with USD 2.7bn

raised in Europe, against USD 1.6bn raised in North America. While the number of deals completed was

the same, market appetite for renewable energy equity has remained higher in Europe. While the number

of deals completed in the Asia Pacific region remained far lower, one of the reasons for this is the increasing

number of companies who are looking to access the international capital markets in Europe and the U.S.

While the IPO of India’s wind turbine giant Suzlon Energy (now the fifth largest wind turbine manufactur-

er in the world) took place on the New Delhi Stock Exchange in October 2005, when it raised nearly USD

310m, China’s largest solar IPO, that of solar PV cell and module manufacturer, took place on the New

York Stock Exchange, raising USD 396m.

On the junior markets, the North American over the counter markets remained more active than those in

Europe (with placements valued at USD 177m against USD 159m). And perhaps most worthy of note

solar, the sector which has been driving so much public markets activity in renewable energy, was over taken

by biofuels (raising USD 120m OTC in 2005), closely followed by Power Storage (USD 72m) and Wind

(USD 64m).

2001 2002 2003 2004 2005

Asia/Oceana

Europe/ME/Africa

North America and Latin America

$268m (4/1/2) $268m (3/4/3)

$980m (14/40/5)

$4,933m (61/92/20)

$877m (4/20/6)




Since beginning of 2006, approximately USD 3.4bn has been invested into renewable energy through the

main markets so far—almost 71.6% of the total investment in the industry through the whole year 2005.

Investment in solar in Q1 2006 was nearly USD 2bn, almost reaching the amount of money raised for

the whole of 2005, thanks to Renewable Energy Corporation’s successful USD 1.1bn IPO on Oslo Stock

Exchange on 9th May.

With the increasing pressure on the silicon supply affecting the global solar market, and the seemingly ever

increasing need for wind turbines, it seems likely that a growing number of emerging markets manufactur-

ers and suppliers will be looking to access the international capital markets over the coming months.

Table 7: Selected Emerging Markets Clean Energy IPOs and Secondary Placements

Organisation Country Type of deal USD (m) Sector Market Status

Cosan Brazil IPO 390 Biofuels São Paulo (BOVESPA) Completed

Tianwei Yingli New Energy China IPO N/A Solar New York Stock Exchange Announced/

Resources Co Ltd (NYSE) filed

China Energy Savings China Private 50 Energy Efficiency NASDAQ In active

Technology Inc Investment in & Demand planning

Public Equity Reduction

(PIPE)

Suntech Power Holdings China IPO 455.1 Solar New York Stock Exchange Completed

Co Ltd (NYSE)

China Shoto Plc China IPO 10.4 Electricity Storage AIM (London) Completed

China Southern Power Grid China IPO 2480 Generation In active

Corporation Ltd Efficiency planning

China BAK Battery Inc China OTC Secondary/ 43 Electricity Storage OTC Bulletin Board Completed

(formerly Medina Coffee Inc) PIPEShanghai Electric Group China IPO 648.1 Solar Hong Kong Stock Exchange Completed

Co Ltd (HKEX)

China Energy Savings China Share N/A Generation NASDAQ Completed

Technology Inc registration Efficiency

China BAK Battery Inc China Reverse IPO 17 Electricity Storage OTC Bulletin Board Completed

(formerly Medina Coffee Inc)

Weichai Power Co Ltd China IPO 155 Generation Hong Kong Stock Exchange Completed

Efficiency (HKEX)

China Yangtze Power China IPO 1200 Mini-hydro Shanghai Stock Exchange Completed

Co Ltd (CYPC)

Changsha Lyrun New China IPO 23.9 Electricity Storage Shanghai Stock Exchange Completed

Material Co Ltd

CITIC Securities Co Ltd China IPO 435 Services & Shanghai Stock Exchange Completed

Support

BYD Company Ltd China IPO 43 Electricity Storage Hong Kong Stock Exchange Completed

(HKEX)




Organisation Country Type of deal USD (m) Sector Market Status

Huaneng Power China IPO 336.6 Wind Shanghai Stock Exchange Completed

International Inc

Jiangxi Lianchuang China IPO 48.3 Solar Shanghai Stock Exchange Completed

Optoelectronic Science and

Technology Co Ltd

Baoding Tianwei Baobian China IPO 66 Solar Shanghai Stock Exchange Completed

Electric Co Ltd

Wuhan East Lake High-tech China Secondary 28.4 Biomass & Waste Shanghai Stock Exchange Completed

Group Co Ltd

Wuhan East Lake High-tech China IPO 20.8 Biomass & Waste Shanghai Stock Exchange Completed

Group Co Ltd

Tebian Electric Apparatus China IPO 17.9 Generation Shanghai Stock Exchange Completed

Stock Co Ltd (TBEA) Efficiency

PRAJ Industries Ltd India Convertible 26 Biofuels Bombay/Mumbai Stock Announced/

Exchange (BSE) filed

Suzlon Energy Ltd India IPO 339.9 Wind National Stock Exchange Completed

of India (NSE)

Suzlon Energy Ltd India IPO 339.9 Wind Bombay/Mumbai Stock Completed

Exchange (BSE)

Southern Online Bio India IPO 3.9 Biofuels Bombay/Mumbai Stock Completed

Technologies Ltd (SBT) Exchange (BSE)

SREI Infrastructure Finance Ltd India IPO 35 Wind London (LSE) Completed

Solartron Co Ltd Thailand Secondary 3 Solar Stock Exchange In active

of Thailand planning

Solartron Co Ltd Thailand IPO 16.2 Solar Stock Exchange of Completed

Thailand

Investment Trends in the Renewable Energy Sector

Recent international investment trends in the energy sector have included a broadly increased focus on the

renewable energy markets, driven by the combination of the current cost of oil, fears around energy secu-

rity, concerns about the potential dangers of energy related environmental damage and the need to ensure

sustainable growth.

Increasing concerns about environmental dangers have led to the development of international, regional andnational public financing commitments to renewable energy development (ranging from grant programs,

subsidies, tax breaks etc). These programs have supported the early stage development of renewable energy

infrastructure, specifically to encourage development of a renewable energy marketplace.




Almost all the major energy companies now have some activity in the renewable energy markets: in 2005

BP pledged USD 8.0bn for investment in renewable energy over the next decade, while Royal Dutch Shell

has one of its five core businesses focused on renewable energy (Shell Renewables). And the impetus has

moved far beyond the oil companies. General Electric said in 2005 that it would more than double its in-

vestment in energy efficient and environmental technology from USD 700m to USD 1.5bn by 2010.

There has been an increasing focus on power generation assets, as access to long-term revenue via PPAs for

renewable energy projects buoyed by fiscal support projects has increased. This has led to increasing interest

from private equity investors in the project finance market.

Technology investment is accelerating in venture capital as well as internal R&D, while the public markets

have seen massive growth in the last eighteen months.

Renewable energy companies around the world have gone from strength to strength since the window for

fundraisings opened in the last few months of 2004. A total of USD 4.7bn was raised on main markets

around the world in the first few months of 200611, by pure-play renewable energy companies. With buoy-

ant markets supporting ever larger offerings, there should be strong opportunities for venture capital andprivate equity investors to realize gains.

A handful of substantial follow-on offerings by solar companies meant the sector still outshone all others,

despite the relatively small number of IPOs that has characterized the last 12 months. The IPO pipeline

shows a number of biofuels and solar companies looking to take advantage of the positive mood of the in-

ternational capital markets, as well as continuing secondary placement activity in the wind markets. There is

no question that the last few years have shown an acceleration of interest in the return on renewable energy

investment, and trends suggest that emerging markets are set to follow strongly.

New Energy Finance has identified two main investment opportunities in the renewable energy markets,

with varying degrees of risk and attractiveness from country to country.

The main investment opportunities identified are in:

• Supply side equity (private and public market)

• Supply side asset development

The supply side equity opportunity in each market can fall into investment opportunities by sector in pub-

lic or private companies: developing technology; providing operations and maintenance (O&M) services;

equipment manufacturing and other service suppliers.

The supply side asset development in each market also has a number of different opportunities: co-investment

in projects alongside local partners (i.e. equity sponsor of a local developer’s projects); acquisition of projects

out-right from local developers; own development of projects (i.e. no local partner required); equity investment

to take minority stake in local developers; the acquisition of majority or 100% ownership of local developers.

________________

11 New Energy Finance Desktop




While there are significant opportunities in certain markets for investment in technology, equipment manu-

facture, and services, these carry a higher degree of risk than investment in asset development. Each emerg-

ing market has a different view of non-domestic investment in companies involved in renewable energy

(from China, where renewable energy investment is ‘encouraged’ to Mexico, where foreign investment in

any part of the energy industry is forbidden). Another problem is that return on private equity investment

is dependent on the individual market’s financial environment, and the ability of the investor to find theright exit. There is no doubt that in markets supporting the development of renewable energy, there are op-

portunities for high return investments in private equity in technology and equipment manufacturing and

services, but the identification of the best opportunities will be fraught with difficulties.

However, asset investment in renewable energy in the right markets (those with significant renewable energy

development targets and legislation supporting that development) will be supported legislatively and finan-

cial by that government, suggesting that investment in renewable energy generation asset development will

actually be protected by those local Governments.




4. renewable energy opportunityin selected emerging markets

New Energy Finance has reviewed the renewable energy investment opportunities in selected emerging mar-

kets, to identify those sectors and countries which offer the strongest potential for sustainable high growth.

In order to identify countries likely to demonstrate the political will to drive renewable energy generation

development, New Energy Finance has:

• Identified the different forms of renewable energy policies and support in the countries (see Supporting

Data – Table 17);

• Rated the countries in terms of their attractiveness in renewable energy development (by economic,

energy and business environment) (see Supporting Data – Table 18);

• Developed consensus forecasts on the basis of government targets and the likelihood of achieving those

targets (see Supporting Data – Table 19 to Table 22).

The overall country attractiveness for renewable energy capital investment is based on the combination on

Overall Sector Forecast, On-going Government Support, and Foreign Direct Investment Climate (see Table

7). The estimated capital investment to 2020 is also indicated.

This research has identified the countries with the strongest potential to sustain high-growth return on

investment in the short to medium term, as well as those sectors where this is most likely to be achieved (see

Supporting Data – Table 21.).

Table 8: Country Attractiveness for Renewable Energy Capital Investment

Country Overall Sector Government Support FD Investment Estimated Capital

Forecast (How big) (How feasible) Climate (How sustainable) Investment to 2020

>20% CAGR V Likely V Sustainable (USD billion)

10-20% Likely Sustainable

<10% Unlikely Unsustainable

Brazil 27.9

China 179.1

India 1 25.6

Mexico 1 8.12

Poland 6.4

Thailand 6.23

Turkey 6.4

1 Support will change if Laws are implemented 2 Forecast to 2013 3 Forecast to 2011




Consensus forecasts for each sector within each Country provide an overview of the forecast renewable

energy generation capacity required by 2020 (see Table 8).

Table 9: Forecast Renewable Energy Generation Capacity by Leading Sectors (2020)

Country Wind (GW) Solar (GW) Mini-hydro (GW) Biomass (GW) Total (GW) Biofuels (m litres)

Brazil1 2.4 0 5.7 6.4 14.5 24.0

China2 30.0 2.0 50.0 20.0 102.0 n/a

India3 8.9 0.1 6.2 1.2 16.4 n/a

Mexico4 0.98 0.32 0.98 0.43 4.1 10% bioethanol

mixed with petrol

Poland5 1.3 n/a n/a 4.0 5.3 5.75% biofuels

mixed with petrol

Thailand6 Nil Neglig. 0.35 3.1 3.45 3.2

Turkey7 3.8 0.13 n/a n/a 4.93 n/a

1 Projected GDP Based Growth in 2020 n/a = not available 2 Government Targets in 2020 3 Government Targets in 2007 projected forward to 2020 4 Government forecast for 2013. Includes geothermal = 1.4 GW 5 Government Estimate in 2010 6 Forecasts for 2011. Biomass includes Biogas (source Danish Energy Management A/S, 2005) 7 Includes geothermal = 1.0 GW

Table 10: Sector Attractiveness within Each Developing Country

Country Sector Estimated Capital Overall Sector On-going Government FD Investment

Investment to 2020 Forecast (How big?) Support (How feasible?) Climate (How sustainable?)

(USDbn) >20% CAGR V Likely V Sustainable

10-20% Likely Sustainable<10% Unlikely Unsustainable

Brazil Bioethanol 10.8

Brazil Wind 1.8 – 3.2

Brazil Biomass 7.6 – 13.7

Brazil Mini-hydro 6.6 – 11.9

China Wind 36.4 – 62.4

China Solar PV 4.8 – 8.2

China Mini-hydro 97.9 – 168.1

(< 100MW)

China Biomass & Waste 40.0 – 68.7

India Wind 10.8 1

India Mini-hydro 12.1 1

(< 25MW)




Country Sector Estimated Capital Overall Sector On-going Government FD Investment

Investment to 2020 Forecast (How big?) Support (How feasible?) Climate (How sustainable?)

(USDbn) >20% CAGR V Likely V Sustainable

10-20% Likely Sustainable

<10% Unlikely Unsustainable

India Biomass & Waste 2.5 1

(including Biogas)

Mexico Wind 1.92 1

Mexico Mini-hydro 1.92 1

(< 10MW)

Mexico Biomass 0.92 1

Mexico Solar 0.82 1

Mexico Geothermal 2.62 1

Poland Wind 1.6

Poland CHP/biomass 4.8

Poland Biofuel n/a n/aThailand Biomass 5.73

Thailand Mini-hydro 0.53 n/a

Thailand Biofuel n/a n/a

Turkey Geothermal 1.8

Turkey Wind 4.6

1 Support will change if Laws are implemented 2 Forecast to 2013 3 Forecast to 2011

Brazil

There are private equity / venture capital opportunities in manufacturing and support services in bioethanol

and wind, while asset investment opportunities exist in bioethanol, wind and biomass:

• Bioethanol – There are supply side asset development opportunities including: Co-investment in

projects alongside local partners (equity sponsor of local developer projects); Equity investment to take

minority stake in local developers; Acquisition of projects out-right from local developers. There may

also be supply side equity opportunities in feedstock development and transportation/distribution.

• Wind – There are supply side equity opportunities in equipment manufacturing and O&M. There are

also supply side asset development opportunities including: Co-investment in projects alongside localpartners (i.e. equity sponsor of local developer projects); Acquisition of projects out-right from local

developers; Equity investment to take minority stake in local developers.

• Biomass – There are supply side asset development opportunities including: Co-investment in projects

alongside local partners (i.e. equity sponsor of local developer projects); Acquisition of projects out-

right from local developers; Equity investment to take minority stake in local developers; Acquisition of

majority or 100% ownership of local developers.




Brazil boasts Latin America’s largest population and its largest economy. It also has its largest energy bill.

Fortunate, then, that it is also the world’s largest renewable energy market, in percentage terms – about 44%

of total energy production comes from renewables.

The rapid economic growth that the country enjoyed in the late 1960s and early 1970s was brought to an

end by the oil shocks of 1973 and 1979, which forced up the country’s import bill and made its externaldebt unsustainable. Much of the last 25 years has seen Brazil stagger through a depressing cycle of balance of

payments crisis, as the country struggled to pay off its loans.

Recent years have been far more positive. Astute macro-economic management saw Brazil pay off its loans

to the International Monetary Fund (IMF) at the end of 2005; economic growth has been robust, and

unemployment, while still significant, appears to be under control. Alongside investment in domestic fuel

production, a massive program substituting biofuels for petrol and diesel has played a crucial in helping Bra-

zil become oil independent in April 2006, even while aggregate energy consumption has continued to grow

and at a brisk pace.

While state-controlled Petrobras still dominates the upstream hydrocarbon market, power generation anddistribution have been substantially deregulated over the last ten years. Independent power providers (IPPs)

are now commonplace and electricity is supplied to distributors through a wholesale market system. Un-

derlying the reform program has been a political understanding that securing the country’s energy supply is

crucial to its economic development.

The need to reduce energy dependence, stabilize and modernize power infrastructure, and sustain economic

growth have been crucial factors in the decision of successive governments to support the development of

renewable energy. Recent disagreements with Bolivia, following the nationalization of that country’s natural

gas industry (including local operations of Brazilian state energy company Petrobras) and the announce-

ment of plans to raise the prices Argentina and Brazil pay for Bolivian gas are only likely to reinforce the

trend. Current Bolivian gas imports account for 8.9% of Brazil’s energy mix.

Nevertheless, private investment in renewable energy remains small. The sector is considered high-risk and,

as a result, much of the sector’s growth over the last 30 years has been the result of solid government policies

favoring the development of renewable energy sources (such as the PROFINA program; the PRODEEM

and Luz para Todos grant programs; the Pro-Biodiesel and Pro-Alcohol programs). The government has

primarily targeted onshore wind power, bioenergy and hydropower. It therefore seems likely that these sec-

tors have the strongest development potential in Brazil, providing opportunities for investment in project

developers, manufacturers and service providers. Long term power purchase agreements have been agreed

under the Profina program.

With such a strong emphasis on oil independence, ethanol is the most dynamic sector in Brazil’s renewableenergy market. Currently more than 75% of Brazil’s new car sales are ‘flex-fuel’ vehicles – that is, they can

run on any mixture of petrol and ethanol – and the price of ethanol has been lower at the pump than gaso-

line for some time. Investors in other countries feeling the squeeze of high oil prices – particularly in North

America – have been looking to the Brazilian ethanol market as a guide. Cosan, one of Brazil’s largest sugar

cane producers (and now one of Brazil’s largest ethanol producers, generating 20% of its 2004 revenues

from ethanol for fuel) went public in November 2005, raising USD 390m.




Table 11: Selected Renewable Energy Projects Under Development in Brazil

Project Financed Country USD (m) Sector Type of Financing Type of Security Sponsor Status

Candeias Biodiesel Plant Brazil 20 Initial Balance sheet Biofuels Petrobras Completed

Usina Bom Retiro Brazil 57.7 Acquisition Balance sheet Biofuels Cosan Completed

Rio do Fogo Wind Farm Brazil 90.9 Initial Project Finance Wind Enerbrasil Completed

Lins Bertin Bovine Tallow Brazil 18.2 Initial ND Biofuels Grupo Announced

Biodiesel Plant Bertin

Floriano Biodiesel Plant Brazil 26 Initial Balance sheet Biofuels Brasil Completed

Ecodiesel

Osorio Wind Project Brazil 230 Initial Project Finance Wind Enerfin Enervento/ Completed

Wobben Windpower

Paraiso Sugar Cane Plant Brazil N/A Initial Balance sheet Biomass & Waste ND Announced

Agropalma Biodiesel Brazil N/A Initial Balance sheet Biofuels Agropalma Completed

Plant

Soyminas Cassia Brazil N/A Initial Balance sheet Biofuels Soyminas Completed

Biodiesel Plant Biodiesel

Santa Candida Bagasse Brazil N/A Initial Balance sheet Biomass & Waste Santa Candida/ Completed

Cogeneration Project Econergy

International Corp

Companhia de Forca Brazil 103 Acquisition Balance sheet Mini-hydro Brookfield Asset Completed

e Luz Cataguazes Management

Leopoldina (CFLCL) (formerly Brascan

Corporation)

NovaGerar Landfill Gas Brazil N/A Initial Balance sheet Biomass & Waste SA Paulista/ Completed

to Energy Project Econergy Brasil

Ltda

Millenium Wind Farm Brazil N/A Initial Lease/Vendor Wind ND Completed

Financing

Cruz Alta Bagasse Brazil N/A Initial Balance sheet Biomass & Waste Econergy Completed

Cogeneration Project Brasil Ltda

Alta Mogiana Bagasse Brazil N/A Initial Balance sheet Biomass & Waste Econergy Completed

Cogeneration Project Brasil Ltda

(AMBCP)

Barralcool Bagasse Brazil N/A Initial Balance sheet Biomass & Waste Usina Completed

Cogeneration Project Barralcool SA

Pesqueiro Energia Small Brazil N/A Initial Balance sheet Mini-hydro Pesqueiro Completed

Hydroelectric Project Energia SA(PESHP)

Usina Itamarati Biomass Brazil N/A Initial Balance sheet Biomass & Waste Usina Itamarati SA Completed

Plant

Noroeste Bioenergia - Brazil 105.8 Initial Project Finance Biofuels ND In Active

Rio Grande do Sul Planning




China

There are private equity / venture capital opportunities, as well as potential public market opportunities, in

manufacturing and support services in solar and wind. There are also significant technology opportunities

in energy efficiency and clean coal. Asset investment opportunities are strongest in wind and mini-hydro.

• Wind – There are supply side equity opportunities in equipment manufacturing; operations and main-tenance and construction. There are supply side asset development opportunities including: Equity in-

vestment to take minority stakes in local developers; Co-investment in projects alongside local partners

(i.e. equity sponsor of local developer projects)

• Solar – There are supply side equity opportunities in feedstock manufacturing in the PV market;

equipment manufacturing in the solar thermal market; operations & maintenance and construction.

There will be supply side asset development opportunities as the Chinese solar market is expanded to

power generation.

• Energy Efficiency – There are supply side equity opportunities in technology development, equipment

manufacturing and construction. There will be supply side asset development opportunities as legisla-

tion demanding all construction increase energy efficiency is implemented.

• Mini-hydro – There are supply side asset development opportunities including: Co-investment in

projects alongside local partners (i.e. equity sponsor of local developer projects); Equity investment to

take minority stake in local developers

Massive economic growth has increased energy demand in China exponentially; realizing the damage

that traditional coal-fired power plants are doing to the environment, the government has set its sights on

developing renewable energy sources. Unsurprisingly, China leads the emerging markets both for its rate of

growth in renewable energy, and for the likelihood of meeting its goals.

Energy consumption is expected to continue growing rapidly: demand is set to double or even triple by 2020.

While building coal-fired plants is allowing the government to meet demand growth in the short term, in thelonger term they only exacerbate the country’s environmental problems. Hence the government’s efforts to

develop renewable energy, which it hopes will provide 15% of total power production, or about 350GW, by

2020. If those targets are to be met, the country will require over USD 270bn of investment.

The international community is supporting China’s renewable energy plans. In February 2006, the World

Bank approved a loan to fund pilot renewable energy projects in China. The loan, which came as a follow

up project to Phase 1 of the China Renewable Energy Scale-Up Program (‘CRESP’), is intended to fund the

development of a large wind farm in the Inner Mongolia Autonomous Region, and rehabilitate and develop

selected small hydropower projects in Zhejiang Province. The CRESP program is intended to pilot renew-

able energy for the Chinese market so that private energy suppliers can provide renewable energy to the grid

on a commercially viable basis. Previous pilots for renewable energy sources like wind power, solar power,and biomass have previously been small-scale projects, not connected to the national grid. The hope is to

increase the commercial, large-scale use of renewable energy sources like wind, small hydropower, and solar

energy so that they can make a more substantial contribution to meeting fast-rising electricity demand.




There have been reported problems in resolving financing agreements with a number of projects under

development. The wind market recently received a set-back, when it was announced that wind prices under

China’s new Renewable Energy Promotion Law would be set by public tender, not relative to power prices,

as had been previously announced. The public tender process was how some of the earliest wind projects

were developed in China, and many of those have agreed to supply power at too low a price.

However Government targets, policies and fiscal support mechanisms are such that it seems strongly likely

that renewable energy project developers will be able to sell their power at a reasonable rate. A large proportion

of the renewable energy investment opportunity in China lies with private equity investment in manufactur-

ers and service suppliers for the solar (silicon providers, solar cell manufacturers and installers), wind (turbine

and turbine blade manufacturers, as well as an O&M opportunity), while the energy efficiency requirements

implemented under Chinese law suggest a strong opportunity for technology and construction companies.

Table 12: Selected Renewable Energy Projects Under Development in China


White Water River China 85.2 Initial Balance sheet Mini-hydro Yunnan Zhongda AnnouncedMini-hydro Financing Yanjin Power

Generation Co. Ltd.

Mundanjiang and Muling China N/A Initial Balance sheet Wind Hong Kong Completed

Wind Farms Construction (Holdings)

Ltd (formerly known

as Kumagai Gumi

(Hong Kong) Limited)

Yumen Diwopu China N/A Initial Balance sheet Wind China Datang Completed

Corporation

Chifeng Wind Farm China N/A Initial Balance sheet Wind China Datang Completed

Corporation

Wuxi Waste-to-Energy China 40 Initial Balance sheet Biomass & Waste China Everbright Completed

Project International

Huitengxile Wind Power China 100.58 Initial Balance sheet Wind Longyuan Electronic Completed

Concession Programme Power Group Co Ltd

East Nanao Island China 53.7 Initial Balance sheet Wind CLP Power Asia/ Completed

Wind Farm Guangdong Electric

Power Development

Company Limited/China

Huaneng Group

Yancheng Dongtai China N/A Initial Balance sheet Wind China Power Completed

Wind Farm Investment

Corporation (CPI)

Jurong and Suqian China N/A Initial Balance sheet Biomass & Waste China Energy Completed

Biomass project Conservation

Investment

Corporation (CECIC)

Jiangsu Rudong Wind China 104.7 Initial Project Finance Wind Jiangsu Longyuan Completed

Farm Concession II Wind Energy Co.

Phase I





Jiangsu Rudong Wind China N/A Initial Balance sheet Wind Jiangsu Longyuan Completed

Farm Concession II Wind Energy Co.

Phase II

Manjing Wind Farm China N/A Initial Balance sheet Wind Guohua Energy Completed

Phase 2 Investment Corp

Guohua Inner Mongolia China N/A Initial Project Finance Wind Shenhua Group Completed

Huitengliang Wind Farm Corporation

Limited

Luodai Town Waste to China 64.4 Initial Balance sheet Biomass & Waste ONYX Asia/ Shanghai Announced

Energy Plant Haiwan Investment

Company/Shanghai

Environmental

Investment Co

Ltd/Shanghai

Environmental Group

Suzhou Methane-to- China 3.4 Initial Balance sheet Biomass & Waste China Everbright Completed

Energy Project International

Shuangliao Wind Farm China N/A Initial Balance sheet Wind Datang Jilin Power Completed

Generation Co Ltd/

Roaring 40s

Renewable Energy

Pty Ltd

Liaoning Zhangwu China N/A Initial Balance sheet Wind Liaoning Zhangwu Completed

Wind Farm Jinshan Wind Power

Co Ltd

Liaoning Kangping China N/A Initial Balance sheet Wind Liaoning Kangping Completed

Wind Farm Jinshan Wind Power

Co Ltd

KEPCO Gansu Wind Farm China 57.5 Initial Balance sheet Wind Korea Electric Power Completed

Corp (KEPCO)/ China

Datang Corporation

Xilighaote Wind Farm China 25 Initial Balance sheet Wind Yongsheng National Completed

Energy Wind Power Co

Chongming Island and China N/A Initial Balance sheet Wind Longyuan Electronic Completed

Nanhui Wind Facilities Power Group Co Ltd

Huitengxile Wind Farm China 25.7 Initial Balance sheet Wind Longyuan Electronic Completed

CDM Project Power Group Co Ltd

Yixing City waste-to- China 28.8 Initial Balance sheet Biomass & Waste China Everbright Completedenergy project International

Zhoushan pilot Kobold China N/A Initial Balance sheet Marine Guangzhou Institute Completed

(Marine) Turbine Plant of Energy Conversion/

Ponte di Archimede

Tuoli Township Wind Farm China 108.4 Initial Balance sheet Wind China State Completed

Development and

Investment Company





Manjing Wind Farm China N/A Initial Balance sheet Wind Guohua Energy Completed

Phase 1 Investment Corp

Yangjiang Hailing Island China 98.66 Initial Balance sheet Wind Hong Kong Zhonghua Completed

Project Electric Power Company

Shiwenzi Wind Power China 30.1 Initial Balance sheet Wind HeiLongjiang Huafu CompletedStation Electric Power

Investment Co Ltd

ECP Jiangsu Rudong China 100 Initial Project Finance Wind Europe China Announced

Wind Power Project Power BV (ECP)

Datang Zhangzhou Liuao China 37 Initial Balance sheet Wind Datang Zhangzhou Completed

Wind Farm (Phase I) Wind Power Co Ltd

Heilongjiang (CR Alcohol) China 17 Initial Balance sheet Biofuels ND Completed

Bioethanol Plant

Jilin Tongyu I Wind Project China 121.9 Initial Balance sheet Wind Huaneng New Energy Completed

& Environment

Protection (Holding)Co Ltd (aka Huaneng

New Energy Industrial)

Suzhou City Waste-to- China 60 Initial Balance sheet Biomass & Waste China Everbright Completed

Energy Plant International

Ningxia Helanshan China N/A Initial Balance sheet Wind Ningxia Tianjing Completed

Wind Park Wind Power Co Ltd

Qinghai Province China 1.6 Initial Balance sheet Solar Chinese Ministry of Announced

Mini Grid Finance (MOF)

Qinghai province China 1.6 Initial Balance sheet Solar KfW Banking Announced

Mini Grid Group

Shi Bei Shan Wind Farm China N/A Initial Balance sheet Wind Guangdong Completed

Concession Yuedian Group

Changdiao Power Station China N/A Initial Balance sheet Mini-hydro CLP Power Asia/ Completed

Huaiji County

Huilian Hydro-

electric (Group)

Company Limited

Henan 2002 Bioethanol China 152 Initial Project Finance Biofuels Henan Tianguan Completed

Plant Enterprises

Group Co Ltd/

Henan Provincial

InvestmentCompany/China

National Petroleum

& Chemical

Corporation (SINOPEC)

Yunnan xinjiang Mini China N/A Initial Balance sheet Solar Chinese Ministry of Announced

Grid Project Finance (MOF)/KfW

Banking Group





Shiwenzi Wind Power China N/A Initial Balance sheet Wind HeiLongjiang Huafu Completed

Station Stage 2 Electric Power

Investment Co Ltd/

Huarui Group

Shiwenzi Wind Power China N/A Initial Balance sheet Wind HeiLongjiang Huafu Completed

Station Stage 2 Electric Power

Investment Co Ltd/

Huarui Group

Gaotang Power Station China N/A Initial Balance sheet Mini-hydro CLP Power Asia Completed

Township Electrification China 581.9 Initial Bond Solar ND Announced

Project

Qingdao Huawei Financing China 17.5 Initial Project Finance Wind Nordex AG

Completed

Henan 2001 (Nanyang) China N/A Initial Balance sheet Biofuels Henan Tianguan Completed

Bioethanol Plant Enterprises

Group Co Ltd Jilin Tianhe Bioethanol China N/A Initial Balance sheet Biofuels China Resources Completed

Plant (Jilin) Bio-chemical Co

Dabancheng/Fujin/ China 98 Initial Project Finance Wind Liaoning Electric Completed

Xiwaizi Wind Farms Power Company

Ltd/Xinjiang Electric

Power Company Ltd

Beijing Kangxi Wind Farm China N/A Initial Balance sheet Wind Europe China Power Completed

BV (ECP)

Anhui Bioethanol Plant China 96 Initial Balance sheet Biofuels Anhui BBCA Completed

Biochemical Co Ltd

Yutiao Power Station China 33.4 Portfolio Project Finance Mini-hydro CLP Power Asia Completed

Bundling

Xinwan Power Station China N/A Initial Balance sheet Mini-hydro CLP Power Asia Announced

India

There is a significant corporate opportunity for wind and solar equipment and manufacturing, as well as

strong technology potential in the fuel cells and energy efficiency markets.

• Wind – There are supply side equity opportunities in equipment manufacturing, O&M and other ser-

vices. There are also supply side asset development opportunities including: Co-investment in projects



majority or 100% ownership of local developers.

• Mini-hydro – There are supply side asset development opportunities including: Co-investment in

projects alongside local partners (i.e. equity sponsor of local developer projects); Acquisition of projects

out-right from local developers; Equity investment to take minority stake in local developers; Acquisi-

tion of majority or 100% ownership of local developers.




• Fuel Cell – There are supply side equity opportunities in technology development and, as the global

market expands, potentially in manufacturing.

• Energy Efficiency – There are supply side equity opportunities in technology development, equipment

manufacturing and possibly in construction.

• Biofuels – There are supply side equity opportunities in technology development, and the development

of feedstock and distribution. There will also be supply side asset development opportunities as themarket matures.

With one-fifth of the world’s population, India ranks sixth in terms of energy demand, accounting for

3.61% of the global energy demand, and together with China is the fastest-growing user of fossil fuels. In

2004, the country displaced Mexico to become the third most attractive FDI destination worldwide, and

it is increasingly perceived as a R&D hub for a wide range of industries. India’s highly-educated workforce,

management talent, rule of law, transparency, cultural affinity, and regulatory environment has earned the

country the reputation of the easiest of the emerging markets in which to do business.

The country’s service-oriented development path has so far allowed it to bypass certain obstacles, notably its

weak infrastructure. The pressure of keeping up with the pace of economic growth is changing this, however.India currently imports 1.9m barrels of oil per day, about 70% of its consumption. The International Energy

Agency predicts that by 2030 it will be consuming 5.6m barrels per day, of which 94% will be imported.

It has been projected that India must, in order to sustain estimated GDP growth of 8% a year, add around

500 MW of power generation on a weekly basis for the next 25 years. Given the parlous state of India’s

grid and electricity market, alternatives to large scale power plants must be found. While energy efficiency

measures can offset at least a part of this future demand, one of the most explosive areas of development has

been within distributed generation for industry.

The country has suffered a series of problems with transmission and distribution on the grid, electricity

shortages and power theft. The implementation of a depreciation allowance led a large number of industrial

groups to develop their own on-site generation facilities (using wind, solar or their own waste), ensuring

security and reliability of supply, as well as depreciating the capital cost by 80% in the first year.

While India has no renewable energy legislation per se, it provides tax breaks for joint ventures, gives a

depreciation allowances, loans and planning exemptions. There is a Model Renewable Energy Law currently

under discussion, but no time frame for implementation has been given.

The growing interest in the renewables market has been particularly strong in the wind sector, as evinced by

the success of turbine manufacturer Suzlon and it seems likely that the largest opportunities within India lie

in equipment manufacturing and service supply for the global renewables market, and in project develop-

ment for distributed generation.




Table 13: Selected Renewable Energy Projects Under Development in India


Energreen Tamil Nadu India N/A Initial Project Finance Biomass ND In Active

Biomass Plants & Waste Planning

Pallipalayam Biomass India 8.1 Initial Project Finance Biomass Seshasayee Paper In Active

Plant & Waste and Boards Planning

Pune MSCP4 Solar India N/A Initial Balance sheet Solar ND Completed

Thermal Project

Rashtrapati Bhavan India 21.9 Initial Balance sheet Solar Government Completed

Solar Project Financing of India

GNCL Kutch Wind Farm India 26 Initial Balance sheet Wind Gujarat NRE Completed

Coke Ltd (GNCL)

Chilwaria Bioethanol India N/A Initial Balance sheet Biofuels Simbhaoli Sugar Completed

Plant Mills Limited

Kakinda Biodiesel Plant India 31.7 Initial Project Finance Biofuels Naturol Bioenergy Completed

Ltd/UTI Securities/Sidbi Venture Capital

Ltd/APIDC Venture

Capital

Karnataka Biomass India 8.5 Initial Project Finance Biomass Velcan Energy Completed

Plant & Waste (formerly Saint

Merri Bioenergy)

Rithwik Biomass India N/A Initial Balance sheet Biomass Rithwik Energy System Completed

Power Project & Waste Limited (RESL)

Andhra Pradesh India N/A Initial Balance sheet Biofuels Southern Online Bio Announced

Biodiesel Project Technologies Ltd (SBT)

Tamil Nadu Andhiyur India 7.8 Initial Project Finance Wind Vishal Exports CompletedWind Farm Overseas Ltd

Kalpataru Ganganar India 6.9 Initial Balance sheet Biomass Kalpataru Power Completed

Biomass Plant & Waste Transmission Limited

Pioneer Asia Tamil India N/A Initial Balance sheet Wind Pioneer Asia Wind Completed

Nadu II Wind Farm Turbines

Enercon Kappaguda India N/A Initial Project Finance Wind Enercon India Limited Completed

Wind Farm

Kalpataru Tonk India N/A Initial Balance sheet Biomass Kalpataru Power Completed

Biomass Project & Waste Transmission Limited

Sogi, Joigmatti and India N/A Initial Balance sheet Wind MSPL Limited Completed

Jajikalgudda Wind Farm

Phase 1

Ajbapur Sugar Complex India N/A Initial Balance sheet Biomass DCM Shriram Completed

Cogeneration Project & Waste Consolidated Limited

Chaya Devi Hydro India N/A Initial Balance sheet Mini-hydro Bhoruka Power Completed

Power Scheme Corporation Ltd

Neria Mini-hydro Scheme India N/A Initial Balance sheet Mini-hydro Bhoruka Power Completed

Corporation Ltd





Oswal Woolen Mills Project India N/A Initial Balance sheet Biomass Oswal Woolen Completed

& Waste Mills Ltd.

Nahar Spinning India N/A Initial Balance sheet Biomass Nahar Spinning Completed

Mills Project & Waste Mills Limited.

MSPL Karnataka India 28.3 Initial Project Finance Wind MSPL Limited CompletedWind Farm

Samal Hydroelectric India N/A Initial Balance sheet Mini-hydro Orissa Power Completed

Project Consortium Ltd.

Jalaput Hydroelectric India N/A Initial Project Finance Mini-hydro Orissa Power Completed

Project Consortium Ltd.

Middle Kolab Small India N/A Initial Balance sheet Mini-hydro Meenakshi Power Completed

Hydroelectric Project Limited (MPL)

Lower Kolab Small India N/A Initial Balance sheet Mini-hydro Meenakshi Power Completed

Hydroelectric Project Limited (MPL)

Perpetual Biomass India N/A Initial Balance sheet Biomass Perpetual Energy Completed

Power Project & Waste Systems Limited

Chambal Biomass Project India N/A Initial Balance sheet Biomass Chambal Power Completed

& Waste Limited

Sri Chamundeswari India N/A Initial Balance sheet Biomass Sri Chamundeswari Completed

Sugars Bagasse Project & Waste Sugars Limited (SCSL)

Ugar Sugar Works India 5.8 Initial Balance sheet Biomass Ugar Sugar Works Ltd Completed

Ugarkhurd Cogen Plant & Waste

Triveni Bagasse Plant India N/A Initial Balance sheet Biomass Triveni Engineering Completed

& Waste & Industries Ltd.

RSCL Mundiampakkam India N/A Initial Balance sheet Biomass Rajshree Sugars & Completed

Biomass Project & Waste Chemicals Limited

Coimbatore, Bangalore, India N/A Initial Balance sheet Biomass Woman for Completed

Coorg Biomass Plants & Waste sustainable

development

Deepak Spinners Pagara India N/A Initial Balance sheet Biomass Deepak Spinners Completed

Biomass Project & Waste Ltd DSL

Enercon Jaisalmer India N/A Initial Balance sheet Wind Enercon Wind Completed

Bundled Wind Power Farms (Jaisalmer)

Project Pvt Ltd

Haidergarh Bagasse India N/A Initial Balance sheet Biomass Balrampur Chini Completed

Based Co-generation & Waste Mills Ltd

Power Project

The Dhampur Sugar India N/A Initial Balance sheet Biomass Dhampur Sugar Completed

Mills Limited Biomass & Waste Mills Ltd

Project

Ropar Biomass Project India N/A Initial Balance sheet Biomass Gujarat Ambuja Completed

& Waste Cements Limited

Somanamaradi Hydro India N/A Initial Balance sheet Mini-hydro Narayanpur Power Completed

Electric Project Company Ltd.





Indur Biomass India N/A Initial Balance sheet Biomass Indur Green Power Completed

Power Project & Waste

Balrampur Bagasse India N/A Initial Balance sheet Biomass Balrampur Chini Completed

Based Co-generation & Waste Mills Ltd

Power Project

Raja Bhaskar Biomass India N/A Initial Balance sheet Biomass Raja Bhaskar Power Completed

Power Project & Waste Pvt. Limited

Satya Maharshi India N/A Initial Balance sheet Biomass Satya Maharshi Completed

Biomass Project & Waste Power Corporation Ltd

Renuka Sugars India N/A Initial Balance sheet Biomass Shree Renuka Sugars Completed

Cogeneration Expansion & Waste Ltd (SRSL)

Project

Bannari Amman Sugars India N/A Initial Balance sheet Biomass Bannari Amman Completed

Karnataka Biomass & Waste Sugars Ltd

Project

Mandagere Mini India N/A Initial Balance sheet Mini-hydro Bhoruka Power CompletedHydro Scheme Corporation Ltd

Raghu Rama Renewable India N/A Initial Balance sheet Biomass Ind-Bharat Energies Completed

Energy Limited & Waste Limited

Jaisalmer Wind India 27.5 Initial Balance sheet Wind Enercon Wind Farms Completed

Energy Project (Jaisalmer) Pvt Ltd

Chunchi Doddi India 9.5 Initial Balance sheet Mini-hydro Sai Spurthi Power Ltd. Completed

Hydroelectric Project

SRS Bagasse India N/A Initial Balance sheet Biomass Shree Renuka Sugars Completed

Cogeneration Project & Waste Ltd (SRSL)

Enercon Chitradurga India 23.4 Initial Bond Wind ENERCON GmbH CompletedWind Farm

Maujhi Small India N/A Initial Balance sheet Mini-hydro Dharmshala Hydro Completed

Hydro Project Power Ltd.

Matrix Power India N/A Initial ND Biomass Matrix Power Pvt Ltd. Completed

Biomass Project & Waste

Malavalli Power India N/A Initial Balance sheet Biomass Malavalli Power Plant Completed

Plant Project & Waste Pvt Limited

Lucknow Asia Bio-Energy India N/A Initial Balance sheet Biomass Asia Bioenergy India Completed

India Municipal Solid & Waste Limited (ABIL)

Waste Project

Ganapati Sugar India N/A Initial ND Biomass ND Completed

Industries Biomass plant & Waste

Sri Rama Devara Katte India N/A Initial Balance sheet Mini-hydro ND Completed

Mini-hydro Scheme

Bannari Amman Sugars India N/A Initial Balance sheet Biomass Bannari Amman Completed

Tamil Nadu Biomass & Waste Sugars Ltd

Project





Vandana Vidhyut India N/A Initial Balance sheet Biomass Vandana Vidhyut Completed

Biomass Project & Waste Limited

Cape Comorim India N/A Initial Balance sheet Wind Aban Loyd Chiles Completed

Offshore Ltd

Puthlur RCI India N/A Initial ND Wind Wescare (India) CompletedLimited

Chennai Mohan India N/A Initial Balance sheet Wind Mohan Breweries Completed

& Distilleries

Encon Wind Power Project India N/A Initial Balance sheet Wind Encon Services Completed

Limited (ESL)

Enercon Chitradurga India N/A Initial Balance sheet Wind Enercon (India) Power Completed

Bundled Wind Power Development Pvt Ltd

Project

Devarkulam and India 18.4 Initial Balance sheet Wind Tamil Nadu Newsprint Completed

Perungudi wind farm and Papers Ltd (TNPL)

Vankusawade Wind Park India N/A Initial Project Finance Wind Suzlon Energy Ltd Completed

Kavdya Dongar Wind Park India N/A Initial ND Wind Suzlon Energy Ltd Completed

Malana power project India 9.8 Initial ND Mini-hydro ND Completed

Vishal Tamil Nadu India N/A Initial Balance sheet Wind Vishal Exports Completed

Wind Farm Overseas Ltd

Vishal Rajasthan India N/A Initial Balance sheet Wind Vishal Exports Completed

Wind Farm Overseas Ltd

Vishal Himachal India N/A Initial Balance sheet Mini-hydro Vishal Exports Completed

Pradesh Hydro Plant Overseas Ltd

Mexico

Mexico is a potentially large market, with opportunities in wind and biofuels. However, until its renewable

energy legislation is passed, there is likely to be little opportunity for foreign investors to get involved in the

power market.

• Wind – There are supply side asset development opportunities including: equity investment to take

minority stake in local developers; co-investment in projects alongside local partners (i.e. equity spon-

sor of local developer projects); co-investment in projects alongside local partners (i.e. equity sponsor of

local developer projects). There are also significant potential supply side equity opportunities in equip-

ment manufacturing, O&M and service supply.

• Biomass – There are supply side asset development opportunities including: equity investment to take

minority stake in local developers; co-investment in projects alongside local partners (i.e. equity sponsor

of local developer projects)

• Mini-hydro – There are supply side asset development opportunities including: equity investment to

take minority stake in local developers; co-investment in projects alongside local partners (i.e. equity

sponsor of local developer projects)




After maintaining fairly high levels of investor confidence in the late 1990s, Mexico has suffered for the

last few years, as unfulfilled reforms in key areas such as telecom, infrastructure, and energy, and the pull of

other emerging markets have led a number of global investors to rethink Mexico. From the end of 2000 to

April 2004, roughly one in four maquila enterprises left Mexico, cutting nearly a quarter of a million jobs.

Among these firms about one in three reportedly relocated to China. While Mexico led major emerging

markets in meeting investors’ expected profit targets in 2003, in 2004 China, Brazil, India and Poland sur-passed Mexico. The major issues which are seen as problematic are the need to liberalize the labor laws, an

improvement in the tax collection process, as well as the need to allow private capital into the energy sector.

The Mexican market does seem to be rebounding, in large part due to an ongoing consolidation of its dem-

ocratic processes, combining with a willingness to open its energy markets to investment. In 2006, Mexico’s

stock markets have been on an upward swing, up 19% in the early months of 2006. There is strongly posi-

tive investor sentiment across Latin America, thanks in large part to soaring commodity prices, while most

governments so far are avoiding uncontrolled spending. And it reflects an economy that is finally picking

up steam and boosting corporate profitability, thanks to robust growth in the United States, the destination

for more than 90% of Mexico’s exports. Changes in investment laws have also aided the Bolsa’s (Mexican

Stock Exchange) rise. In 2005, Mexico’s private pension funds, known as Afores, were permitted to put aportion of workers’ individual retirement accounts into equities. The cash contributions amount to about

USD 350m so far and are generating growing demand for private equity opportunities.

It has been reported that Mexico’s GDP expanded at an annual rate of 5% in the first quarter of 2006. If his

forecast is accurate, it will be the fastest pace since the third quarter of 2000. At this level of growth, external

debt is manageable, foreign reserves remain strong and the balance of trade remains positive thanks to world

demand for oils and metals.

Mexico has benefited from rising oil prices and growing export revenues, but there has been increasing pres-

sure on the economy from increases in the cost of natural gas and refined oil products, and this has meant

increasing pressure on its electricity costs. Over 60% of Mexico’s oil comes from one oil field, which iscurrently in decline, creating an enormous challenge for Mexico’s energy industry. As Mexico’s domestic fuel

supplies diminish, these price pressures will increase, and the country becomes increasingly dependent on

imports, unless it focuses on growth of its renewable energy generation capacity. Recent moves in Venezuela,

Bolivia and Ecuador have strongly highlighted such issues in Latin America and Mexico’s economic devel-

opment will be directly affected by its future net energy trade balance.

Mexico has effectively committed, by ratifying the Kyoto protocol, to use more renewable energy as a source

of electricity. The Mexican House of Representatives passed a “Law for the Use of Renewable Energy Sourc-

es in December 2005 and the measure has now been sent to the Mexican Senate for its review and approval.

Many believe that the law will be enacted this year (2006) and there is no question that its implementation

would transform Mexico as a potential market for renewable energy investment. Yet private sector invest-ment in Mexico’s state owned energy industry has been discouraged to date. With the growing importance

of energy and the oil balance in Mexico’s market coming to the fore of political debate in the run-up to the

July 2006 elections, it is possible that significant changes could be seen fairly soon.

Mexican installed capacity from renewables is insignificant to date (less than 5MW), which leaves enormous

room for growth. The Mexican Ministry of Energy estimates that there is potential to generate approxi-

mately 5GW from wind power, 1GW from biomass and 150MW from biogas drawn from landfills. The




measure the House passed in December would favor wind, solar, hydro, marine, and biomass and biofuels.

Mexico already provides certain forms fiscal support for renewable energy technologies, and has created

interconnect agreements for wind, hydro and solar and could well provide opportunities for project devel-

opers in these sectors, as well as offering a service and supply opportunity. Mini-hydro is likely to prove the

biggest opportunity, as there is a large potential market dominated by the state owned energy companies

– however, private developers are being welcomed to look at projects below 30MW.

However, the long term development of the market will require not only the implementation of the coun-

try’s renewable energy legislation, but clarification of how the fiscal support mechanisms will be structured

and implemented.

Table 14: Selected Renewable Energy Projects Under Development in Mexico


Eoloelectrica Las Mexico 111.4 Initial Balance sheet Wind Mexican Federal Completed

Ventas II Electricity Commission

(CFE)

Encinada Waste to Mexico N/A Initial Project Finance Biomass & Waste International Power Completed

Energy Plant Group Ltd

Comexhidro Hydroelectric Mexico 14 Initial Balance sheet Mini-hydro Mexican Hydroelectric Completed

Plants Corporation SA de CV

(COMEXHIDRO)

San Rafael Dam Mexico N/A Initial Balance sheet Mini-hydro EDF Energies Nouvelles Completed

Hydroelectric Plant (former SIIF Energies)

La Primavera Mexico N/A Initial Balance sheet Geothermal Mexican Federal Announced

Geothermal Resource Electricity Commission

(CFE)

El Higo Biomass Plant Mexico N/A Initial Balance sheet Biomass & Waste El Higo Sugar Cane Completed

Plantation SA

Trigomil Hydroelectric Mexico N/A Initial Balance sheet Mini-hydro Mexicana de Completed

Plant Electrogeneracion

SA de CV

Dulces Nombres Mexico 7 Initial Balance sheet Biomass & Waste Water and Drainage Completed

Biogas Plant Services of Monterrey

Hermosillo Solar Mexico N/A Initial Balance sheet Solar Mexican Federal Completed

Cogeneration Plant Electricity Commission

(CFE)/World Bank

(Global Environment

Facility)

Planta Hidroelectrica Mexico N/A Initial Balance sheet Mini-hydro Mexican Energy Completed

de Atexcaco Company SA de CV





San Rafael de Pucte Mexico N/A Initial Balance sheet Biomass & Waste San Rafael de Pucte Completed

Biomass energy plant Sugar Cane

Plantation SA

Huixtla Sugar Refinery Mexico N/A Initial Balance sheet Biomass & Waste Huixtla Sugar Refinery Completed

Biomass Energy Plant SA de CV

Plan de San Luis Mexico N/A Initial Balance sheet Biomass & Waste Plan de San Luis In Active

Sugar Refinery Biomass Sugar Cane Refinery Planning

Energy Plant SA

Tamazula Sugar Refinery Mexico N/A Initial Balance sheet Biomass & Waste Tamazula Sugar In Active

Biomass Energy Plant Refinery SA de CV Planning

Puga Biomass Energy Mexico N/A Initial Balance sheet Biomass & Waste Sugar Cane Refinery In Active

Plant of Puga Planning

PolandPoland has high targets for the development of renewable energy generation in a fairly short time frame,

driven by its accession to the EU. At the same time, it is looking to improve the efficiency of its coal-fired

generation and diversify its energy mix, providing large opportunities in energy efficiency and clean coal.

• Wind – There are supply side asset development opportunities including: co-investment in projects

alongside local partners (i.e. equity sponsor of local developer projects); acquisition of projects out-right

from local developers; own development of projects (i.e. no local partner required); equity investment to

take minority stake in local developers; acquisition of majority or 100% ownership of local developers

• CHP/biomass – There are supply side asset development opportunities including: co-investment in

projects alongside local partners (i.e. equity sponsor of local developer projects); acquisition of projects

out-right from local developers; own development of projects (i.e. no local partner required); equity in-

vestment to take minority stake in local developers; acquisition of majority or 100% ownership of local

developers

• Biofuel – There are supply side asset development opportunities including: co-investment in projects



take minority stake in local developers; acquisition of majority or 100% ownership of local developers

Poland is the eighth largest consumer of power in Europe, with a power market dominated by coal. Howev-

er, its potential for wind energy is rated the highest in Central and Eastern Europe, and it is also an agricul-

tural powerhouse, producing large quantities of straw, wood-chipping and animal waste, suggesting strongpotential for biomass and biofuels development.

It is Poland’s 2004 accession to the EU which provides the strongest driver for the development of renew-

able energy. The country must conform to EU standards and it currently has targets of developing renew-

able energy generation to constitute 7% of primary energy supply by 2010. The country exhibits GDP of

roughly 5% and both energy demand and GDP are expected to grow.




Poland has attracted significant foreign investment n the last decade, including some sizeable activity in the

energy sector. It has an active private equity industry, although the stock markets have not been as active

– the majority of deal activity remains below the public markets. There has been relatively little investment

in the renewable energy sector in Poland to date, due to its relatively immaturity and issues surrounding the

enforcement of renewable energy legislation on the utilities.

As a transition economy, Poland suffers from perceived threats to its competitiveness in the global markets,

from concerns about poor infrastructure, corruption and the erosion of low-cost advantage. Poland relies

primarily on coal for electric power generation and while the Government is attempting to reform the coal

industry, the economic impact on the country means that the process must be handled very carefully.

Poland is still in the process of attempting to liberalize its electricity markets and while there have been

moves in this direction, accelerated by the requirements of EU accession, there are a number of issues which

still need to be overcome, including a series of long term power purchase agreements already in place within

the power sector. Poland’s Government has adopted new legislation that favors renewable energy but it still

needs to be bedded in and enforced. Electricity suppliers must purchase and present green certificates to

ensure that they are supporting renewable energy.

At present, an estimated 80MW of wind capacity is up and running in Poland. There are however a number of

wind farms under development which are expected to come on-stream in the next year or two and the Govern-

ment is plan that 800MW could be installed by 2010. There are solid developer opportunities in wind, the mini-

hydro sector, biomass power (specifically in relation to co-firing with coal and CHP on a distributed basis).

The story in Poland is one of growing interest and potential, rather than large flows of money. The targets

set by the Government are high, but lack of clarity and opposition to alternative power generation mean

that development is likely to be slow in the short term. However, it is expected that within five years, the

market for renewable energy generation could be significant. The potential for biofuels is also strong, but

roll-out on a large scale remains dependent on EU legislation and support.

Table 15: Selected Renewable Energy Projects Under Development in Poland


Puck Wind Farm Poland 33.6 Initial Project Finance Wind Polish Energy Completed

Financing Partners (PEP S.A.)

Puck Gemina Wind Poland N/A Acquisition Balance sheet Wind Environmental Completed

Farm Acquisition Investment Partners

(EIP)

Radziejow Wind Poland 120 Initial Project Finance Solar Projekt GmbH Abandoned

Farm Financing

Radziejow Wind Poland 120 Initial Project Finance Solar Wysak Petroleum Inc Abandoned

Farm Financing

Phase I Tymien Poland 57 Initial Project Finance Wind EEZ Completed

Wind Farm

Zagorze Wind Farm Poland N/A Initial Balance sheet Wind Wolin North Spolska Completed

(Wiatrowa) z.o.o





Cisowo Wind Farm Poland N/A Initial Project Finance Wind Energia Eco Completed

Skrobotowo Wind Farm Poland N/A Initial Balance sheet Wind EPA Sp. z o.o. Completed

Skrobotowo Wind Farm Poland N/A Initial Balance sheet Wind Nuon Completed

Thailand

The Thai Government has high targets for the development of renewable sources and the country has a

broad range of natural resources to be exploited, although it should be noted that the current political envi-

ronment is volatile.

• Biomass – There are supply side asset development opportunities including: co-investment in projects



take minority stake in local developers; acquisition of majority or 100% ownership of local developers.

• Biofuels – most specifically in ethanol. There are supply side asset development opportunities includ-

ing: co-investment in projects alongside local partners (i.e. equity sponsor of local developer projects);

acquisition of projects out-right from local developers; own development of projects (i.e. no local

partner required); equity investment to take minority stake in local developers; acquisition of majority

or 100% ownership of local developers.

• Mini-hydro – Although the market has been slow to develop and there is little domestic infrastructural

or service support, there are supply side asset development opportunities including: co-investment in

projects alongside local partners (i.e. equity sponsor of local developer projects); acquisition of projects

out-right from local developers; own development of projects (i.e. no local partner required); equity in-

vestment to take minority stake in local developers; acquisition of majority or 100% ownership of local

developers.

With a well-developed infrastructure, a free-enterprise economy, and pro-investment policies, Thailand

appears to have fully recovered from the 1997-98 Asian Financial Crisis. The country was one of East Asia’s

best performers in 2002-04. Thailand’s economy slowed substantially following the impact of the tsunami

in December 2004, with real GDP growth falling to 4.5% for 2005, down from 6.1% in 2004. The impact

of high oil prices, weaker demand from Western markets, severe drought in rural regions and lower con-

sumer confidence have all contributed to the slowing of economic growth.

The development of alternative sources is critical to energy sustainability as Thailand relies substantially

on crude oil imports totaling approximately U.S. 10.7bn in 2004, representing 6.5% of GDP. Renewable

sources accounted for only 1% of electricity generated in 2004.




Thailand’s energy sector is undergoing a period of restructuring and privatization. The Thai electric utility

and petroleum industries, which historically have been state-controlled monopolies, are currently being re-

structured. With the exception of agriculture and animal husbandry, foreign investors may own up to 100%

of projects and project developers.

It is projected that Thailand will need an additional 20GW of electricity during the next 10 years. Com-pared with the existing generating capacity of about 26GW, generating capacity has to increase by roughly

77% in order to meet future demand. Regarding the transmission system, the South and the North-Eastern

grids are already faced with insufficient generation to meet increasing demand.

The Thai Government has been developing mini-hydro projects for some time, in order to increase rural

electrification and it has now set a target of 8% of renewable energy generation by 2011. The main areas of

potential renewable energy investor interest in Thailand are in mini-hydro, biomass and biofuels.

To achieve the 8% goal, the government is encouraging the power generating sector, consisting of Indepen-

dent Power Producers (IPPs) and Small Power Producers (SPPs) to produce 1.9WW of power from renew-

able energy sources. IPPs are firms which build, own and operate large power plants that generate and sellelectricity to the grid, to ease the state’s power production burden. IPPs are now required to adhere to the

Renewable Portfolio Standard (RPS). Under the RPS, power companies that wish to bid to supply power to

the Electricity Generating Authority of Thailand (EGAT) must produce 5% of their installed energy gener-

ating capacity from renewable sources.

As one of only five net food exporters on the world market, Thailand is also one of the largest producers of

waste products from agriculture and agro-industrial processing. Given existing programs of fiscal support for

small and very small power producers, it’s possible that biomass could provide an interesting opportunity. In

the biofuels industry, market potential in Asia is high, with 90% of Thailand’s current ethanol exports going

to Japan, the world’s largest importer of ethanol and second largest consumer of gasoline.

The Thai biofuels industry hopes that it can follow Brazil, the world’s leading ethanol producer, and move

its agro-industry further up the value chain, although much of its development is currently at the experi-

mental stage. The two nations signed a memorandum of understanding (MOU) to exchange biofuels

information and expertise.

There are obstacles to be overcome. While mini-hydro is supported by the government, implementation has

been slow and there are no domestic equipment suppliers.

The recent political events in Thailand, while not expected to have a major long-term impact, may have af-

fect the country’s ability to attract foreign investment.




Table 16: Selected Renewable Energy Projects Under Development in Thailand


Udon Thani Biofame Thailand 250 Initial Balance sheet Biofuels Senoko Power Ltd. Completed

Ethanol Plant

Chachoegsao Biofame Thailand N/A Initial Balance sheet Biomass & Waste Malakoff Berhad/ Completed

Biomass Plant Plasma RenewableEnergy Sdn Bhd

APT Petchabun Thailand 13 Initial Project Finance Biomass & Waste ND In Active

Biomass Plant Planning

APT Waste-to- Thailand N/A Initial Project Finance Biomass & Waste ND Announced

Energy Plant

WasteKleen Phuket Thailand 22 Initial Project Finance Biomass & Waste ND Announced

Waste-to-Energy Plant

Nakhon Sawan Thailand N/A Initial Balance sheet Biomass & Waste AT Biopower Co. Ltd. Completed

Biomass Plant

Kitroongruang Thailand 2 Initial Balance sheet Biomass & Waste Thai Biogas Energy CompletedBiomass Plant Company Ltd. (TBEC)

Jiratpattanna Thailand 3.4 Initial Balance sheet Biomass & Waste Thai Biogas Energy Completed

Biomass Plant Company Ltd. (TBEC)

Chao Khun Agro Thailand 3.4 Initial Balance sheet Biomass & Waste Thai Biogas Energy Completed

Biomass Plant Company Ltd. (TBEC)

Thai Agro Ethanol Thailand N/A Initial Project Finance Biofuels Thai Agro Energy Completed

Plant Co. Ltd

Khon Kaen Fuel Thailand N/A Initial Project Finance Biofuels Khon Kaen Sugar Announced

Ethanol Company, Ltd.

Pichit Biomass Plant Thailand 36 Initial Balance sheet Biomass & Waste AT Biopower Co. Ltd. Completed

Thai Agro Energy Thailand 3.5 Initial Project Finance Biomass & Waste Thai Agro Energy Completed

Biogas Plant Co. Ltd

Ratchasima Small Thailand N/A Initial Balance sheet Biomass & Waste ND Completed

Power Producer (SPP)

Expansion Project

Korat Waste to Thailand 10 Initial Balance sheet Biomass & Waste Korat Waste to Energy Completed

Energy Project Company (KWTE)

Charoen Pokphand Thailand 1 Initial Project Finance Biomass & Waste ND Completed

RaiSam Farm Biogas

Plant




Turkey

Turkey has significant renewable energy resources, growing energy demand and renewable energy legisla-

tion; however the current framework does not yet provide sufficient fiscal support to encourage major

investment.

• Geothermal – There are supply side asset development opportunities including: Co-investment inprojects alongside local partners (i.e. equity sponsor of local developer projects)

• Wind – There are supply side asset development opportunities including: Co-investment in projects



majority or 100% ownership of local developers

Turkey has experienced a strong recovery from the financial and currency crisis of 2001. Real GDP growth

has exceeded 6% in many years, but this strong expansion was interrupted by sharp declines in output in

1994, 1999, and 2001.

It is now on the brink of attaining economic stability, sustainable growth and disinflation through the implemen-tation of economic reforms. In 2005 real GDP growth reached 5.1% and Inflation fell to 7.7% a 30-year low.

Despite strong economic gains in 2002-05, largely due to renewed investor interest in emerging markets,

IMF backing, and tighter fiscal policy, the economy is still burdened by a high current account deficit and

high debt. The reforms mandated by the IMF stabilization package and Turkey’s EU accession bid have

removed several of the obstacles that were standing in the way of foreign direct investment into the country.

Privatizations surged in 2005 and there have been several recent high profile purchases of Turkish assets in

several industries, including energy – for example Austria’s energy giant OMV bought a 34% stake in Petrol

Ofisi, Turkey’s leading retail oil distributor.

Currently 31% of energy generation in Turkey depends on hydroelectric power (mini and large scale) andthe remaining 69% on thermal power (natural gas, lignite, coal and fuel oil). According to the Turkish En-

ergy Market Regulation Board (EPDK) Turkey’s lignite potential is 11GW, coal potential 12GW, while its

geothermal potential is 2GW.

Turkey has strong potential for renewable energy development in hydro and geothermal specifically and due

to supply constraints, the Government is exploring a range of alternative forms of supply, from renewable

energy generation to nuclear. Prior to Turkey’s severe economic difficulties in 2001, the country’s energy

consumption and net imports had been growing rapidly.

Assuming that the Turkish economy and energy demand return to rapid growth, the government anticipates

the need for a significant increase in power generation capacity that will possibly reach 54GW by 2020 andrequire billions of dollars in foreign investment.

In 2001, Turkey ratified the Energy Charter Treaty, the international legal framework for energy invest-

ment. Also, in early 2001, the Turkish parliament passed an energy liberalization law aimed at ending the

government’s monopoly in the energy sector, and also geared towards attracting foreign energy investment.

In December 2003, parliament passed legislation liberalizing the country’s energy sector.




In April 2005, the International Energy Agency (IEA) issued a report on Turkey which said that “Turkey has

taken steps to implement energy market reforms which have resulted in clear and significant benefits. Now,

continued action is needed to see the process through to a successful conclusion.” The IEA elaborated that

Turkey needs to “restructure the state-owned enterprises...create independent electricity and gas operators

and to remove cross-subsidies from electricity and gas prices.”

Turkey has ratified the Kyoto Protocol and passed a renewable energy law in May 2005. This states that

retailers (utilities) have to purchase electricity from renewable sources at a rate not less than 8% of their

total electricity generated in the previous year and that distribution companies have to purchase energy from

renewable resources by “the average electricity whole-selling price in Turkey” which is currently estimated at

EUR cents 5/kWh.

This law may not be sufficient to encourage large scale investment as the feed-in tariff is below the average

remuneration in the leading European wind markets.

Turkey has substantial renewable energy resources and, as it looks towards possible European Union mem-

bership, it will need to increase its use of cleaner energy as a means of achieving sustainable economicdevelopment. Turkey also has a great potential for energy efficiency improvements, both in industry and in

power generation.

However, until the privatization of Turkey’s energy industry is completed and the current system of feed-in

tariffs is redesigned, it is unlikely that there will be a rush of investment into renewable energy in Turkey.

Table 17: Selected Renewable Energy Projects under development in Turkey


Bares II Wind Project Turkey N/A Initial Balance sheet Wind Bilgin Group Completed




Supporting Data

Table 18: Renewable Energy Policies and Measures in Developing Countries

Country Policy Name Policy Type Technology

Brazil The PROINFA Programme o Guaranteed Prices / Feed-In o Onshore Wind

o Obligations o Bioenergy

o Tradeable Certificates o Hydropower

o 3rd Party Finance

National Programme for Energy o Rural electrification o All Technologies Simultaneously

Development of States and

Municipalities (PRODEEM)

National Rural Electrification o Rural electrification o All Technologies Simultaneously

Programme

China Brightness Programme o Capital Grants o On-shore wind

o Solar Photovoltaics

The People’s Republic of China o General Energy Policy o All Technologies SimultaneouslyRenewable Energy Law o Guaranteed Prices / Feed-In

o Obligations

o RD&D

o Regulatory and Administrative

Rules

Reduced VAT and Income Tax o Excise Tax Exemptions o Onshore Wind

o Sales Tax Rebates

o Tax Credits

Wind Power Concessions Programme o Bidding Systems o Onshore Wind

o Guaranteed Prices/Feed-In

India Policy and Economic Incentives o FDI & Joint Ventures o All Technologies Simultaneously

for Investment in Renewable Energy o Depreciation Allowance

Sources o Income Tax Holiday

(Model Renewable Energy Law not o Excise & Customs Incentives

yet implemented) o Planning Exemptions

o Loans

Incentives for Investment in Wind o Concessional Import Duties o Wind

Power Generation o Accelerated Depreciation

o Sales Tax & Excise Duty Relief

o Soft Loans

o Income Tax Holiday

o Wheeling Charges

o Buy-Back Facilityo 5% Annual Tariff Escalation

o Financial Incentives for

Demonstration Projects

Incentives for Investment in Small o Survey & Investigation Subsidies o Small Hydro Power

Hydro Power Generation o Project Development Subsidies

o Renovation, Modernisation &

Capacity Upgrade financial support

o Term loans






Table 19: Country Attractiveness

Area Country US UK Brazil China India Mexico Poland Thailand Turkey

Economic Projected GDP Growth1 3.2% 2.8% 2.5% 9.0% 8.1% 3.2% 3.8% 5.4% 5.0%

Sustainability of H H H H H M M M M

Economic Growth

Energy Projected Energy L L M H H M M M H

Demand Growth

Renewable Energy Y Y Y Y N N N N Y

Legislation (at May

2006)

Enforceability of H H M M L L L L M

the Legislation

Grid Reliability H H M L L M L L L

Fuel Infrastructure H H L L L M M L M

Robustness of H H L L L L L L L

Electricity Market

Investment/ Business 9.0 8.5 4.5 3.5 5.0 4.0 4.5 2.5 4.5

Business Environment2

Maturity of Capital 9.0 9.0 5.0 4.0 6.0 3.0 5.0 1.5 3.75

Markets3

Corruption Perception 7.6 8.6 3.7 3.2 2.9 3.5 3.4 3.8 3.5

Index4

Emerging Markets AAA AAA BB- A- BB+ BBB BBB+ BBB+ BB-

Risk5

Ease of Doing 3 9 119 91 116 73 54 20 93

Business

6

Protection of 8.3 8.0 5.3 4.3 6.0 3.7 6.3 6.0 5.0

Investors7

Ease of Profit H H H M H H H H M

Repatriation

1 Source: IMFC

2 Source: New Energy Finance Research on robustness of capital market, level of global integration, retail growth, GDP growth, political stability, rate of inflation, population growth, contractual environment, independence of regulation, technological infrastructure,ranging from 10 (highest) to 1 (lowest)

3 Source: New Energy Finance Research on extent of regulation, investment protection, capital market activity, private equity volume,centralized/decentralized economy, robustness of legal infrastructure

4 Source: Transparency International Corruption Perceptions Index Score (http://www.transparency.org/policy_research/surveys_indi- ces/cpi/2005) relates to perceptions of the degree of corruption as seen by business people and country analysts and ranges between 10(highly clean) and 0 (highly corrupt)

5 Source: S&P Sovereign Debt Rating from IMF Global Financial Stability Report April 2006 (http://www.imf.org/External/Pubs/FT/ GFSR/2006/01/pdf/chp3.pdf)

6 Source: The World Bank Group Economy Rankings Ease of Doing Business Index (http://www.doingbusiness.org/EconomyRankings/)ranks economies from 1 (highest) to 155 (lowest). The index is calculated as the ranking on the simple average of the country percentilerankings on each of 10 topics covered in Doing Business in 2006

7 Source: The World Bank Group Economy Rankings Investor Protection Index (http://www.doingbusiness.org/ExploreTopics/Protecting- Investors/) measures the strength of minority shareholders protections against misuse of corporate assets by directors for their personal

gain, between 10 (high protection) and 0 (no protection)




Table 20: Consensus Forecasts – Brazil

Sector Forecast capacity (GW) CAGR (%) Capital Investment Required (USDbn)

Government Projected GDP Government Projected GDP Government Projected GDP

Targets in Based Growth Targets in Based Growth Targets in Based Growth

2007/20101 in 20202 2007/20101,4 in 20203 2007/20101,4 in 2020

Wind 1.5 2.4 607.1% 35.0% 1.8 2.9

Mini-hydro 3.4 5.7 24.1% 7.0% 6.6 11.1

Biomass & Waste 3.8 6.4 10.4% 5.4% 7.6 12.8

Solar PV 0.0 0.0 n/a n/a 0.0 0.0

Geothermal 0.0 0.0 n/a n/a 0.0 0.0

Marine Tidal 0.0 0.0 n/a n/a 0.0 0.0

Marine Wave 0.0 0.0 n/a n/a 0.0 0.0

Biodiesel (mlitres) 2.0 2.0 22.0% 22.0% 1.0 1.0

Bioethanol (mlitres) 22.0 22.0 7.4% 7.4% 10.8 10.8

Total 32.7 38.5 n/a n/a 27.9 38.7

Notes 1 Government targets are for 2007 (Wind, Mini-hydro and Biomass & Waste) and 2010 (Biodiesel and Bioethanol) 2 Projected GDP based growth forecasts based on predicted 2007 generation portfolio mix.3 Projected GDP growth stable at 2.5% (IMFC, 2006/7 figures May 2006) 4 Biofuel CAGR and investment are for 2010

Table 21: Consensus Forecasts – China



Targets in Based Growth Targets in Based Growth Targets in Based Growth2020 in 20201,2 2020 in 20202 2020 in 20202

Wind 30.0 45.7 23.5% 29.3% 36.4 62.4

Mini-hydro 50.0 76.2 10.8% 17.4% 97.9 168.1

(under 100MW)

Biomass & Waste 20.0 30.5 12.5% 20.5% 40.0 68.7

Solar PV 2.0 3.0 16.6% 31.7% 4.8 8.2




Total 102.0 155.5 n/a n/a 179.1 307.5

Notes

1 Projected GDP based growth forecasts rely on expected generation portfolio mix 2020 (Merril Lynch Asia Pacific utilities predictions2005/Government targets)

2 Projected GDP growth stable at 9.0% (IMFC, 2006/7 figures May 2006)




Table 22: Consensus Forecasts – India



Targets in Based Growth Targets in Based Growth Targets in Based Growth

20204 in 20202,4,6 20201,3 in 20202,3,6 2020 in 20202,6

Wind 8.9 9.6 4.8% 5.3% 10.8 10.8

Mini-hydro (under 25MW) 6.2 6.7 9.0% 9.6% 12.1 12.1

Biomass & Waste 1.2 1.3 6.4% 7.0% 2.5 2.5

(including biogas)5

Solar PV 0.1 0.1 0.3% 0.3% 0.2 0.2




Total 16.5 17.7 n/a n/a 25.6 25.6

Notes 1 Government targets scenario projects growth needed to meet 2007 renewable targets to 2020 2 Projected GDP based growth scenario based on generation portfolio mix estimates for 2020 (IEA 2005) 3 Linear growth to meet targets 2007, 2012, 2020 4 Capacity build rate to meet the targets is projected forward to 2020.5 No targets for biomass. Estimate year on year addition 50MW 6 Projected GDP growth stable at 8.1% (IMFC, 2006/7 figures, April 2006)

Table 23: Consensus Forecasts – Mexico, Poland, Thailand, Turkey

Capital Investment

Country/Sector CAGR (%) Forecast Capacity (GW) Required (USDbn)

Government Targets in 20201,2,3 Government Targets in 20201,2,3 Government Targets in 20201,2,3

Mexico - Wind1 n/a 0.98 1.2

Mexico - Solar PV1 47.9% 0.32 0.8

Mexico - Mini-hydro1 39.8% 0.98 1.9

Mexico - Biomass1 24.6% 0.43 0.9

Mexico - Geothermal1 4.8% 1.40 2.6

Poland - Wind2 20.4% 1.30 1.6

Poland - CHP/Biomass2 22.5% 4.0 8.0

Thailand - Mini-hydro3 35.9% 0.27 0.5

Thailand - Biomass3 24.8% 2.83 5.7

Turkey - Wind 31.8% 3.80 4.6

Turkey - Geothermal 29.8% 1.00 1.8

Total n/a 17.3 29.5

Notes 1 Mexico Government Targets in 2013 2 Poland Government Estimate in 2010, projected to 2020 3 Thailand Forecast for 2011




Table 24: Brazil Country Overview

Economy 10th largest globally Population 188m

FDI (2004)1 USD 18.2bn Total Energy Consumption 2% (largest in Americas

after the US)

Energy Growth2 3.6% per annum % of Population Living Estimated 30%

Below Poverty Line

Economic Growth Avg 2.2% per annum Estimated Economic Growth 5.0%

(2001-2003) (Q1 2006)

Estimated GDP Growth 3.7%

(2006)3

1 In decline from the late nineties. A recent report from Standard & Poors suggests that the wider decline in Latin American FDI isamong the main reasons why the region is growing more slowly than other emerging markets.

2 ‘International Energy Outlook’ of 2004

3 Brazilian National Confederation of Industry (CNI) in April 2006.

Figure 8: Brazil Energy Overview

Reproduced from IEA data

Nuclear: 3.7%

Gas: 3.6%

Oil: 3.0%

Coal: 2.4%

Renewables87.4%

Hydro: 83.8%

Biomass and RenewableWastes: 3.5%




Table 25: Brazil Energy Overview

Net Energy Imports 10% of total energy Net Energy Exports (2002) 16.3% of TPES

Renewable Energy % of Total 44% Hydroelectric 83.3% of Renewable

Energy Production Energy

Oil & Oil Derivatives 40% of total energy Petroleum Self-sufficient in 2006

Natural Gas 8.9% of total energy Natural Gas Imports 30% from Bolivia

Electricity Demand (2003) 374TWh per annum Forecast Electricity Demand 697TWh per annum

(2020)

Generating (2003) Capacity 82.5GW Forecast Generating Capacity 134GW

(2015)

Renewable Energy Wind 170 GW SHP 13.2 GW Biomass 11.7GW

Potential (2007 Target)1 (1.451 GW) (3.391 GW) (3.819 GW)

Ethanol Production 15.4 billion litres per annum Ethanol Exports (2005) 2.56 billion litres per annum

Estimated Ethanol Demand 22.0 billion litres Mandated Bioethanol Mix (2006) 20%

(2010)

Biodiesel Production 740 million litres per annum Mandated Biodiesel Mix (2008) 2% (800 million litres)

increasing to 5% (2013)

Forecast Biodiesel Production 2.4 billion litres per annum Forecast Biodiesel Production 12.4 billion litres per annum

(2013) (2020)

National Programme USD 3.2bn (Proinfa)2 Other Investments USD 20m (Petrobas in

Investments USD 350m (Biofuels) 59.5 million litre biodiesel

USD 2.8bn (Hydropower) plant)

106 units under construction

1 MME 2005

2 Proinfa programme, established in 2002, set out incentives for the production of electricity through alternative sources. The programme envisages wind, biomass and SHP accounting for 10% of Brazil’s total electricity production in the next 20 years. Its mainobjective is to diversify the energy matrix and search for regional solutions by increasing the participation of alternative sources in theelectricity supply. The programme guarantees power sale contracts to Electrobras for projects which use this technolog y in the next 20

years, giving security for investors and project developers. It also establishes that 60% of the equipment used in these projects needs tobe produced in the local market. All incentives and accelerators for the renewable energy sector are directly or indirectly related to theProinfa programme (excepting ethanol and biodiesel).

Table 26: China Country Overview

Economy (GDP PPP) USD 8.182 trillion Population 1.3 billion

FDI (2004)1 USD 60.63 billion Total Energy Consumption 1390 million tonnes of

oil equivalent

Energy Growth2 4.0% per year until 2030 % of Population Living Below 10% (estimated in 2001)

Poverty Line

Economic Growth 8.0% 2002: 9.1% 2003: Estimated Economic Growth 10.2%

(2001-2003) 8.6% 2004 (Q1 2006)

Estimated GDP Growth 9.0%

(2006)3




Figure 9: China Energy Overview


Table 27: China Energy Overview

Net Energy Imports (2002) 1.4% Hydroelectric 7% (2005)

Renewable Energy % of Total 10% (2005) – including large hydro Oil Imports 3.226m bbl/day

Energy Production

Oil Production (2004) 3.504m bbl/day Natural Gas Imports 0 cubic metres (2004)

Natural Gas 35.02 billion cubic metres (2003) Forecast Electricity Demand 723 – 753GW

(2010)

Electricity Demand (2004) 2190 TWh Forecast Generating Capacity 800 – 900GW

(2030)

Generating (2003) Capacity 356.09GW Forecast Biodiesel Production 14-28bn litres per annum

(2020) (all biofuels)

Renewable Energy Potential 30.0GW in wind 50.0GW in Mini-hydro 20.0MW in Biomass

(2020 Target)

Ethanol Production Mandated Bioethanol Mix (2020) 10%

Biodiesel Production (2004) 71.4m litres Forecast Biodiesel Production 14-28bn litres per annum

(2020) (all biofuels)

Oil: 3.0%Gas: 0.3%

Nuclear: 2.3%

Renewables15%

Coal79.4%

Hydro: 14.9%





Table 28: India Country Overview

Economy (GDP PPP) USD 3.678 trillion Population 1.1bn

FDI (2004) USD 12.7bn Total Energy Consumption 418TWh

Energy Growth (2005) 8.1% % of Population Living Below 25% (estimated in 2002)

Poverty Line

Economic Growth 7 – 8% Estimated Economic Growth 8.0%

(2001-2003) (Q1 2006)

Estimated GDP Growth (2006) 8.1%

Figure 10: India Energy Overview


Table 29: India Energy Overview

Net Energy Imports (2002) 17.8% of total energy consumption Hydroelectric 21.5% of total installed

capacity

Renewable Energy % of 24% (including large hydro) Oil Imports 95m tonnes of oil per year

Total Energy Production (2003) (70% of its requirement)

Oil Reserves (2004) 5.9bn barrels (0.5% of global Natural Gas Consumption 22.75bn cubic metres

reserves) (2001)

Natural Gas Production (2005) 27.1bn cubic metres Forecast Electricity Demand 1,150TWh

(2020)

Electricity Demand (2004) 418.33TWh Forecast Generating Capacity 400GW

(2030)

Generating (2003) Capacity 126.34GW

Renewable Energy 8.9GW in wind 6.2GW in Mini-hydro 1.2GW in biomass and

Potential (2020 Target) waste

Oil: 4.6%

Gas: 11.5%

Nuclear: 2.8%

Renewables12.8%

Coal68.3%

Hydro: 11.9%

Biomass and Renewable

Wastes: 0.1%

Wind: 0.6%




Table 30: Mexico Country Overview

Economy (GDP PPP) USD 1.7 trillion Population 106,202,903

FDI (2004) USD 3.05 billion Total Energy Consumption 2119TWh

Energy Growth 69% by 2013 % of Population Living Below 40%

(Base Year 2004) Poverty Line

Economic Growth (2001-2003) 1.86% average for the last 5 years Economic Growth (2006) 3.5%

Estimated GDP Growth (2006) 4.5 – 7%

Figure 11: Mexico Energy Overview


Table 31: Mexico Energy Overview

Net Energy Imports 45.0% in 2002 (US DOE) Hydroelectric (2003) 9.4%

Renewable Energy % of Total 13.1% Proven Oil Reserves (2005) 33.31billion bbl

Energy Production

Oil Consumption (2004) 1.752m bbl/day Natural Gas Consumption (2004) 55.1bn cubic metres

Natural Gas Reserves (2005) 424.3bn cubic metres Forecast Electricity Demand 327.6TWh

(2013)

Electricity Consumption 193.9TWh Forecast Generating Capacity 65.4GW(2004) (2013)

Generating (2003) Capacity 45.8GW Mandated Bioethanol Mix (2010) 10% subject to approval

of law

Renewable Energy 980MW in wind 1.4GW in Geothermal 980 in mini-hydro

Targets (2013)

Ethanol Production Mandated Bioethanol Mix (2010) 10% if the “Law to

promote and develop

biofuels” is approved

Oil32.4%

Gas35.4%

Nuclear: 4.8%

Renewables13.1%

Coal14.3%

Hydro: 9.1%


Geothermal: 2.9%




Table 32: Poland Country Overview

Economy (GDP PPP) USD 489.8bn Population 38.54m

FDI (2004) USD 8.82bn Total Energy Consumption 59m TOE

Energy Growth 293TWh by 2025 % of Population Living Below 17% (estimated 2003)

Poverty Line

Economic Growth (2001-2003) 5.3% 2004 Economic Growth (2005) 5.0%


Figure 12: Poland Energy Overview


Table 33: Poland Energy Overview

Net Energy Imports 11.6% of TPES Hydroelectric (2003) 1.2% (US DOE)

Renewable Energy % of Total 3% Oil Reserves 24,530 BPD

Energy Production

Oil Consumption (2004) 476,200 BPD Natural Gas Imports Imports 62% of its gas

requirements

Natural gas 12% of TPES Forecast Electricity Demand 293TWh

(2025)

Electricity Demand (2004) 154.1TWh Forecast Generating Capacity N/A(2030)

Renewable Energy Potential 6.0GW wind 4.0GW biomass

Total Generating Capacity 35.3GW Mandated Bioethanol Mix (2010) 5.75% of fuels must be

(2003) blended with biofuels

Estimated Biofuel Demand 700,000 tonnes per year Mandated Biodiesel Mix (2010) 5.75% must be blended

(2010) with biofuels

Oil: 1.6%

Gas: 1.6%

Renewables:1.7%

Coal95.1%

Hydro: 1.1%


Non RenewableWastes: 0.3%

Wind: 0.1%




Table 34: Thailand Country Overview

Economy (GDP PPP) 545.8bn Population 64.6m

FDI (2004) USD 3.85bn Total Energy Consumption 107.3 TWh

Energy Growth N/A % of Population Living Below 10% (estimated in 2004)

Poverty Line

GDP Growth (2005) 4.5% per annum GDP Growth (2004) 6.1% per annum

Estimated GDP Growth (2006) 4.9% per annum

Food Exporter 5th largest globally

1 Energy Information Administration (EIA)

Figure 13: Thailand Energy Overview


Oil: 2.7%

Gas73.0%

Renewables8.5%

Coal15.8%

Hydro: 6.2%





Table 35: Thailand Energy Overview

Crude Oil Imports (2004) USD 10.7bn (6.5% of GDP) Natural Gas (2004) 76%

Renewable Energy % of Total 1% Biomass 0.75GW

Energy Production (2004)

Oil Reserves 583m bbl Wind 0.5GW

Natural Gas Reserves (2003) 377.7bn cubic metres Hydropower 3.043GW (6%)

Projected Energy Demand N/A Forecast Electricity Demand 189.9TWh

CAGR (2015)

Generating Capacity (2003) 26.0GW Forecast Generating Capacity 46.0GW

(2015)1

Renewable Energy Potential 1.9GW (8% of total energy)

(2011 Target)

Ethanol Production 73.0 million litres per annum Ethanol Exports (2005) 90% (mostly Japan)

Estimated Ethanol Demand N/A Mandated Bioethanol Mix (2006) N/A

(2010)

Biodiesel Production2 3.65 million litres per annum Mandated Biodiesel Mix (2008) 8.5m litres per day (10%

of diesel consumption)

Forecast Biodiesel Production N/A Forecast Biodiesel Production N/A

(2013) (2020)

National Programme USD 34m for biodiesel production Biogas Investment Potential3 USD 300m over 10 yrs

Investments

Renewable Energy Obligation 5% through Renewable Portfolio

(2005) Standard

1 In 2005, Thailand announced a international $ 6bn tender to build 12GW of electricity capacity and the country has a history ofawarding lucrative long-term power purchase agreements (PPAs) which is very attractive for project developers. Luke Eginton, Manag- ing Director of Waste Kleen, who develops biogas projects in Thailand (headquartered in Singapore, Waste Kleen’s projects in Thailandare just at the proposal stage, but it has several operating in Europe), expects a minimum Internal Rate of Investment (IRR) of 16%.Including the possible purchase of CERs the IRR could increase to about 20% or even more.

2 24 ethanol factories being permitted by the national Ethanol Board, to produce ethanol for fuel use, with total capacity of 4,210,000l/d (1.5bn litres/a).

3 Thai engineering group CleanTHAI believes it has a head-start in terms of signing contracts with cassava producers for the generationof biogas and biofuel. The engineering company is also the developer of the Korat Waste-to-Energy plant, which will have the greatestdigester in South-East-Asia. Currently producing 3.1MW, the plant is expected to generate 40MWth and 5MWe. Half a dozen othercompanies (CST Environment, Jiamphatana, several contractors for Biogas Advisory Unit of Chiang Mai University, and the Energy

for Environment Foundation) are actively involved in project development. Given the lucrative returns, competition is expected, butexpertise in the field is limited, and it is currently uncertain whether expansion of the industry can take place in ways that maintainthe high returns that early entrants have achieved.




Table 36: Turkey Country Overview

Economy (GDP PPP) USD 552.8bn Population (est 2006) 70.4m

FDI (2004) USD 2.94bn Total Energy Consumption 60 MTOE

Energy Growth N/A % of Population Living Below 20% (estimated 2002)

Poverty Line

GDP Growth (2005) 5.1% per annum Inflation (2005) 7.7% (30-year low)


Figure 14: Turkey Energy Overview


Oil6.5%

Gas

45.2%

Renewables25.3%

Coal22.9%

Hydro: 25.1%


Geothermal: 0.1%




Table 37: Turkey Energy Overview

Net Energy Imports 57% (90% of all its oil) Thermal Power 69%

Renewable Energy % of Total 32% Hydroelectric 31%

Energy Production (2004)

Projected Energy Demand 8-10% Forecast Electricity Demand 240.0TWh

CAGR (2015)

Generating Capacity 37.5GW Forecast Generating Capacity 54.0GW

(2020)1

Renewable Energy Obligation 8% of electricity consumption Feed-in Tariff Est. EUR 0.05/kWh

(2005)

1 A major dilemma for Turkey had been how to invest in new electric power capacity while at the same time adhering to foreign debtceilings mandated under lending rules set by the IMF. Conventional financing of major infrastructure projects would only increase theamount of foreign credit, so Turkey’s Energy Ministry has conceived other options for financing projects. One option used until now hasbeen the so-called Build, Operate and Transfer (BOT) model, under which private investors build and operate private sector generation facilities for a set number of years, at which point they transfer ownership to the state. First introduced in 1984 (under Law3096) by then Prime Minister Turgut Ozal, BOT projects have been plagued by legal problems, which has slowed their implementation (although 23 BOT projects, plus five “build-operate” plants, have been commissioned since 1993). Another problem with BOT

projects is that they obligate the government to commit to long-term power contracts at predetermined—and often high—prices (inexchange for lower capital costs initially).














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