IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD IBRD IBRD IBRD TF TF-94499) ON AN

Transcription

1 Public Disclosure Authorized Document of The World Bank Report No: ICR Public Disclosure Authorized Public Disclosure Authorized IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD IBRD IBRD IBRD TF TF-94499) ON AN INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN IN THE AMOUNT OF US$1,000 MILLION AND A CLEAN TECHNOLOGY FUND LOAN IN THE AMOUNT OF US$100 MILLION TO TÜRKİYE SINAİ KALKINMA BANKASI A.Ş. AND TÜRKİYE KALKINMA BANKASI A.Ş. WITH THE GUARANTEE OF THE REPUBLIC OF TURKEY FOR THE Public Disclosure Authorized PRIVATE SECTOR RENEWABLE ENERGY AND ENERGY EFFICIENCY PROJECT June 19, 2017 ENERGY AND EXTRACTIVES GLOBAL PRACTICE EUROPE AND CENTRAL ASIA REGION

2 CURRENCY EQUIVALENTS (Exchange Rate Effective December 30, 2016) Currency Unit = Turkish Lira US$1.00 = TRY3.51 EUR1.00 = US$1.05 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AF AFD CIA CPF CPS CTF DGRE DSI DSRP EE EIA EMP ERR FI FiT FRR GDP GHG GRM HPP HPP EMP ICB ICR IFI IFR IRENA ISR JICA KfW M&E MENR MTA Additional Financing Agence Française de Developpement Cumulative Impact Assessment Country Partnership Framework Country Partnership Strategy Clean Technology Fund Directorate General for Renewable Energy Turkish State Hydraulic Works Dam Safety Review Panel Energy Efficiency Environmental Impact Assessment Environmental Management Plan Economic Rate of Return Financial Intermediary Feed-in Tariff Financial Rate of Return Gross Domestic Product Greenhouse Gas Grievance Redress Mechanism Hydroelectric Power Plant Hydroelectric Power Plant Environmental Mitigation Plan International Competitive Bidding Implementation Completion and Results Report International Financial Institution Interim unaudited Financial Report International Renewable Energy Agency Implementation Status and Results Report Japan International Cooperation Agency Kreditanstalt für Wiederaufbau Monitoring and Evaluation Ministry of Energy and Natural Resources General Directorate of Mineral Research and Exploration

3 NDC OM O&M ORAF PAD PAP PDO POM RAP RE RPF TA TEIAS TKB TSKB UNDP UNEP WBG Nationally Determined Contribution Operations Manual Operating and Maintenance Operational Risk Assessment Framework Project Appraisal Document Project Affected Person Project Development Objectives Project Operational Manual Resettlement Action Plan Renewable Energy Resettlement Policy Framework Technical Assistance Turkish Electricity Transmission Company Turkish Development Bank Turkish Industrial Development Bank United Nations Development Program United Nations Environment Program World Bank Group Senior Global Practice Director: Riccardo Puliti Practice Manager: Sameer Shukla Project Team Leader: Jari Väyrynen ICR Team Leader: Jari Väyrynen ICR Author: Aditya Lukas

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5 REPUBLIC OF TURKEY Private Sector Renewable Energy and Energy Efficiency Project CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annex 1. Project Costs and Financing Annex 2. Outputs by Component Annex 3. Economic and Financial Analysis Annex 4. Bank Lending and Implementation Support/Supervision Processes Annex 5. Beneficiary Survey Results Annex 6. Stakeholder Workshop Report and Results Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Annex 9. List of Supporting Documents Annex 10. Supporting Information MAP

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7 A. Basic Information Country: Republic of Turkey Project Name: Project ID: P L/C/TF Number(s): ICR Date: 06/19/2017 ICR Type: Core ICR Lending Instrument: SIL Borrower: Original Total Commitment: Revised Amount: Environmental Category: FI Private Sector Renewable Energy and Energy Efficiency Project IBRD-77140,IBRD ,IBRD ,IBRD ,TF-94498,TF FINANCIAL INTERMEDIARIES - TSKB AND TKB US$ million Disbursed Amount: US$ million US$ million Implementing Agencies: Turkish Development Bank (TKB) Turkish Industrial Development Bank (TSKB) Cofinanciers and Other External Partners: Clean Technology Fund (CTF) B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 10/28/2008 Effectiveness: 08/12/ /12/2009 Appraisal: 02/02/2009 Restructuring(s): 09/30/2011 Approval: 05/28/2009 Mid-term Review: Closing: 12/31/ /31/2016 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Satisfactory Low or Negligible Moderately Satisfactory Moderately Satisfactory i

8 C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance: C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: No No Satisfactory Quality at Entry (QEA): Quality of Supervision (QSA): None None Rating D. Sector and Theme Codes Original Actual Major Sector/Sector Energy and Extractives Other Energy and Extractives Renewable Energy Wind Renewable Energy Solar Renewable Energy Geothermal Renewable Energy Biomass Major Theme/Theme/Sub Theme Environment and Natural Resource Management Climate change Mitigation Finance Financial Infrastructure and Access MSME Finance Private Sector Development Enterprise Development MSME Development ii

9 E. Bank Staff Positions At ICR At Approval Vice President: Cyril E Muller Shigeo Katsu Country Director: Johannes C.M. Zutt Ulrich Zachau Practice Manager: Sameer Shukla Ranjit J. Lamech Project Team Leader: Jari Väyrynen Sameer Shukla ICR Team Leader: ICR Primary Author: Jari Väyrynen F. Results Framework Analysis Aditya Alexander Lukas Project Development Objectives (from Project Appraisal Document) The Project Development Objective was to help increase privately owned and operated energy production from indigenous renewable sources within the market-based framework of the Turkish Electricity Market Law, enhance energy efficiency, and thereby help reduce greenhouse gas emissions. Revised Project Development Objectives (as approved by original approving authority) The PDO remained unchanged throughout the Project. (a) PDO Indicator(s) Indicator Indicator 1: Value quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years 1 Capacity of renewable electricity or thermal heating plants (MW) Original: 1,540 Revised: 0 1, Date achieved 08/12/ /31/ /31/ /31/2016 Target achieved (98%). The target was revised to reflect: (i) only the installed capacity that was Comments (incl. % achievement) directly financed under the Project (Originally, the PDO indicators for Renewable Energy (RE) also counted generation capacity and emission reductions resulting from investments by the Financial Intermediaries (FIs) funded by other sources since the learning experience and demonstration effect through the Project helped the FIs to access these 1 Note that for most indicators, actual values achieved at completion are different from the values reported in the last Implementation Status and Results Report (ISR Seq. No 11) because they were corrected after the Implementation Completion and Results Report (ICR) mission in January iii

10 Indicator 2: financing sources. However, in order to improve attribution, these PDO indicators were revised to account only for generation capacity and emission reductions that directly resulted from investments financed by the loan under the Project), (ii) progress at the time of target revision during restructuring and additional financing (AF) in 2011, and (iii) AF. Potential incremental production of electricity (GWh) Value quantitative or Qualitative) 0 1,814 3,451 3,728 Date achieved 08/12/ /31/ /31/ /31/2016 Comments (incl. % achievement) Target exceeded (108%). The target was revised to reflect: (i) progress at the time of target revision during restructuring and AF in 2011, and (ii) AF. Indicator 3: Incremental emissions reduction potential (1,000 tons CO2) Value 0 2,270 2,071 1,746 quantitative or Qualitative) Date achieved 08/12/ /31/ /31/ /31/2016 Target not fully achieved (84%). This indicator measures emission reductions from Renewable Energy (RE) investments and does not include emission reductions from Energy Efficiency (EE), which are measured separately by Indicator 6. The target was revised to reflect: (i) only the emission reductions directly resulting from investments financed under the Project (see explanation for Indicator 1), (ii) progress at the time of target revision during restructuring and AF in 2011, and (iii) AF. Comments (incl. % achievement) Indicator 4: The shortfall in meeting 100% of the target was caused by two factors: (i) The Gurmat Geothermal Power Plant, the largest RE plant funded under the Project with an annual electricity generation of 862 GWh, did not contribute to Greenhouse Gas (GHG) emission reductions due to the high CO2 content in the geothermal brine from the specific geothermal field where the sub-project is located. (ii) Different grid emission factors were used at appraisal and in the ICR. While at appraisal, the factor used to convert RE electricity generation to emission reductions was 1,031 tco2/gwh, the outcomes reported in the ICR are based on the grid emission factors determined by the Financial Intermediaries (FIs), which range from less than 700 tco2/gwh in 2009 to about 570 tco2/gwh in The grid emission factors used by the FIs are more appropriate since they represent the combined margin CO2 emission factor for grid connected power generation in each year (combination of build margin and operating margin). Renewable electricity generation as a percent of total generation iv

11 Value quantitative or Qualitative) Date achieved 08/12/ /31/ /31/ /31/2016 Comments (incl. % achievement) Target exceeded (111%). The target was revised to reflect: (i) progress at the time of target revision during restructuring and AF in 2011, and (ii) AF. Indicator 5: Extent of savings in heat or electricity (Tcal) Value quantitative or Qualitative) ,495 2,600 Date achieved 08/12/ /31/ /31/ /31/2016 Target not fully achieved (74%). The target was revised to reflect: (i) the significant progress at the time of target revision during restructuring and AF in 2011 (1,504 Tcal as of September 2011, see ISR Seq. No 3), and (ii) AF. Comments (incl. % achievement) Indicator 6: The target was not fully achieved because of three factors: (i) Due to the domestic political situation in 2016 in Turkey, development of several EE sub-projects slowed down significantly near Project closure. Despite efforts by the Turkish Development Bank (TKB) to replace these stagnating subprojects by new sub-projects, it had to cancel EUR16.57 million and US$0.82 million of its AF loan 2. (ii) Under AF, the target for energy savings was set ambitiously based on the early EE portfolio, which was performing well at the time of AF, and the FIs increased appetite for EE investments. (iii) The Turkish Industrial Development Bank (TSKB) estimated primary energy savings more conservatively than TKB or most other banks in Turkey. If TSKB used the predominant assumptions, the Project s reported energy savings would be about 3,906 Tcal or 112% of the target. Emission reduction potential (1,000 tons CO2) Value quantitative or Qualitative) ,436 1,468 Date achieved 08/12/ /31/ /31/ /31/2016 Target achieved (102%). Comments (incl. % achievement) This indicator measures emission reductions from EE investments. The target was revised to reflect: (i) the significant progress at the time of target revision during restructuring and AF in 2011 (854,000 tons CO2 as of September 2011, see ISR Seq. No 3.), and (ii) AF. Indicator 7: Cost-effectiveness of CTF (US$ of CTF per ton CO2) Value The sum of cancelled loan amounts and disbursed amount does not exactly match the original IBRD loan amount due to exchange rate differences between the time of negotiation and disbursements. v

12 quantitative or Qualitative) Date achieved 12/31/ /31/ /31/2016 Comments (incl. % achievement) Indicator 8: Target exceeded (345%). The target for cost-effectiveness of CTF was US$10 of CTF per ton CO2, which represents an upper limit. The achieved cost of CTF per ton CO2 was only US$2.9, which is significantly more cost-effective than the target value. Generation capacity of hydropower constructed or rehabilitated under the Project (MW) Value quantitative or Qualitative) Date achieved 12/31/ /31/2016 Target not fully achieved (75%). This indicator, and Indicator 9 Generation capacity of RE (other than hydropower) constructed, were first introduced in ISR Seq. No 4 as core indicators and were therefore not mentioned in the Restructuring Paper or Project Paper on the Additional Loan. The two indicators did not introduce additional targets, but represent a breakdown of Indicator 1 Comments (incl. % achievement) Capacity of renewable electricity or thermal heating plants (target 950 MW) into hydropower capacity (target 700 MW) and non-hydropower RE capacity (250 MW). Indicator 9: The target was not fully achieved because under restructuring and AF, the Project prioritized development of non-hydro RE capacity. The shift in priorities was successful and resulted in achieving 163% of the target for generation capacity of non-hydro RE (Indicator 9) and therefore only achieving 75% of the target for capacity of hydropower. Generation capacity of RE (other than hydropower) constructed (MW) Value quantitative or Qualitative) Date achieved 12/31/ /31/2016 Target exceeded (163%). This is a core indicator, which was included in the results framework during implementation together with Indicator 8 (see explanation above). Comments (incl. % achievement) The indicator is further comprised of separate sub-indicators for generation capacity of (i) geothermal (target MW vs. actual MW), (ii) wind (target MW vs. actual MW), and (iii) solar (target 0.40 MW vs. actual 23.9 MW). Note that the sum of the targets of the three sub-indicators does not perfectly match the target of Indicator 9 (250 MW). vi

13 (b) Intermediate Outcome Indicator(s) Indicator Indicator 1: Original Target Values (from Baseline Value approval documents) TSKB Loan Commitments (%) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Value (quantitative or Qualitative) Date achieved 08/12/ /31/ /31/ /31/2016 Comments (incl. % Target achieved (100%). achievement) Indicator 2: TSKB Loan Disbursements (%) Value (quantitative or Qualitative) Date achieved 08/12/ /31/ /31/ /31/2016 Comments (incl. % Target achieved (100%). achievement) Indicator 3: % of RE+EE in TSKB Portfolio Value (quantitative or Qualitative) Date achieved 08/12/ /31/ /31/ /31/2016 Comments (incl. % Target exceeded (130%). achievement) Indicator 4: TKB Loan Commitments (%) Value (quantitative or Qualitative) Date achieved 08/12/ /31/ /31/ /31/2016 Comments (incl. % Target achieved (95%). achievement) Indicator 5: TKB Loan Disbursements (%) Value (quantitative or Qualitative) Date achieved 08/12/ /31/ /31/ /31/2016 vii

14 Comments (incl. % achievement) Indicator 6: Target achieved (90%). % of RE+EE in TKB Portfolio Value (quantitative or Qualitative) Date achieved 08/12/ /31/ /31/ /31/2016 Comments (incl. % Target exceeded (118%). achievement) G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (US$ millions) 1 03/17/2010 Satisfactory Satisfactory /04/2011 Satisfactory Satisfactory /24/2011 Highly Satisfactory Satisfactory /28/2012 Satisfactory Moderately Satisfactory /12/2013 Satisfactory Moderately Satisfactory /25/2014 Satisfactory Moderately Satisfactory /08/2015 Satisfactory Moderately Satisfactory /20/2015 Satisfactory Moderately Satisfactory /01/2015 Satisfactory Moderately Satisfactory /20/2016 Satisfactory Moderately Satisfactory /28/2016 Satisfactory Moderately Satisfactory H. Restructuring (if any) Restructuring Date(s) Board Approved PDO Change ISR Ratings at Restructuring DO 09/30/2011 N S S IP Amount Disbursed at Reason for Restructuring & Restructuring Key Changes Made in US$ millions a) During project implementation, private sector investments into hydropower became more attractive. Therefore, changes were made to prioritize nonhydro RE technologies and EE: (i) The categorization of small Hydroelectric Power 3 Note that the stated disbursed amount of US$ does not include the front-end fees of US$2.49 million. The total disbursed amount is US$ viii

15 Plants (HPPs) was changed in order to discontinue CTF financing for HPPs. (ii) TSKB loan funds were reallocated from RE to EE. (iii) The results framework was updated to reflect the change in loan allocation and actual Project performance. (b) Due to arising environmental concerns, the Operations Manual (OM) was revised to strengthen safeguards implementation and reporting and include requirements for Cumulative Impact Assessment (CIA). I. Disbursement Profile ix

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17 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1. Country background. At the time of appraisal, the global economic downturn worsened the outlook for Turkey with an economic growth forecast of -3.6 percent in Exports in December 2008 were down 21 percent from a year earlier and unemployment reached 15.5 percent in January Having relied on substantial positive net capital inflows during the period of high economic growth, Turkey s corporate sector faced a major challenge in continuing to attract external financing. However, fiscal policy remained consistent overall with debt sustainability and macroeconomic stability. In April 2009, the Government released new budget estimates forecasting an overall fiscal deficit of 4.6 percent of GDP for 2009, falling to 3.2 percent in 2010 and 2.8 percent in Banking sector. Turkey s banking sector was substantially more resilient than before the 2001 crisis and was in a better liquidity position than banking sectors in many other countries in the region. Direct spillovers from the global financial crisis, through bank ownership structure or exposure to sub-prime assets, were likely to remain limited. Majority-owned foreign banks operating in Turkey were small, making up 15 percent of total assets, while foreign banks held no controlling interest in any large domestic banks, and the fundamental business franchise of these Turkish banks with minority foreign stakes was sound. However, access to medium- and long-term financing for the private sector remained limited due to the short maturity of the banks funding base and banks desire to limit maturity mismatches. As of September 2008, 50 percent of bank assets had maturities with less than one year. Therefore, loans for small scale long-term investments were scarce, which was one of the major constraints limiting the growth of Renewable Energy (RE) and Energy Efficiency (EE) projects in Turkey. 3. Energy sector. In 2009, Turkey s energy import cost amounted to US$48 billion, electricity demand was increasing rapidly and the energy sector accounted for 77 percent of Greenhouse Gas (GHG) emissions in the country. In line with Turkey s energy strategy and 9 th Development Plan ( ), the Government focused on developing RE sources and scaling up EE investments to reduce energy import cost, increase security of energy supply and reduce CO2 emissions. For RE, the Government s target was to raise the share of electricity generated from renewable sources (hydro, wind, biomass, geothermal, solar and landfill gas) from 19 percent in 2007 to 25 percent by In terms of EE, the Turkish economy was considered energy intensive: 0.35 toe/1,000 GDP (in 2000 US$) in 2005 compared to an OECD average of 0.20 toe/1,000 GDP. Turkish industry was responsible for about 32 percent of final energy consumption in the country and therefore seen as a priority area for EE efforts. Studies by various agencies showed that the industrial sector, particularly the more energy intensive parts of the sector, could benefit from EE. 4. The realization of Turkey s RE and EE potential was constrained by a number of barriers. Besides limited financing for long-term investment, EE was still relatively untested in Turkey and perceived to carry significant risks. Another key financial barrier was the high transaction cost in EE investments arising from energy audits, feasibility studies and sometimes the need to shut down processes in order to rehabilitate or replace parts. Key barriers for RE investments included technical risk and higher capital requirements, in particular for technologies such as solar and geothermal. 5. Rationale for Bank assistance and the use of Clean Technology Fund (CTF). Continued Bank support for RE and EE was consistent with the Country Partnership Strategy (CPS) which highlighted the importance of ensuring reliable and efficient energy supply through both increasing 1

18 generation capacity and demand side EE improvement. The Bank had also been supporting the Government of Turkey on various issues concerning energy, including the implementation of the electricity market, development of RE, privatization and supply security. The Project continued these past efforts through support for indigenous RE and EE. CTF resources were proposed to be blended into the Project to support (i) acceleration of small hydro, wind, geothermal, solar and biomass, and (ii) development of EE investments. The benefits of the CTF financing would be lower interest rates and longer tenor to increase the incentive to undertake these investments. The proposed interventions were deemed consistent with CTF s eligibility criteria (that is, significant potential in emission reductions, demonstration potential, development impact and implementation potential). Moreover, without CTF support, it seemed unlikely that smaller hydro and wind projects would materialize at the expected scale, investors would experiment with relatively newer technologies such as solar or biomass, and financial institutions would consider EE investments. 1.2 Original Project Development Objectives (PDO) and Key Indicators 6. The Project Development Objective (PDO) was to help increase privately owned and operated energy production from indigenous renewable sources within the market-based framework of the Turkish Electricity Market Law, enhance EE, and thereby help reduce GHG emissions. Table 1 shows the original PDO indicators. Renewable Energy Privately owned and operated energy production from indigenous renewable sources Energy Efficiency Table 1. PDO Indicators of the Original Project 1 Capacity of renewable electricity or thermal heating plants (MW) 2 Potential incremental production of electricity (GWh) 3 Incremental emissions reduction potential (1,000 tons CO 2) 4 Renewable electricity generation as a percent of total generation 5 Extent of savings in heat or electricity (Tcal) 6 Emission reduction potential (1,000 tons CO 2) Cost-effectiveness 7 Cost-effectiveness of CTF (US$ of CTF per ton CO 2) 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and Reasons/Justification 7. The PDO remained unchanged throughout the Project. However, the PDO Level Indicator Target values were revised under a restructuring (September 30, 2011) and Additional Financing (AF, November 22, 2011) to: Adapt to changing conditions for project developers in Turkey. While at the appraisal stage, developers of small Hydroelectric Power Plant (HPPs) had faced significant constraints in securing financing for their projects, private financiers began to regularly support HPPs during Project implementation. Therefore, changes were made during restructuring and AF to prioritize EE and newer RE technologies over HPPs. The target values of the results indicator framework were adapted to reflect the shift in priorities. Improve attribution. Originally, the PDO indicators for RE also counted generation capacity (Indicator 1) and emission reductions (Indicator 3) resulting from investments by the Financial Intermediaries (FIs) funded by other sources since the learning experience and demonstration effect through the Project helped the FIs to access these financing sources. However, in order to improve attribution, these PDO indicators were revised to only account for generation capacity and emission reductions that directly resulted from investments financed by the loan under the Project, which resulted in changes in baseline and target values. Account for AF and the resulting scale-up, and the experience gained under the original Project. 2

19 8. The revision of each indicator s target value and the underlying rationale are described in the datasheet in Section F (a). 1.4 Main Beneficiaries 9. Although the Project Appraisal Document (PAD) does not provide an explicit description of the main beneficiaries, this information can be deduced from the PAD ( Section A. Strategic Context and Rationale ) and from the PAD of the Turkey Renewable Energy Project (P072480) 4, which was the predecessor of this Project. Primary beneficiaries were sub-project sponsors, i.e., private investors in RE projects and companies investing in EE measures in Turkey, who were expected to benefit from an expanded availability of long-term financing either directly from the Project loan or because of the demonstration effect of the Project. Other individuals and organizations expected to benefit from the Project are described in Table 2. Table 2. Other Individuals and Organizations Expected to Benefit from the Project Other Beneficiaries Two participating FIs General public in Turkey Government of Turkey Expected Benefit from the Project Increased capacities in RE and EE financing Increased security of electricity supply from additional RE and EE Increased employment opportunities through the construction, operation and maintenance of the new RE power plants and implementation of EE measures Reduced fiscal risks due to reduced government guarantees on private investment in the power sector Reduced energy import cost resulting from increased domestic RE and EE 1.5 Original Components 10. The Project consisted of a single component designed to use IBRD (US$500 million) and CTF (US$100 million) resources to provide credit lines to two FIs in Turkey the Turkish Development Bank (TKB) and Turkish Industrial Development Bank (TSKB) to finance RE and EE investments ( sub-projects ). Allocation of funds towards RE and EE in the loan agreements 5, and PDO indicator targets were determined based on the assumption that 10 percent of the total Project financing would go towards EE. The PAD notes that in case this proportion changed, the respective indicator targets would also change 6. The ultimate proportion between RE and EE financing would depend on the market and investor appetites as well as on credit decisions made by the FIs. Table 3 provides an overview of the three categories of sub-projects as defined in the original Operations Manual (OM). Commercial RE Emerging RE EE Table 3. Three Categories of Sub-projects Definition HPPs with a capacity of more than 10 MW (HPPs to be funded under the loan were limited to those with a reservoir area of less than 15 km 2 ), and landfill gas. Other power generation and heat utilization investments using RE sources that are less developed and/or less economic such as solar, biomass, geothermal, wind, and HPPs under 10 MW. Sub-projects that fulfill the conditions of a) at least 20% reduction in energy consumption, or b) at least 50% of incremental benefits from the sub-project will come from cost savings in energy consumption. CTF Financing No CTF financing. Up to 20% of total investment cost. Up to 15% of total investment cost. 4 World Bank (2004). PAD Renewable Energy Project, page Loan Agreement 7714-TU and 7715-TU 6 World Bank (2009). PAD Private Sector RE and EE Project, page 32, Footnote 12 3

20 11. In parallel with the RE and EE investments, Technical Assistance (TA) financed by other donors was proposed to build capacity among banks and industry to help reduce the barriers to EE investments. Three broad areas for support were suggested: (i) Enhance the ability of the FIs to identify and assess EE sub-projects, (ii) help the private sector identify and exploit EE investments, and (iii) build capacity of government institutions. Several potential sources of financing for TA were identified, including Kreditanstalt für Wiederaufbau (KfW), United Nations Development Program (UNDP), Agence Française de Developpement (AFD) and Japan International Cooperation Agency (JICA). 1.6 Revised Components 12. The single component design was maintained until Project closure. 1.7 Other Significant Changes 13. The Project was restructured once (level-2 restructuring on September 30, 2011) in response to changing conditions and arising issues. It also received AF of US$500 million (approved by the Board on November 22, 2011) to meet high demand. A midterm review was planned for end of September 2011, but was replaced by due diligence and appraisal for the AF. Restructuring 14. Since private sector investments into hydropower became more attractive during implementation, the following changes were made to the Project to prioritize non-hydro RE technologies and EE: (i) The categorization of small HPPs was changed from Emerging RE to Commercial RE in order to discontinue CTF financing for HPPs, (ii) TSKB loan funds were reallocated from RE to EE (upon TSKB s request), and (iii) the results framework was updated to reflect the change in loan allocation and actual Project performance. Due to arising environmental concerns, the OM was revised to strengthen safeguards implementation and reporting (see Paragraph 41) and include requirements for Cumulative Impact Assessment (CIA, see Paragraph 39). AF 15. Due to high demand (see Paragraph 28), the Project received AF of US$500 million and the closing date was extended to December 31, While priorities further shifted towards non-hydro RE and EE, the AF was consistent with the restructured Project so that the PDO, implementation arrangements and safeguard policies remained unchanged. Key changes for the AF included: (i) Funding for Commercial RE (and thus all HPPs financed under the Project) was limited to no more than 50 percent of the AF, and a minimum of 25 percent of the AF was allocated to EE (compared to 10 percent under the original loan). (ii) The eligibility criteria for EE were amended to provide more clarity on investment eligibility. (iii) Project cost and Project indicators were revised to incorporate the scaled-up activities under AF. (iv) The geographical scope was extended by adding four river basins to the list of eligible river basins for financing (see Paragraph 37 for an explanation of this list). 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry Soundness of Background Analysis 16. The Project design incorporated lessons learned from previous Bank operations in Turkey, in particular from the preceding Turkey Renewable Energy Project (P072480), and experience with EE investments in other countries. The key lessons learned, which were incorporated in the Project (see Paragraph 19), included: 4

21 Allow for time to develop an EE pipeline. Experience suggested that financing of EE requires development of a pipeline of sub-projects, and specific loan products and efficient loan origination. The Bank team recognized that it would take the FIs time to develop these elements. Include TA to reduce non-financial barriers to EE investments. Experience with EE investments in other countries showed that many financially viable EE projects were not implemented because of non-financial barriers, including lack of awareness about EE opportunities, limited knowledge of energy efficient technologies and high perceived risks. Allow local private sector commercial practices to attract investors. The original procurement rules under the preceding Renewable Energy Project led to unattractive terms for potential investors and therefore limited Project progress. For instance, the rules did not allow the Bank loan to finance civil works undertaken by a sponsor-related entity, and set limits for the use of commercial practices for procurement of equipment (US$5 million) and civil works (US$8 million). The Bank realized that most RE developers in Turkey were also construction companies and would prefer to conduct civil works themselves, and that private sector commercial practices were the norm and the comparatively low limits restricted the use of loan funds. Assessment of Project Design 17. Project objectives. There is a clear causal relationship between the activities of the Project under its single component and the PDO, which was to help increase privately owned and operated energy production from indigenous renewable sources within the market-based framework of the Turkish Electricity Market Law, enhance EE, and thereby help reduce GHG emissions. Each sub-project financed under the loan either RE or EE investment directly contributes to RE generation from indigenous sources or enhanced EE over its useful life, and consequently contributes to the reduction of GHG emissions. The relevance of the PDO in relation to country, Bank and global priorities is discussed in Section Project design and components. RE and EE investments were combined in the Project, since both types of investments would be delivered through the same mechanism. The Project represented a timely entry point for EE because the relationship between the Bank and TKB and TSKB had been established, and both FIs were willing to engage in EE. The scope of EE was limited to industry because municipalities or public/residential buildings would have required a different type of financial intermediation. Guarantees as an alternative instrument to loans were also discussed, but not favored by the Treasury and not considered viable by the FIs because they would have had to access commercial medium- and long-term financing, which was limited due to the short maturity of the banks funding base in Turkey. 19. The Project design incorporated the lessons learned described in Paragraph 16 above. To allow for development of a pipeline of EE sub-projects and specific EE loan products, the Project initially assumed a lower share of EE sub-projects and the single component design provided the FIs with the flexibility of shifting from RE to EE depending on their readiness. While not part of the Project, TA was foreseen in parallel by other donors to raise awareness and build capacity. In order to attract investors and facilitate implementation progress, the Project allowed acceptable local private sector commercial practices as defined in the OM, including contract award to beneficiaries parent or affiliate companies, provided that there is an arms-length arrangement, and removed the procurement limits for International Competitive Bidding (ICB). This contributed to the high demand for RE and EE investments and quick disbursement, and subsequently resulted in the AF. Under the AF, the Project was able to scale-up and adequately respond to the high demand through the existing implementation arrangements. 5

22 20. However, lessons from credit lines in other countries also showed that a parallel policy dialogue is often a critical success factor. While the Bank has been providing support through its advisory support program (including, for example, high level advice on critical sector issues such as market implementation, regulation and privatization; sustainable wind energy development; demand-side EE potential and opportunities; incentives for private investors and a better functioning electricity market), it would appear that additional policy and regulatory support to, for example, strengthen the Feed-in Tariff (FiT) regime, standardize some of the safeguard work, streamline RE permitting/licensing, and benchmarking of industrial energy use could have provided a stronger case for transformational impact and sustainability of the credit line. 21. Implementing agencies. The Project utilized two established local FIs to channel funds to subproject sponsors. Both FIs, TKB and TSKB, are development banks and had extensive experience in intermediation of funds from the Bank and other international organizations. The implementation arrangements were replicated from the preceding Renewable Energy Project, which the two FIs had successfully implemented. They proved to be competent, were committed to engage in EE as a new business line (which was not the case for many other banks), and had knowledge of and access to the target market. Nevertheless, the team also considered to include other banks, including commercial banks, in order to build the skills of a larger number of banks, but rejected this approach because it would have increased the complexity of the Project and led to delays in Project approval and potentially implementation. In particular, it was difficult for the Treasury to provide guarantees to commercial banks, and a two-tier lending arrangement to commercial banks through development banks was considered too complex and was not favored by TKB and TSKB. 22. Likely availability of co-financing. At appraisal, the total size of the original Project was estimated at about US$1.15 billion, with IBRD (US$500 million) and CTF (US$100 million) financing and US$550 million financing from other borrowing sources and sponsor equity (see Annex 1, Table (b) Financing). The respective estimated leverage ratio of 1:0.92 was surpassed during implementation. The Project (original loan and AF) leveraged financing from other borrowing sources and sponsor equity at a ratio of about 1:1.95 (see Paragraph 61). Adequacy of Government and Borrower Commitment 23. At the time of appraisal, the Government focused on developing RE sources and scaling up EE investments to reduce energy import cost, increase security of energy supply and reduce CO2 emissions 7. Activities by the Government to adopt an appropriate legislative and regulatory framework contributed to the positive results of the Project. For example, the Government continued to place a high priority on the diversification of RE technologies and amended the RE Law (enacted in 2005) in December 2010, raising the FiT for RE technologies such as geothermal, solar and biomass. Assessment of Risks and Mitigation 24. At the time of appraisal, the overall risk rating was rated Moderate based on the experience with the preceding Turkey Renewable Energy Project and an assessment of additional risks due to the introduction of CTF resources and EE in the new Project. The PAD identified seven key risks (and mitigation measures) of which one was rated Substantial, two Moderate, and four Low (see Table 10.1 in Annex 10 for an overview of the identified risks, mitigation measures and risk rating at appraisal). None of the identified risks materialized. 7 See PAD on page 4 and following (Section A: Strategic Context and Rationale, The Energy Sector) 6

23 25. A few risks not identified at appraisal materialized during implementation (see also Paragraph 39 and 40), including: (i) environmental risks due to cumulative impacts of multiple HPPs in one river basin, (ii) inadequate capacity of FIs and sub-project sponsors to comply with the Bank s safeguards requirements, and (iii) challenging evaluation and monitoring of potential environmental effects due to the nature of sub-projects which also included associated infrastructure (for example, access roads). The risks related to HPPs (cumulative impacts and environmental effects due to associated infrastructure) did not receive enough attention at appraisal because Turkey had almost fully adopted EU environmental legislation. However, during implementation of the Project, the Bank team realized that Turkish environmental legislation had some gaps when compared to Bank safeguard policies, and implementation of the legislation by environmental authorities was not always strict. Irrespective of Turkish environmental legislation, the risk related to limited capacity of subproject sponsors to meet safeguards requirements could have been identified at appraisal. The risk assessment in the PAD identified the risk of unwillingness of sub-project sponsors to follow safeguard policies (which was rated low) and mitigation measures such as providing generic Environmental Management Plans (EMPs) for specific RE technologies to facilitate safeguards compliance, but it did not discuss limited capacity of project participants related to safeguards. The experience from implementation of the original loan was included in the Operational Risk Assessment Framework (ORAF) for AF, which reflects the risks (i) to (iii) mentioned above. 2.2 Implementation 26. The Project was approved on May 28, 2009 and became effective on August 12, Implementation progress was rated Satisfactory from Project effectiveness until 2011, and Moderately Satisfactory from 2012 until project closure in The key factors and the response to these factors by the Bank, Government, and TKB and TSKB discussed below affected Project implementation. 27. When investments into hydropower became more attractive for private sector financiers, the Project focused more on non-hydro RE and EE. As mentioned earlier, investors from the private sector began to finance HPPs in competition with TKB and TSKB during Project implementation. However, commercial financing remained limited for newer RE technologies and industrial EE despite the increase of FiTs for RE technologies such as geothermal, solar and biomass in In response to this situation, the Bank requested the FIs to diversify their RE portfolio by focusing more on wind, solar, geothermal and biomass and seek for more EE sub-projects. Consequently, funding allocations and eligibility criteria were changed during restructuring and AF to prioritize non-hydro RE and EE. 28. High demand for RE and EE investments and good Project progress led to AF. The Project was expected to fully meet its development objective ahead of schedule. By October 2011, TKB and TSKB disbursed almost the entire original IBRD loan and more than 80 percent of the CTF loan, and were in need of resources to meet the additional demand for both RE and EE investments. Moreover, all Project ratings had been Satisfactory in the preceding 12 months. Therefore, AF of US$500 million was approved to scale-up the activities and enhance the positive impact of the Project. 29. As a result of the actions above including restructuring to reallocate funds and prioritizing non-hydro RE and EE both FIs diversified their sub-project portfolio. Ultimately, only about 34 percent of the total loan amount of the Project was used for HPPs, and 29 percent was allocated to EE (see Figure 1, TKB and TSKB ) despite the fact that EE was a new concept to both the FIs and industry. TSKB, in particular, managed to leverage its relationships to clients in the industry to convince them to carry out EE studies and used 39 percent of their loan under the Project for EE (see 7

24 Figure 1, TSKB ). For TKB, on the other hand, increasing EE lending was more difficult due to its different client base and limited previous experience in EE. By Project completion, the Project supported 29 EE and 53 RE sub-projects (see Section 3.2 and Annex 2). Figure 1. Use of IBRD and CTF Funds 30. TA during Project implementation remained limited and could have been better coordinated with the Project s needs and financing interventions. Although the PAD proposed comprehensive TA financed by other donors to build capacity of the FIs, private sector and government institutions, the TA during Project implementation remained limited and could have been better coordinated with the Project s needs and financing interventions. Besides capacity building through trainings of TKB and TSKB staff provided by the Bank and close supervision, TA was only provided to TSKB through training of their engineers at KfW and AFD training centers. Moreover, KfW provided TA to the Turkish State Hydraulic Works (DSI) on evaluation of fish migration. However, more comprehensive TA aimed at both FIs on, for example, feasibility study reviews, energy audits and tools could have contributed to institutional development and accelerated investments. TKB, in particular, would have benefited from capacity building to help its staff identify and promote EE sub-projects. TA provided to the private sector and Government could have helped to stimulate interest in EE, disseminated the results obtained from the credit line, and encouraged other banks to increase their lending for EE. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E design 31. Adequacy of results framework. The PDO indicators adequately monitored progress towards the PDO statement (see Table 10.2 in Annex 10). Overall, the target setting for the PDO indicators at appraisal was based on experience from previous projects, analysis of sample projects and scenario calculations (see Table 10.3 in Annex 10). Nevertheless, at the time of restructuring/af in 2011, all indicators (except emission reductions from RE, see Table 10.4 in Annex 10) exceeded the originally defined targets for the end of the Project by far, for example, production of electricity (Indicator 2) reached 183 percent and energy savings (Indicator 5) reached 271 percent of the respective original targets. A major reason for the overachievement of the original targets was probably the high availability of co-financing (sponsor equity and other borrowing sources), which was underestimated. At appraisal, other financing sources were estimated to be leveraged at a ratio of 1:0.92, while the 8

25 actual leverage ratio for the entire Project was about 1: Other reasons for overachieving the original targets may include differences between the projected and actual sub-project portfolio mix, and differences between projected and actual capital costs for RE and EE investments. During restructuring/af, the targets were revised based on the experience gained under the original loan. After revision of the results framework, the following two PDO indicator targets could be considered over- or underestimated: Emissions reduction potential (Indicator 3 and 6). The target value for emission reductions is high due to the high grid emission factor of 1,031 tco2/gwh used at appraisal. This emission factor was much higher than the one used by the FIs during implementation (see Paragraph 35). Cost-effectiveness of CTF (Indicator 7). While scenario calculations at appraisal showed a range between US$4.98 and US$8.16 of CTF per ton CO2, the target was set conservatively above this range to US$10 of CTF per ton CO2. This target was not revised during restructuring/af and could have been set more ambitiously within the range suggested by the scenario calculations. 32. As described in Paragraph 7 above, the PDO indicators were also revised to improve attribution. While the indicators defined at appraisal also counted plant capacity and emission reductions from the FIs sub-projects funded by other sources, the revised PDO indicators only account for subprojects financed under the Project. Only one indicator, RE generation as a percent of total generation (Indicator 4), remained influenced by developments outside of the Project. The following minor issues in the results framework impacted M&E implementation: The PDO could have been less convoluted. The statement and thereby help reduce GHG emissions introduced a second level objective, which made it difficult to determine the relative importance between the first level objectives (increase RE generation and enhance EE) and the second level objective (reduce GHG emissions). Moreover, the value added by the statement within the market-based framework of the Turkish Electricity Market Law is not clear, since privately owned and operated energy production would be covered by the Law in any case. Complex results framework made target revision likely. While the mix between RE and EE in the Project was uncertain at appraisal, the results framework defined specific targets for RE and EE. For the specific objective help reduce GHG emissions, the framework included two separate indicators for RE and EE (Indicator 3 and 6), although the Project design did not specify to which extent the GHG emissions should result from RE or EE. Instead, one single indicator to measure GHG reductions from both RE and EE could have simplified the indicator framework and potentially reduced the need for target revision. Moreover, the addition of the two core indicators (Indicator 8 and 9) made the results framework more complex. The results framework did not have the ability to show additionality. The results framework could have been strengthened to provide the basis for an assessment of the Project s additionality and developmental impact to the sector, particularly because CTF was included in the Project, for example, through the addition of indicators that track license approvals for different RE types to show how trends may have changed. Lack of clear definition of PDO indicators and guidance for calculation and reporting. The PAD and OM did not include a clear definition of the PDO indicators or guidance for calculating and reporting indicator values, which impacted M&E implementation as described in Paragraph The leverage ratio for the entire Project is used as a proxy since the ratio for the period before restructuring/af is not available. 9

26 33. Monitoring system. The monitoring system was simple and based on existing monitoring arrangements in the preceding Renewable Energy Project, with TKB and TSKB responsible for data collection from sub-project sponsors and data verification. M&E Implementation 34. TKB and TKSB monitored the implementation of all sub-projects, reported on inputs, outputs, and results in semi-annual intervals. In order to ensure quality of the data received from sub-project sponsors, both FIs carried out their own financial and technical evaluation of each submitted subproject (including cross-checking with data from other sources, for example, water flows), and conducted site visits and interviewed their clients technical staff. Both FIs submitted Excel files with data on their sub-projects to the Bank team. Moreover, the Impact assessment report of CTF in RE and EE market in Turkey 9 published in 2013 assessed and verified the GHG emission reductions and energy savings of TKB and TSKB s sub-project portfolio. 35. The lack of a clear definition of PDO indicators and specific guidance for calculating and reporting of indicator values led to minor inconsistencies during M&E implementation. Varying interpretation of the indicators for emission reductions. There was some confusion regarding Indicator 3 Incremental emissions reduction potential in some ISRs the indicator included emission reductions from both RE and EE sub-projects (instead of emission reductions from RE sub-projects only). Slightly different underlying assumptions for reported energy saving. The two FIs used their own methodologies and assumptions to determine energy savings and emission reductions: o Energy savings. While TKB (and most other banks in Turkey) used a coefficient of around 0.33 to determine primary energy savings (meaning that only 33 percent of the primary energy reaches end users), TSKB used 0.55 on average throughout the Project, which led to a more conservative estimation of primary energy savings in TSKB s sub-project portfolio 10. o Emission reductions. The FIs followed different approaches to determine grid emission factors used to derive emission reductions (Indicator 3 and 6). TKB used a grid emission factor provided by the Ministry of Environment and Urbanization. Since this was not an officially disclosed grid emission factor for Turkey, TSKB chose to calculate it based on the UNFCCC methodology, IPCC Guidelines for National GHG Inventories, data from the Turkish Electricity Transmission Company (TEIAS), and experience from former projects of TSKB. Both approaches resulted in very similar factors, which ranged for both FIs from less than 700 tco2/gwh in 2009 to about 570 tco2/gwh in These emission factors are lower than the factor 1,031 tco2/gwh used in the PAD. Up and down movement of reported PDO indicator values. Some sub-projects were included in reported PDO indicators and subsequently removed from the FIs portfolios due to, for example, safeguards concerns, or sub-project sponsors cancelling or postponing the investment. Therefore, the indicator values for generation capacity, electricity generation and emission reductions sometimes declined compared to previous ISRs, which led to some confusion. 9 Impact assessment report of CTF in RE and EE market in Turkey, 2013 (page 13-14) 10 Impact assessment report of CTF in RE and EE market in Turkey, 2013 (page 14). Note that the report states a coefficient of 0.57 used by TSKB in The average coefficient over the Project period used by TSKB was

27 M&E Utilization 36. M&E was utilized to (i) monitor and manage Project progress particularly through the Intermediate Outcome Indicators on TKB/TSKB loan commitments and disbursements, and (ii) manage the Project s portfolio mix during implementation and adjust allocation of funds and eligibility criteria (under restructuring and AF) to shift towards more EE and non-hydropower RE in the portfolio. The FIs will continue to monitor the sub-projects after the Project closes. For example, TSKB will continue to collect data on electricity generation from their RE sub-projects and monitor financial statements of their clients with EE sub-projects. 2.4 Safeguard and Fiduciary Compliance Safeguards 37. The Project triggered (a) OP 4.01 Environmental Assessment, (b) OP 4.37 Safety of Dams and (c) OP 4.12 Involuntary Resettlement. In order to avoid triggering the international waterways policy, a list of eligible river basins (suggested by the Bank s legal department) for HPPs financed under the Project was defined. The Project was classified as FI since the borrowers were FIs, which on-lent funds to project sponsors. The project sponsors in turn undertook the actual sub-projects, which were mostly identified after loan approval. None of the sub-projects had any major safeguards compliance issues. The Project received a Satisfactory rating on overall safeguards performance from Project effectiveness until 2011, and Moderately Satisfactory from 2012 to Project closure due to several minor safeguards issues, which were adequately addressed by the Bank and FIs. (a) Environmental Assessment 38. Both FIs implemented the Project in compliance with the environmental safeguards framework specified in the OM, which was designed to satisfy environmental safeguards requirements of both the Government of Turkey and the Bank. During the Project, two environmental issues emerged, which were adequately addressed by the Bank and FIs: Potential cumulative impacts of HPPs and the need for environmental remedial actions. 39. Potential cumulative impacts of HPPs. Due to a rapid increase in the number of HPPs constructed and operated in Turkey since Project implementation in 2009, the borrowers, Government, and stakeholders throughout Turkey recognized the potential cumulative effects of multiple HPPs located within the same river basin. Therefore, the Project s OM was updated during the restructuring in September 2011 to include requirements for Cumulative Impact Assessment (CIA) to be carried out as part of the Environmental Impact Assessment (EIA) process for sub-projects when initial screening showed that ecosystem components could be affected. While introducing the CIAs, the Bank collaborated with the Turkish Government and prepared the Guideline on CIA for HPPs in Turkey (published in 2013) together with the Ministry of Environment and Urbanization. The guideline has been widely accepted and resulted in a revision of the Turkish EIA Regulation (Official Gazette No 29186, November 24, 2014), which requires EIAs to assess cumulative impacts for highrisk investment projects. 40. Need for environmental remedial actions. During site visits in 2011, the Bank team identified the need for environmental remedial actions at several HPPs financed under the Project due to several issues. Associated infrastructure. Sub-project screening, in some cases, did not take full account of the entire area affected by the sub-project and all its elements ( associated infrastructure ), for example, access roads or diversion channels and tunnels. 11

28 Minimum ecological flow. In some cases, a minimum ecological flow of less than 10 percent of the natural flow was approved by the Turkish State Hydraulic Works (DSI). Inadequate design and construction practices, including unnecessarily wide cuts for access roads into steep slopes, inadequate measures to control erosion, inadequate temporary disposal of construction materials, and poor design of constructed fish ladders. 41. In response to these issues, both FIs, with the assistance of environmental consultants, completed a full review of all HPP sub-project sites and prepared mitigation plans (Hydroelectric Power Plant Environmental Mitigation Plans, HPP EMPs) to address the issues that were identified. The sub-project sponsors implemented these mitigation plans under an agreed schedule and monitoring plan. Moreover, the following revisions were made to the OM at the time of restructuring. Additional environmental safeguards requirements, for example, the EIA had to include all supporting infrastructure such as access roads and pipelines for HPPs, and demonstrate that the sub-project s minimum downstream water flows are adequate for sustaining the downstream habitat. Strengthened safeguards implementation and reporting for example, the FIs had to designate specific qualified staff members for social and environmental safeguards screening, reviewing and reporting, require sub-project sponsors to have an environmental specialist, and include qualification requirements for hired contractors to ensure they have the capacity to comply with the safeguards. Additional eligibility criteria for new sub-loans. Sub-project sponsors, who already had loans for HPPs from TKB and TSKB and applied for new loans, were required to have completed the mitigation measures set out in the HPP EMPs to be eligible for new loans. (b) Safety of Dams 42. The dam safety policy was triggered in several sub-projects. While all sub-project were implemented in compliance with the dam safety policy, a few minor issues were identified by the Bank s team, including (i) insufficient construction supervision in some, particularly smaller subprojects, which resulted in issues such as lack of instrumentation or monitoring, (ii) inadequate sedimentation management in one case, and (iii) poor quality of some reports produced by the Dam Safety Review Panels (DSRPs), which were set up for sub-projects involving large dams as required by the dam safety policy, due to absence of international experience in the DSRPs. In response to these issues, the Bank recommended mitigation measures for the identified issues, which were implemented by the sub-project sponsors under the oversight of the FIs. The Bank also provided recommendations to improve the quality of the DSRP reports and triggered the change of the composition of the DSRP in one case to improve the expertise of the panel. (c) Involuntary Resettlement 43. Overall, 35 RE sub-projects (HPPs, wind, solar, and geothermal) led to economic or minor physical resettlement and affected approximately 2,072 people 11, who were compensated for loss of assets (including land). A few individual sub-projects, especially HPPs, accounted for most of the displacement. Only 6 sub-projects involved physical displacement and affected either one to two houses or other structures like nurseries, gardens and graves. 11 Gender disaggregated numbers for Project Affected Persons (PAPs) were only recorded in 11 sub-projects, which affected 410 males and 151 females. 12

29 44. Initially, the FIs did not have a complete understanding of the Bank s resettlement policy, and day-to-day guidance and capacity building by the Bank were limited due to the lack of a social development specialist in the country office. Therefore, non-compliance issues occurred in the early phase of the Project. Resettlement in some sub-projects took place without a Resettlement Action Plan (RAP). Due to the lack of RAPs, the Bank team was not able to identify shortcomings in resettlement planning, including inadequate Grievance Redress Mechanisms (GRMs), inaccessible consultations due to short notice and location (for example, consultation in village coffee house only with men), inadequate attention to land users without ownership title, and little additional social support for livelihood restoration for Project Affected Persons (PAPs). 45. In response to these issues, the following actions were taken: Update of the Resettlement Policy Framework (RPF). The original RPF prepared in 2009 was updated in 2011 by TKB and TSKB to detail the entitlement policy, which described compensation for losses of different assets, and to provide reporting formats for RAPs and expost social audits. Ex-post social audits. The Bank s safeguards team conducted ex-post social audits for subprojects where resettlement took place without a proper RAP. Ex-post social audits were complemented by site visits with representatives of FIs. Increased supervision and capacity building of FIs. The Bank provided increased guidance to the FIs and closer supervision through a social development specialist appointed in the country office in This included several trainings provided by the Bank and joined site visits by the Bank s safeguards team and the FIs safeguards staff to build the FIs capacity. 46. The actions above resulted in provision of additional livelihood measures for some PAPs based on recommendations from the ex-post social audits, additional investments in community infrastructure based on recommendations by Bank and FIs, and increased capacity of FIs in social risk screening, analysis of social impacts and reporting. Procurement 47. No procurement incompliance was determined throughout the Project. Procurement was rated Satisfactory in all Implementation Status and Results Reports (ISRs) and procurement arrangements achieved value for money. TKB and TSKB prepared a Project Operational Manual (POM), which described the procurement arrangements under the sub-loans. As specified in the Loan Agreement and POM, the sub-project sponsors used acceptable local private sector commercial practices. TKB and TSKB were responsible for procurement oversight and reviewed the proposed sub-projects, procurement plans and contracts at appraisal and implementation stages. A consulting firm conducted an independent review of a randomly selected sample of procurements. All reviewed contracts were also physically verified. Special attention was given to contracts involving affiliated firms of beneficiaries to confirm reasonableness of profit margins and arms-length arrangement. Financial Management 48. Financial management arrangements were rated Satisfactory throughout the Project. The Project transactions were fully integrated into the FIs` systems and the Interim unaudited Financial Reports (IFRs, formerly known as financial monitoring reports) were produced automatically from these systems. The IFRs were satisfactory to the Bank and there were no delays in their submission. The Project financial statements and IFR based financial statements were audited by private auditors. The audit reports were generally submitted on time and the Project financial statements had clean audit 13

30 opinions. The FIs retained documents supporting disbursements (copies of completion reports and invoices), which were presented for the Bank`s review during supervision missions. 2.5 Post-completion Operation/Next Phase 49. Of the 82 sub-projects financed under the Project, 68 are already in operation and 14 are under implementation with an expected start of operation in The private developers have a high incentive to ensure appropriate operation and maintenance of the sub-projects due to the: (i) FiTs, which provide adequate financial rates of return from operating the RE plants, and (ii) cost savings generated by EE measures. As mentioned in Paragraph 36, the FIs will continue to monitor the subprojects. 50. Both FIs increased their capacity through the Project, in particular in safeguards compliance, and marketing and evaluation of EE measures. Building on this experience, TKB and TSKB will continue to finance RE and EE projects in Turkey (see Paragraph 77 to 78). Moreover, the Bank is working on several follow-on and related operations in Turkey: Geothermal Development Project (P151739). In November 2016, the Bank and the two FIs, TKB and TSKB, signed a new loan agreement for a project which aims at scaling up private sector investment in geothermal energy development. Rooftop solar PV study. Following a request by the Ministry of Energy and Natural Resources (MENR), the Bank is initiating a market assessment and development of a roadmap to support the rooftop solar PV market in the industrial/commercial, public and residential sectors. This study is supported by the Energy Sector Management Assistance Program (ESMAP). Proposed EE in Public Buildings Project (P162762). The Bank is discussing details of a proposed project, which aims to develop sustainable financing mechanisms to support a national program to reduce energy use in public buildings. Renewable Energy Integration Project (P144534). The PDO of the Project, which is effective since August 2014, is to assist Turkey in meeting its increased power demand by strengthening the transmission system and facilitating large-scale RE generation. Renewable Energy Integration Technical Assistance Project (P155510). The aim of the TA Project is to enhance capacity for generation planning, transmission planning, and grid management in Turkey in anticipation of increased share of RE in the generation mix. Turkey SME Energy Efficiency Project (P122178). The objectives of the Project, which is effective since July 2013, are to improve the efficiency of energy use in Small and Medium Enterprises (SMEs) by scaling-up commercial bank lending for EE investments, and to reduce GHG emissions through the removal of barriers to EE financing in the SME sector. EU/IPA Energy Sector Technical Assistance Project (P131921). The PDO of the Project, which is effective since May 2014, is the enhancement of the Turkish energy sector in line with the EU energy priorities and strategies in EE, RE, and the natural gas market. The Project includes substantial policy work on large- and small-scale RE. 3. Assessment of Outcomes 51. Since the PDO statement remained unchanged, but PDO indicator targets were revised under level-2 restructuring (September 30, 2011) and AF (approved on November 22, 2011), the Project outcome is assessed against the original targets (period prior to restructuring/af) and against the revised targets (period after restructuring/af) according to the Project Paper on the Additional Loan. 14

31 3.1 Relevance of Objectives, Design and Implementation Relevance under Original Targets Rating: Substantial 52. The relevance of objectives was Substantial. The PDO statement is highly relevant as it is in line with (i) country and global priorities, and (ii) the Bank s Partnership assistance strategy. (i) Turkey s current Tenth Development Plan ( ) attaches importance to increase the share of energy production from RE resources and boost EE measures to smooth electricity peak load. The National Renewable Energy Action Plan ( ) defines specific RE targets and measures to achieve these targets. The updated Turkish Electricity Market Law of 2013 remains a key instrument to promote privately owned and operated RE production from indigenous resources. RE incentive mechanisms, that is, FiTs and purchase guarantees, continue to be provided to RE facilities which become operational between Jan 1, 2016 and Dec 31, 2020 (decision of Council of Ministers, published in the Official Gazette dated Dec 5, 2013). Improving demand side EE remains a key policy objective in Turkey as defined by the EE Law of 2007 and the EE Strategy The EE Strategy sets a long-term target of 20 percent reduction in energy intensity by 2023 compared to 2011 figures and provides a roadmap of EE actions for all sectors of Turkey s economy. The reduction of GHG emissions also remains a highly relevant policy objective, largely expected to be met through measures involving RE and EE as defined in the Climate Change Strategy (2010) and Action Plan (2012). The relevance of this objective has been further reinforced by the Government s energy sector Nationally Determined Contributions (NDCs) to the Paris Agreement on climate change. (ii) The CPS FY12-15 and CPS Progress Report FY12-FY16 (which confirms the relevance of CPS FY12-15 and extends it to include FY16) highlight the strategic objective to deepen sustainable development and, under this strategic objective, the collaboration with the World Bank Group (WBG) towards the envisaged outcome improved supply of reliable and efficient energy, increased use of RE and climate actions under implementation. Clean energy (including both RE and EE) is expected to remain a core element of the forthcoming Country Partnership Framework (CPF) FY While the PDO statement is consistent with country and global priorities, and Bank strategy, relevance also evaluates whether the stated objectives were under-ambitious. As discussed in Section 2.3, the original PDO indicator targets could have been set more ambitiously. This shortcoming leads to a Substantial rating of relevance of objectives. 54. The relevance of Project design and implementation was High. As described in Section 2.1, the Project design was simple and established a clear causal relationship to the PDO. The Project was adequately designed to address the key barrier to the development of RE and EE in Turkey the lack of long-term financing. The implementation arrangements through TKB and TSKB were appropriate to reach project sponsors and implement RE and EE sub-projects. Nevertheless, policy and regulatory support as part of the Project may have provided a stronger case for transformational impact of the credit line. Relevance under Revised Targets Rating: High 55. The relevance of objectives was High. The PDO was not changed during restructuring/af and remains highly relevant. The PDO indicator targets, however, were revised based on the experience 15

32 gained during the original loan and set to an ambitious level. Only the target for cost-effectiveness of CTF was not revised and could have been set more ambitiously. 56. The relevance of Project design and implementation was High. The original Project design and implementation arrangements were not changed because they continued to be adequate. The Bank s implementation assistance was responsive to changing needs so that the Project remained relevant and its positive impact could be enhanced. When private financiers began regularly to support HPPs in competition with TKB and TSKB, priorities were shifted towards other RE technologies and EE under restructuring and AF. In order to meet high demand for RE and EE financing, the Project was scaled up through AF. 3.2 Achievement of Project Development Objectives Achievement of the PDO under Original Targets Rating: High 57. All PDO indicators exceeded the targets for 2011 as defined in the original Project, and progress towards achievement of PDO was rated Highly Satisfactory (ISR Seq. No 3). Achievement of the PDO under Revised Targets Rating: Substantial 58. Achievement of the PDO is assessed against the three specific objectives of the PDO statement, which is to help (i) increase privately owned and operated energy production from indigenous renewable sources within the market-based framework of the Turkish Electricity Market Law, (ii) enhance EE, and (iii) thereby help reduce GHG emissions. In addition, (iv) cost-effectiveness of CTF (Indicator 7) is assessed separately. The relative importance between (i) and (ii) can be characterized by the Project s investment cost: RE represented 75 percent and EE represented 25 percent of the total investment cost under the Project (see Annex 1). (i) Achievement of the objective to help increase privately owned and operated energy production from indigenous renewable sources within the market-based framework of the Turkish Electricity Market Law was Substantial (see Table 4). Table 4. PDO Indicators Measuring Specific Objective (i) No PDO Indicator End Actual Target Abs. % of Target 1 Capacity of renewable electricity or thermal heating plants (MW) % 8 Generation capacity of hydropower constructed or % rehabilitated (MW) 9 Generation capacity of RE (other than hydropower) constructed (MW) % 2 Potential incremental production of electricity (GWh) 3,451 3, % 4 Renewable electricity generation as a percent of total generation 28% 31% 111% 59. The overall capacity of RE power plants (Indicator 1) financed under the Project totaled MW, which was more than 98 percent of the target of 950 MW. The slight shortfall in meeting 100 percent of the target was caused by changes in the RE sub-project portfolio of TKB (a wind subproject was replaced by several small solar sub-projects, which led to a slight drop of RE plant capacity). Nevertheless, the potential electricity production (Indicator 2) and the renewable electricity generation as a percent of total generation (Indicator 4) reached 108 percent and 111 percent of their target, respectively. 16

33 60. The results framework also included two core indicators, which were added during implementation 12. These two indicators did not introduce additional targets, but represent a breakdown of the total RE capacity (Indicator 1, target 950 MW) into hydropower capacity (Indicator 8, target 700 MW) and non-hydro RE capacity (Indicator 9, target 250 MW). Due to increased environmental concerns related to HPPs including cumulative impacts, and commercial financing becoming available for investments into small HPPs, the FIs further prioritized emerging RE, such as wind, geothermal, and solar (see Figure 2 for on overview of achieved RE capacity by type). The shift in priorities was successful and resulted in achieving 163 percent of the target for generation capacity of non-hydro RE and therefore only achieving 75 percent of the target for capacity of hydropower. By Project completion, the Project supported 53 RE subprojects (36 via TKB, 17 via TSKB). While 39 of these sub-projects are already in operation, 14 are under implementation and expected to start operation in Annex 2 contains an overview of the RE subprojects. 61. The sub-projects were developed within the market-based framework of the Turkish Electricity Market Law. In particular, the FiT and purchase guarantees for RE provided incentives for private sector investors to invest into the sub-projects. Under the Project, the US$1.051 billion financing (US$ million 14 IBRD and US$100 million CTF) leveraged other financing of US$2.049 billion from IFIs (including IFC), private sector banks and owners equity, indicating a leverage ratio of about 1:1.95. This is higher than the leverage ratio of 1:0.92 envisaged at Project appraisal. (ii) Achievement of objective to enhance EE was Modest (see Table 5). Figure 2. Overview of Achieved RE Capacity under the Project by Type Table 5. PDO Indicators Measuring Specific Objective (ii) End Actual No PDO Indicator Target Abs. % of Target 5 Extent of savings in heat or electricity (Tcal) 3,495 2,600 74% 62. Energy savings from EE investments under the Project totaled 2,600 Tcal, which was 74 percent of the target. The target was not fully achieved because of three factors: (i) Due to the domestic political situation in 2016 in Turkey, development of several EE sub-projects slowed down significantly near Project closure. Despite efforts by TKB to replace these stagnating sub-projects by new sub-projects, it had to cancel EUR16.57 million and US$0.82 million from its AF loan. (ii) Under the AF, the target for energy savings was set ambitiously based on the early EE portfolio, which was performing well at that time, and the FIs increased appetite for EE investments. The original target for energy savings was scaled up by 531 percent (from 554 to 3,495 Tcal), while the AF only increased 12 Indicator 8 and 9 were first introduced in ISR Seq. No 4 as core indicators and were therefore not mentioned in the Restructuring Paper or Project Paper on the Additional Loan. 13 Note that sub-projects were not expected to be operating at Project closure. 14 Amount of IBRD loan disbursed according to the Portal as of May 3,

34 funding by 83 percent (US$500 million AF in addition to the original loan amount of US$600 million). (iii) As discussed in Paragraph 35, TSKB estimated primary energy savings more conservatively than TKB or most other banks in Turkey. If TSKB used the predominant assumptions, the Project s reported energy savings would be about 3,906 Tcal 15 or 112 percent of the target. By Project completion, the Project supported 29 EE sub-projects (3 via TKB, 26 via TSKB) mainly in the cement, chemicals and steel industry, which are all already in operation. Annex 2 contains an overview of the EE sub-projects. (iii) Achievement of objective to reduce GHG emissions was Substantial (see Table 6). Table 6. PDO Indicators Measuring Specific Objective (iii) No PDO Indicator End Actual Target Abs. % of Target 3 Incremental emissions reduction potential (1,000 tons CO 2) [RE] 2,071 1,746 84% 6 Emission reduction potential (1,000s tons CO 2) [EE] 1,436 1, % 63. The Project directly contributed to the reduction of CO2 emissions by replacing fossil fuel based generation by RE or energy savings from demand-side EE. The emission reductions from RE and EE reached 84 percent and 102 percent of their targets, respectively. The shortfall in meeting 100 percent of the emission reduction target for RE was caused by two factors: (i) The Gurmat geothermal power plant, the largest RE plant funded under the Project with an annual electricity generation of 862 GWh, did not contribute to GHG emission reductions due to the high CO2 content in the geothermal brine 16 from the specific geothermal field where the sub-project is located. (ii) Different grid emission factors were used at appraisal and in the ICR. While at appraisal, the factor used to convert RE electricity generation to emission reductions was 1,031 tco2/gwh, the outcomes reported in the ICR are based on the grid emission factors determined by the FIs, which range from less than 700 tco2/gwh in 2009 to about 570 tco2/gwh in 2016 (see Paragraph 35). The grid emission factors used by the FIs are more appropriate since they represent the combined margin CO2 emission factor for grid connected power generation in each year (combination of build margin and operating margin). However, using the grid emission factor from appraisal, the emission reductions from RE would be more than 125 percent of the target value. (iv) Achievement of cost-effectiveness of CTF was High (see Table 7). Table 7. PDO Indicators Measuring Cost-Effectiveness of CTF (iv) End Actual No PDO indicator Target Abs. % of Target 7 Cost-effectiveness of CTF (US$ of CTF per ton CO 2) % 64. Cost-effectiveness of CTF, one of the PDO key indicators, was only US$2.9 of CTF/tCO2 and reached 345 percent 17 of the target. Three factors contributed to the overachievement of the target. First, there was a larger share of EE sub-projects in the Project portfolio than anticipated at appraisal. The assumption in the scenario analysis in the original PAD that EE sub-projects would have higher cost-effectiveness was confirmed during the Project. Average cost-effectiveness of EE sub-projects 15 Using the predominant coefficient of 0.33 instead of 0.55 (average used by TSKB throughout Project implementation) to determine primary energy savings, TSKB s reported primary energy savings would increase from 1,959 to about 3,265 Tcal. Total energy savings would be about 3,906 Tcal (3,265 Tcal from TSKB and 641 Tcal from TKB EE portfolio). 16 The emission factor of the Gurmat geothermal power plant is higher than the grid emission factor used by TSKB, but lower than the factor used in the PAD. 17 The target for cost-effectiveness of CTF was US$10 of CTF per ton CO 2, which represents an upper limit. The achieved cost of CTF per ton CO 2 was only US$2.9, which is significantly more cost-effective than the target value. 18

35 was US$2.3 of CTF/tCO2 versus US$4.5 of CTF/tCO2 for RE sub-projects. Figure 3 shows an overview of CTF costeffectiveness: 11 of the 12 most costeffective sub-projects were EE. Second, CTF leveraged other financing at a higher ratio of 1:9 compared to the estimate of 1:4 at appraisal (see Paragraph 73). Third, the target was underestimated (see Paragraph 31). Figure 3. Cost effectiveness of CTF by Sub-project Other Project Achievements Contributing to the PDO 65. Additionality of CTF was likely, in particular for geothermal and EE. Long-term financing for RE and EE was limited in Turkey, and while some financing for certain RE types such as large and medium HPPs was available, the need for RE financing substantially exceeded availability. CTF financing was particularly used to support technologies that were least attractive for commercial financing. This included small hydro during the initial phase of the Project, geothermal, wind, and EE. At Project appraisal, the financial returns for small hydro were estimated to be similar to wind and geothermal investments 18. Moreover, small hydro was typically developed by smaller developers, which specifically suffered from limited access to financing compared to larger developers. As described earlier, CTF support was stopped when commercial financing became available for small hydro. Geothermal continued to involve high financial and technical risk, and despite the increase of the FiTs in 2010, the tariffs were not regarded high enough to trigger private sector investment into geothermal. Despite high financial returns, industrial EE was untested in Turkey because there was a lack of knowledge of the benefits of EE investments and risks were perceived to be high. Figure 4. Use of CTF Funds 18 See PAD, Annex 11, Table 11.5 on page

36 66. While it is not possible to conclude that the CTF-supported investments would have not happened within a comparable timeframe without CTF support, additionality was likely to be high for geothermal and EE sub-projects. As shown in Figure 4 ( TKB and TSKB ), about 60 percent of CTF funds were used for EE, 20 percent for wind, 11 percent for small hydropower and 9 percent for geothermal. A major impact of the CTF was the shift of the FIs investment focus from RE towards EE. CTF allowed the FIs to offer more favorable loan terms to sub-project sponsors by blending CTF with financing from IBRD and other sources. For TSKB, CTF reduced interest rates of CTFsupported loans by about 20 to 90 base points depending on the specific conditions of the loans for sub-projects (US$ or EUR, fixed or variable interest, CTF blending ratio). For some EE sub-projects, CTF also increased tenor. 67. The Project helped demonstrate that long-term financing for newer RE technologies and industrial EE could be viable in Turkey and contributed to market transformation. While at the beginning of the Project, the installed wind, geothermal and solar capacity in Turkey was very low, there was a clear increasing trend in the last years of the Project (see Figure 5; time series data for small hydro capacity was unfortunately not available). The collaboration between the Government, other IFIs, and the Bank, which comprised financing, policy dialogue and TA, unlocked the market for these technologies. However, it is not possible to attribute this market transformation to individual projects or initiatives, since it is a result of the collective actions. Geothermal development, for example, has been driven by the Geothermal Law of 2007, FiTs, exploration activities by the General Directorate of Mineral Research and Exploration (MTA) to reduce risks, and provision of financing. The recent development of solar capacity was particularly enabled by an amendment of Figure 5. Installed Wind, Geothermal and Solar Capacity in Turkey (Diagram Created Based on Data from TEİAŞ) Turkey s Unlicensed Generation Regulation in 2013 and declining investment costs. According to the Regulation, solar power generation with a capacity of up to one MW was exempt from licensing obligations and was eligible for FiTs. While there was no aggregated data available to show trends for industrial EE, the experience in the Project showed that CTF helped first movers to realize investments. For example, after TSKB implemented their first EE sub-project in the cement industry (heat recovery) with CTF support, it was able to replicate similar investments without CTF support in the following years. The two FIs and other IFIs consulted during ICR preparation highlighted that the Project contributed to the decision of financiers to enter the RE and EE market in Turkey. Since 2010 (the year after Project effectiveness), TKB and TSKB have secured US$1.215 billion and EUR1.108 billion of financing from other IFIs (including IFC) for RE and EE investments (see Table 2.9 in Annex 2). Both FIs currently have a significant project pipeline for RE and EE investments. TSKB s project pipeline consisting of recently signed and currently negotiated 20

37 agreements amounts to US$990 million (US$342 geothermal, US$333 million wind, US$75 million solar, US$90 million biomass/biogas, US$30 million hydro, and US$120 million EE), and TKB s current project pipeline amounts to US$455 million (US$215 geothermal, US$48 wind, US$36 small hydro, US$36 million solar, US$10 million biogas, and US$110 million EE). While data was not available to show trends in RE and EE financing through commercial banks, according to the experience of TKB and TSKB, commercial banks have increasingly provided financing for newer RE and industrial EE during and after the Project due to the increasingly suitable investment environment in Turkey. 68. The Substantial rating of achievement of the PDO under the revised targets is based on the ratings (i) Substantial (75 percent of total investment cost), (ii) Modest (25 percent of total investment cost), (iii) Substantial, and (iv) High. 3.3 Efficiency Rating: Substantial (same under original and revised targets) 69. None of the loan proceeds were used for Project management by TKB and TSKB, allowing 100 percent of IBRD and CTF financing to directly contribute to the RE or EE investments. The efficiency of the investments was assessed in terms of (i) cost-effectiveness, (ii) cost-benefit, and (iii) effectiveness of CTF financing. The post-completion assessment applies the same metrics used during Project appraisal. Details of the post-completion assessment are provided in Annex 3. (i) Cost-effectiveness was Substantial 70. Cost-effectiveness was assessed for all 53 RE sub-projects, which represent 75 percent of total investment costs in the Project. The indicator used to assess cost-effectiveness was investment cost per kw of capacity installed. Table 3.4 in Annex 3 compares averages and ranges of this indicator for each category of RE sub-projects to estimates at Project appraisal and estimates by the International Renewable Energy Agency (IRENA). The averages achieved in the Project are below the estimates at appraisal for hydro, solar and wind, and above the estimate at appraisal for geothermal. All individual RE sub-projects have investment cost per kw that are within or even below the range estimates by IRENA; only one large RE sub-project (Gurmat geothermal power plant, which represents about 32 percent of the investment costs of all RE sub-projects) has investment cost per kw that exceed the range estimated by IRENA by about 20 percent. (ii) Cost-benefit was Substantial 71. A cost-benefit analysis was carried out for a sample of 29 RE and EE sub-projects, which represent 48 percent of total investment costs in the Project. The indicators used to assess cost-benefit were (a) Economic Rate of Return (ERR) and (b) Financial Rate of Return (FRR). For ERR, no minimum threshold was specified at appraisal or AF. However, prototype sub-projects were reviewed to determine ERRs that may be expected for different types of sub-projects. These ERRs were used to evaluate the ERRs determined during the post-completion assessment. Table 3.5 and Table 3.6 in Annex 3 show weighted averages (by investment cost) of ERRs estimated during post-completion assessment compared to the expected ERRs estimated at appraisal/af for each type of sub-project. The ERR levels (with carbon benefits) estimated during post-completion are higher (for geothermal, hydro, solar, wind and cement) or less than one percentage point smaller (for steel) than the ERRs estimated at appraisal/af. 72. For FRR, a minimum threshold of 8 percent was defined at appraisal as eligibility criteria for sub-projects. On a pre-tax basis, 26 out of 29 sub-projects (representing 85 percent of the investment costs in the sample), and on a post-tax basis, 23 out of 29 sub-projects (representing 76 percent of the 21

38 total investments cost in the sample) exceed the FRR threshold of 8 percent. All FRRs are above 6 percent. (iii) Effectiveness of CTF financing was High 73. CTF financing was assessed based on (a) leveraging of other financing sources, (b) costeffectiveness of CTF measured as US$ of CTF per ton of CO2 reductions, and (c) improvement of return to equity. US$100 million of CTF leveraged US$898 million of other financing from IFIs (including IBRD and IFC), private sector banks and owners equity (leverage ratio of 1:9) compared to the expected leverage of US$400 million estimated at appraisal (leverage ratio of 1:4). Costeffectiveness of CTF in the Project was high. Across all CTF supported sub-projects, the average cost was only US$2.9 of CTF/tCO2 with a range from US$1.1 to US$11.8 of CTF/tCO2. This is significantly lower than the benchmarking results reported by CTF, which indicate an average cost of US$4 of CTF/tCO2 and a range from US$1 to US$40 of CTF/tCO2. Across the sub-projects in the sample, the weighted average (by investment costs) rate of return on investors equity was increased by 5.3 percent (from 17.9 to 23.2 percent) for RE sub-projects and by 3.0 percent (from 15.4 to 18.4 percent) for EE sub-projects (see Table 3.8 in Annex 3). 74. The Substantial rating of efficiency is based on the ratings (i) Substantial, (ii) Substantial, and (iii) High. 3.4 Justification of Overall Outcome Rating Rating: Satisfactory 75. The combinations of ratings for relevance of objectives, design and implementation, achievement of PDO, and efficiency under the original (Substantial, High, Substantial) and revised (High, Substantial, Substantial) targets result both in Satisfactory outcome ratings. Combining the two Satisfactory outcome ratings by weighting them with the respective disbursed amounts results in a Satisfactory overall outcome rating 19 (see Table 10.5 in Annex 10 for weighting of the two outcome ratings). 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 76. The Project created employment opportunities. In particular, the RE sub-projects employed workers from neighboring villages. Since these sub-projects were located in less developed mountainous parts of the country, they offered jobs with social security to people with fewer options for regular employment. The construction of RE plants under the Project provided direct temporary employment to an estimated 4,380 people (2,000 in TKB and 2,380 in TSKB sub-projects). RE and EE sub-projects were estimated to provide permanent employment to 596 (255 in TKB and 341 in TSKB sub-projects) and 394 (194 in TKB and 200 in TSKB sub-projects) people, respectively, which in turn positively affected their entire families. In addition, the sub-projects had a positive impact on local businesses, which provided services for construction, logistical support and material for operation and maintenance. While EE sub-projects created fewer jobs than RE sub-projects, they increased the competitiveness of the companies through energy cost reduction. (b) Institutional Change/Strengthening 77. The Project helped develop the capacity of the two FIs. Both FIs strengthened their capacity in technical, environmental and social aspects of RE and EE investments, which enables them to 19 Since both outcome ratings are Substantial, the weighting has no impact on the combined overall outcome rating. 22

39 better evaluate project proposals, monitor implementation, and ensure compliance with safeguards. This was achieved by trainings conducted by the World Bank in 2010 and 2011, experience gained during the Project, and World Bank implementation support. TKB, for example, created an Environmental Assessment Team responsible for the preparation and implementation of subprojects in accordance with Bank policies. TSKB even started an affiliated company, which provides consulting services to the private sector in the field of environmental and social safeguards. 78. EE, in particular, was relatively new to both FIs. The marketing departments of TKB and TSKB improved their capacity to market EE investments to clients. TSKB noted that in many cases, potential EE measures could only be identified by site visits of their engineering staff. Since TKB and TSKB apply the experience gained to projects financed by other IFIs, the Project will have a positive impact on their current and future operations. In addition, the Project contributed to the FIs reputation as RE and EE financiers in the Turkish market. Both FIs confirmed that they will continue to channel financing to RE and EE projects. TSKB is currently closely following the Positive Impact Financing principles developed by the United Nations Environment Program (UNEP) Finance Initiative and is considering resource efficiency as one of its emerging business lines, which would finance production of energy and resource-efficient end-user or intermediate products, and RE generation equipment. 79. Beneficiary companies developed awareness for safeguards. TKB and TSKB noted that due to the Bank s environmental and social safeguards, which were applied to the sub-projects, the participating sub-project sponsors became more aware of these issues. Both FIs guided the sub-project sponsors through the process to comply with safeguards and thus increased their capacity. 80. The Project contributed to the revision of the Turkish regulatory framework. As described in Paragraph 39, the Bank prepared the Guideline on CIA for HPPs in Turkey (published in 2013) together with the Ministry of Environment and Urbanization. The guideline has been widely accepted and resulted in a revision in the Turkish EIA Regulation. (c) Other Unintended Outcomes and Impacts (positive or negative) 81. The preparation of the Guideline on CIA for HPPs in Turkey, which resulted in a revision of Turkish EIA Regulation, was a positive unintended outcome. Other than that, the Project did not have unintended outcomes and impacts. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 82. Not Applicable 4. Assessment of Risk to Development Outcome Rating: Negligible to low 83. The energy generation, energy savings and reduction in CO2 emissions are likely to last through the lifetime of the sub-projects. Taking into account the relevant criteria outlined below, there is negligible risk to the achievement of the development outcomes. Technical. For all sub-projects, rigorous licensing and appraisal processes ensured satisfactory technical capacity. Both FIs carried out their own technical evaluation of each submitted subproject. Financial. The FiTs and purchase guarantee for RE ensure that electricity generation by the RE plants financed under the Project will remain viable. Similarly, the EE sub-projects will continue to generate energy and cost savings. Both FIs used conservative estimations to evaluate the financial viability of each submitted sub-project. 23

40 Government commitment and institutional support. The Government is fully committed to development of RE and EE (see Paragraph 52). Therefore, it is expected that the regulatory framework will remain conducive to RE facilities and EE measures and the sub-projects will continue to be maintained and operated. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory 84. The Project s rationale for Bank assistance was sound and the Project design appropriately incorporated lessons learned. The PDO addressed key issues identified during Project preparation and was clearly linked to the activities of the single Project component. Implementation arrangements, which were replicated from the successful preceding Renewable Energy Project, were suitable. However, the following shortcomings lead to a Moderately Satisfactory rating of quality at entry: Project objectives. The PDO could have been less convoluted and indicator targets at appraisal could have been set more ambitiously. Project design. Although the Bank has been providing support through its advisory support program in Turkey, specific policy and regulatory support as part of the Project could have provided a stronger case for transformational impact and sustainability of the credit line. M&E design. While the indicators were appropriate to capture progress towards the PDO, the results framework could have been simpler to reduce the need for target revision, and it could have been strengthened to provide the basis for better assessment of the Project s additionality and developmental impact to the sector. Moreover, a clearer definition of PDO indicators and specific guidance for calculation and reporting of indicators could have improved their consistency. Risk assessment related to safeguards. Although risk assessment at appraisal was comprehensive, a few risks not identified at the appraisal stage materialized during Project implementation (see Paragraph 25). In particular, the risk related to limited capacity of sub-project sponsors and hired contractors to meet safeguards requirements could have been identified at appraisal and more comprehensively reflected in the OM. (b) Quality of Supervision Rating: Satisfactory 85. Discussions with TKB and TSKB indicated close supervision of Project implementation by the Bank team, in particular with respect to key issues such as Project progress, shift of Project portfolio, and environmental and safety of dam safeguards. For example, to catch up with delays in disbursements towards the end of the Project, the Bank team closely followed implementation of subprojects and disbursements from the FIs to their sub-borrowers based on monthly reports, and proposed milestones for committing the remaining loan amounts. The Bank team was responsive and adapted the Project to changing conditions, for example, through prioritizing non-hydro RE and EE, revision of the OM to address cumulative impacts of HPPs, and AF to meet additional demand for RE and EE. The Bank conducted site visits at HPP construction sites, which revealed the need for environmental remedial actions. Given increasing public concerns regarding HPPs at that time, the Bank team responded adequately to the identified issues by initiating a full review of all HPPs 24

41 financed under the Project, and strengthening safeguards requirements, implementation and reporting. During ICR preparation, the FIs emphasized that close supervision, frequent interaction and training provided by the Bank helped to increase their and sub-project sponsor s capacity to comply with safeguards requirements. Nevertheless, during the initial phase of the Project, the Bank provided the FIs only with limited day-to-day guidance and capacity building on resettlement issues, which led to a few non-compliance issues as described in Section 2.4. Moreover, TA carried out by other donors could have been better coordinated with the Project s needs and financing interventions. These minor shortcomings lead to a Satisfactory rating of quality of supervision. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory based on (a) and (b) 5.2 Borrower Performance (a) Government Performance Rating: Satisfactory 86. The Government s commitment to the Project was strong and conducive Government policies and measures during Project implementation were crucial to facilitate investments into RE and EE. For RE, financial and legislative measures included, most importantly, the FiT scheme for RE (Law No 5346 and 6094), land usage fee incentives for RE generation facilities (Law No 6094), permitting unlicensed power generation for up to 1 MW under the FiT scheme (Law No 6446), and the purchase obligation of electricity from RE generators (Law No 5346). These measures significantly reduced the risk for investors. For EE in industry, the major legislative framework was the EE Law of 2007 (Law No 5627) and its two by-laws from According to the law, industrial establishments were required to assign an energy manager or set up an energy management unit and to report on their energy management activities to MENR s Directorate General for Renewable Energy (DGRE). These requirements contributed to increasing awareness and knowledge about EE potentials in industry, and likely facilitated EE investments. 87. Due to the EU accession process, Turkey s environmental legislation is generally in line with EU directives. The EIA Directive is largely transposed. However, concerns have been raised related to exemptions that can exclude large infrastructure projects from the EIA procedures. With regard to RE, in particular, there are concerns related to the risk categorization based on installed capacity, and adequacy of simplified EIA requirements for small and medium sized RE. Moreover, as the result of recent revisions in RE regulations, RE projects can be established in protected areas (national parks, preservation forests, wildlife development areas, special environmental protection areas, etc.) with the approval of the relevant Government authorities. The Project OM included additional environmental assessment requirements in order to address these issues and none of the sub-projects financed by the Project were located in protected areas. While there was good collaboration between the Bank and the Government to address environmental concerns about cumulative impacts of HPPs, the issues described above lead to a Satisfactory rating of Government performance. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory 88. Both FIs had the key staff in place to implement the Project in accordance with the Bank s guidelines and policies. Procurement and financial management were both Satisfactory. In terms of M&E, TKB and TSKB adequately monitored the implementation of all sub-projects, reported on inputs, outputs and results in semi-annual intervals, and continue to monitor the sub-projects after 25

42 Project closure. M&E was utilized to monitor the portfolio and initiate shifts towards the desired subproject mix. Both FIs managed to shift the focus of their portfolio towards more non-hydro RE and industrial EE. TSKB, in particular, managed to leverage its relationships to clients in industry to successfully market industrial EE. However, following shortcomings lead to a Moderately Satisfactory rating of implementing agencies performance: Minor safeguards issues. Minor safeguard issues arose in sub-projects, which led to Moderately Satisfactory ratings of overall safeguards performance from 2012 to Project closure. The FIs were in some cases not able to fully comply with the safeguards framework documents. Despite their efforts to improve their risk screening process to select sub-projects and increase staff capacity, in certain sub-projects, some of the documents (for example, land acquisition documents, RAPs) and systems (that is grievance redress systems) required by the World Bank could not be provided on time. Cancellation of a small part of the TKB loan. Due to the difficult investment environment towards the end of the Project, committing and disbursing loan amounts was challenging, in particular for TKB. Ultimately, TKB had to cancel EUR16.57 million and US$0.82 million of its AF loan. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory based on (a) and (b) 6. Lessons Learned 89. The lessons learned from this Project are particularly relevant for projects with a similar design involving credit lines to multiple FIs. While such an implementation arrangement can provide leverage and help transform the market, it gives the Bank less direct control over the specific investment decisions and implementation of the sub-projects. Therefore, particular attention should be paid to creating an enabling policy environment to facilitate the intended investments under the Project, ensuring a comprehensive safeguards framework, building capacity of project participants, and providing clear guidance for M&E. The following specific lessons learned can be distilled from the Project. 90. Policy and regulatory support is critical for the transformational impact and sustainability of credit lines. Generally, it is considered sufficient to ensure a good enabling environment to trigger RE investments. However, one of the major constraints to both RE and EE investments in Turkey was limited access to medium- and long-term financing due to the short maturity of the banks funding base and banks desire to limit maturity mismatches. While the credit line addressed this financing barrier, conducive Government policies during Project implementation, such as FiT and purchase guarantees, were critical to create demand among sub-project sponsors for investment into RE and EE. For example, the development of solar capacity under the Project was not supported by CTF, but enabled by an amendment of Turkey s Unlicensed Generation Regulation in 2013 and declining investment costs. According to the Regulation, solar power generation with a capacity of up to one MW was exempt from licensing obligations and was eligible for FiTs. Specific policy and regulatory support as part of the Project could have improved the impact of the credit line by helping to further remove barriers for less prevalent RE technologies (for example, through strengthening the FiT regime and streamlining RE permitting/licensing) and EE (for example, through benchmarking of industrial energy use). This in turn could help to attract more commercial financing and to increase the transformational impact of the credit line. 26

43 91. Moreover, adequate environmental and social regulations need to be in place for the promoted types of investments to avoid adverse impacts during scale-up, particularly if the types of investments are relatively new to the country. If the Project successfully demonstrates the viability of these investments and helps to transform the market, triggered investments outside of the Bank s Project can have significant environmental and social impacts since they are not covered by the Bank s safeguards framework. In this Project, the potential cumulative effects of multiple HPPs located within the same river became a growing concern after a rapid increase in number of HPPs. This issue was appropriately addressed by a revision of the Bank s OM and the Turkish EIA Regulation to include CIA. However, both FIs pointed out that the requirement to carry out a CIA made it difficult for them to finance further HPPs. Due to the lack of access to data about other projects in the river basin area, a government entity may be in a better position to carry out such assessments than FIs or individual investors. 92. Credit lines to multiple FIs can benefit from leverage and support market transformation. The Project confirmed that sectoral challenges can be addressed by credit lines channeled through non-sectoral actors (TKB and TSKB), provided that sector specific development objectives are clearly defined. The Project created a significant financing platform for Turkey`s private sector RE and EE investments. A project structure with implementation through FIs does not only leverage financing from other IFIs, private sector banks and owner s equity, but also the FIs knowledge of the local market and their existing relationships to clients in industry. In this Project, this was particularly important for marketing and identifying EE investments, which were relatively new in Turkey. While the Project had two FIs, a larger number of FIs including commercial banks could further increase the outreach to potential sub-project sponsors, introduce an element of competition, and help to build the skills of a larger number of banks. Through helping the FIs to create a sustainable RE/EE business line, demonstrating the viability of newer RE technologies and EE investments, and catalyzing further financing from other IFIs and commercial banks, a credit line can support market transformation. 93. TA is required to support credit lines and to enable project participants to meet safeguards requirements. Comprehensive TA provided to FIs can help to increase their capacity (for example, to carry out energy audits and feasibility studies, and to develop efficient loan origination, appraisal skills and specific loan products for EE) and accelerate investments under the credit line. TA provided to the private sector and Government can help to stimulate interest in EE, disseminate the results obtained from the credit line, and encourage other banks to increase their lending for EE. If multiple FIs carry out safeguards review and screening, and various sub-project sponsors implement subprojects and oversee their contractors, it is crucial to ensure that all project participants have adequate capacity to meet the Bank s safeguard requirements. Since the FIs in the Project are likely to have different levels of capacity, and sub-project sponsors and contractors are not determined at appraisal, the Project design should provide for flexible and targeted capacity building according to the specific needs of FIs, sub-project sponsors and contractors. If as in this Project TA is financed in parallel by other donors, continued coordination with these donors is required to ensure that the provided TA is complementary to the Bank s capacity building activities. Capacity of project participants may not only be addressed through close supervision, trainings and TA, but also through robust requirements in the OM. The revised OM in this Project, for example, required (i) FIs to designate specific qualified staff members for safeguards screening, reviewing and reporting, (ii) sub-project sponsors to have an environmental specialist with appropriate qualifications, and (iii) sub-project sponsors to include qualification requirements for hired contractors to ensure they have the capacity to ensure safeguards compliance. 27

44 94. Specific guidance for M&E is required to ensure consistency across FIs. If multiple FIs are involved in a project, it is possible that they use different assumptions or methodologies to determine indicators such as energy savings and emission reductions. Specific guidance in the OM should be provided for M&E, which describes methodologies and assumptions and how to ensure consistency when aggregating indicators from different FIs. 95. Industrial EE is a highly cost-effective way for climate change mitigation. Cost-effectiveness of emission reductions from industrial EE proved to be more efficient than from those from RE. Average cost-effectiveness of emission reductions was 26 US$/tCO2 for EE sub-projects versus 43 US$/tCO2 for RE 20 sub-projects. Figure 6 shows that the top 9 sub-projects in terms of US$/tCO2 were EE investments. The levels of cost effectiveness of EE sub-projects varied largely and were rather determined by the specific measure or situation than by the industry sector. EE sub-projects were also more cost-effective than RE sub-projects in terms of primary energy savings per dollar invested (see Impact assessment report of CTF in RE and EE market in Turkey 21 published in 2013). Figure 6. Cost-effectiveness of Emission Reductions by Sub-project 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners 96. Not Applicable 20 Cost-effectiveness of emission reductions from RE-sub projects exclusive of the two geothermal sub-projects that did not contribute to emission reductions (Gurmat and Bestepeler) was 43 US$/tCO 2, and 67 US$/tCO 2 inclusive of the two geothermal sub-projects. 21 Impact assessment report of CTF in RE and EE market in Turkey, 2013 (page 25-26) 28

45 Annex 1. Project Costs and Financing (a) Project Cost by Component (in US$ million equivalent) Appraisal Components Estimate (US$ millions) 22 AF Estimate (US$ millions) 23 Actual/Latest Estimate (US$ millions) 24 Percentage of Appraisal Single component 1, , , Total Baseline Cost 1, , , % Physical Contingencies Price Contingencies Total Project Costs 1, , , % Front-end fee PPF Front-end fee IBRD Total Financing Required 1, , , % (b) Financing Source of Funds Type of Cofinancing Appraisal Estimate (US$ millions) 25 AF Estimate (US$ millions) 26 Actual/Latest Estimate (US$ millions) Percentage of Appraisal IBRD , % Clean Technology Fund (CTF) % Borrower (sponsor equity and other borrowing sources , % including bilateral donors) Total 1, , , % (c) Cost and Financing by Sub-project Category Table 1.1. Cost and Financing of RE Sub-projects by Type Disbursed IBRD and CTF Funds No of Subprojects Total Investment Cost IBRD CTF Type USD EUR USD EUR USD Geothermal 3 918,646, ,490,000 49,640,967 9,100,000 Hydro ,686, ,936, ,996, ,173,000 11,262,070 Solar 13 18,897,911 13,566,410 15,331,000 8,436,250 Wind 10 18,035, ,367,596 41,845,747 75,660,777 20,035,360 Total RE 53 1,443,266, ,870, ,663, ,910,994 40,397, See PAD, Annex 5, Table Project Costs on page 39. Note that the table mixes project costs and sources of funds. 23 See Project Paper on the Additional Loan, Table 2 Project Costs for original and additional financing on page 4. Note that the table lists sources of funds, does not include the IBRD front-end fee, and does not separate contingencies. 24 An exchange rate for EUR/US$ of 1.3, which represents the average exchange rate during Project implementation from 2009 to 2016, was used in the ICR to calculate US$ equivalent amounts for actual/latest estimates. 25 See Footnote See Footnote Amounts disbursed according to the Portal as of May 3, Amounts disbursed by TKB/TSKB as of December 31,

46 No of subprojects Table 1.2. Cost and Financing of EE Sub-projects by Industry Disbursed IBRD and CTF funds 29 Total Investment Cost IBRD CTF USD EUR USD EUR USD Industry Cement 6 159,193,029 47,850,000 19,125,000 8,500,000 Chemicals 8 124,201,000 13,401,000 56,070, ,224 16,777,570 Energy Production 1 3,752, ,000 Steel ,473,000 30,370,000 89,830,000 21,306,783 32,500,000 Waste Water Treatment 1 6,098,000 2,600,000 1,200,000 Total EE ,867,029 53,621, ,750,000 43,953,007 59,427, See Footnote

47 (d) Cost and Financing by Sub-project in TKB Portfolio Table 1.3. Cost and Financing of RE Sub-projects in TKB Portfolio Total Investment Cost Disbursed IBRD and CTF Funds 30 IBRD CTF Sub-project 31 USD EUR USD EUR USD Geothermal 165,762,807 65,340,000 28,000,000 9,100,000 Geothermal sub-project 75,315,136 6,140,000 28,000,000 Geothermal sub-project 90,447,671 59,200,000 9,100,000 Hydro 283,940,176 74,568, ,547,190 18,230,000 5,762,070 Hydro sub-project 7,866, ,000 Hydro sub-project 10,443, ,000 Hydro sub-project 63,186,991 40,000,000 Hydro sub-project 16,701,499 2,850, ,000 Hydro sub-project 14,703,272 2,435,000 Hydro sub-project 9,852,000 5,100,000 Hydro sub-project 58,852,029 20,127,300 Hydro sub-project 23,221,227 6,112,000 1,000,000 Hydro sub-project 6,883,832 2,550,000 1,350,000 Hydro sub-project 53,157,682 35,000,000 Hydro sub-project 35,328,607 5,621, ,000 Hydro sub-project 16,267,174 2,300,000 1,500,000 Hydro sub-project 4,930,906 2,001, ,070 Hydro sub-project 34,889,232 14,100,000 Hydro sub-project 2,223, , ,000 Solar 18,897,911 13,566,410 15,331,000 8,436,250 Solar sub-project 1,232,376 1,020,000 Solar sub-project 1,233,509 1,030,000 Solar sub-project 1,233,994 1,030,000 Solar sub-project 1,234,009 1,030,000 Solar sub-project 1,233, ,000 Solar sub-project 6,971,476 1,200,000 3,680,000 Solar sub-project 1,233, , ,250 Solar sub-project 1,233, ,000 Solar sub-project 1,232,376 1,020,000 Solar sub-project 1,232, ,000 Solar sub-project 1,232, ,000 Solar sub-project 11,926,435 8,145,000 Solar sub-project 1,233, ,000 Wind 7,391, ,262,596 15,920,000 43,050,000 7,137,930 Wind sub-project 9,925,725 7,400,000 Wind sub-project 33,877,123 1,800,000 6,157,000 Wind sub-project 8,938,819 7,376,000 Wind sub-project 39,970,390 30,000,000 Wind sub-project 10,550,539 4,444,000 3,850,000 Wind sub-project 7,391,652 4,100, ,930 Total 475,992, ,397, ,138,190 97,716,250 22,000, See Footnote Each row represents a single sub-project under each technology category. 31

48 Table 1.4. Cost and Financing of EE Sub-projects in TKB Portfolio Total Investment Cost Disbursed IBRD and CTF Funds 32 IBRD CTF Sub-project 33 USD EUR USD EUR USD EE sub-project 18,940,000 14,000,000 EE sub-project 55,594,000 13,000,000 1,570,000 8,000,000 EE sub-project 51,787,029 19,050,000 14,125,000 Total 126,321,029 46,050,000 15,695,000 8,000,000 (e) Cost and Financing by Sub-project in TSKB Portfolio Table 1.5. Cost and Financing of RE Sub-projects in TSKB Portfolio Total Investment Cost Disbursed IBRD and CTF Funds 34 IBRD CTF Sub-project 35 USD EUR USD EUR USD Geothermal 752,884,000 53,150,000 21,640,967 Geothermal sub-project 752,884,000 53,150,000 21,640,967 Hydro 203,746, ,368,000 82,449,253 95,943,000 5,500,000 Hydro sub-project 15,218,000 8,100,000 4,300,000 Hydro sub-project 55,171,000 8,415,745 Hydro sub-project 39,072,000 6,800,000 Hydro sub-project 165,902,000 40,614,253 Hydro sub-project 11,495,000 1,200,000 Hydro sub-project 100,440,000 41,000,000 19,000,000 Hydro sub-project 14,973,000 7,500,000 Hydro sub-project 60,340,000 19,000,000 Hydro sub-project 34,096,000 22,108,966 Hydro sub-project 14,847,000 Hydro sub-project 20,211,000 5,018,289 Hydro sub-project 26,349, ,000 Wind 10,644, ,105,000 25,925,747 32,610,777 12,897,430 Wind sub-project 84,583,000 25,925,747 30,160,777 Wind sub-project 34,919,000 7,300,000 Wind sub-project 22,603,000 2,450,000 4,015,630 Wind sub-project 10,644,000 1,581,800 Total 967,274, ,473, ,525, ,194,744 18,397, See Footnote See Footnote See Footnote See Footnote

49 Table 1.6. Cost and Financing of EE Sub-projects in TSKB Portfolio Total Investment Cost Disbursed IBRD and CTF Funds 36 IBRD CTF Sub-project 37 USD EUR USD EUR USD EE sub-project 3,752, ,000 EE sub-project 6,800,000 3,110,000 1,080,000 EE sub-project 13,400,000 3,000,000 EE sub-project 14,000,000 2,000,000 EE sub-project 35,691,000 8,000,000 5,000,000 3,000,000 EE sub-project 13,600,000 3,000,000 EE sub-project 11,943,000 1,850, ,000 EE sub-project 4,900,000 20,000 EE sub-project 20,680,000 5,000,000 2,000,000 EE sub-project 55,000,000 10,000,000 EE sub-project 15,500,000 10,146,783 EE sub-project 45,900,000 20,000,000 1,610,000 EE sub-project 3,300,000 1,980, ,000 EE sub-project 3,650,000 1,980, ,000 EE sub-project 1,404, , ,000 EE sub-project 6,098,000 2,600,000 1,200,000 EE sub-project 172,000,000 38,000,000 15,000,000 EE sub-project 26,556,000 2,500,000 2,500,000 EE sub-project 5,400, ,000 EE sub-project 7,097,000 1,250,000 EE sub-project 30,715,000 14,800,000 3,500,000 EE sub-project 5,497, ,000 EE sub-project 12,304,000 4,700,000 1,768,570 EE sub-project 6,545, , ,000 EE sub-project 14,520,000 2,000,000 EE sub-project 80,915,000 36,470,000 12,000,000 Total 563,546,000 53,621, ,700,000 28,258,007 51,427, See Footnote See Footnote

50 Annex 2. Outputs by Component The Project consisted of a single component. Table 2.1 and Table 2.2 provide a summary of RE and EE sub-projects by RE type and industry. Table 2.3 to Table 2.6 provide an overview of all RE and EE sub-projects financed under the Project. Table 2.7 and Table 2.8 show the PDO indicators by FI. Table 2.9 shows financing for RE and EE from other IFIs channeled through the two FIs. (a) Summary of Sub-projects by Type and Industry Type Table 2.1. Summary of RE Sub-projects by Type No of Subprojects Installed Capacity (MW) Electricity Generation GWh/year Emission Reductions tco 2/year Geothermal , ,730 Hydro ,826 1,192,318 Solar ,070 Wind ,125 Total RE ,728 1,746,243 Table 2.2. Summary of EE Sub-projects by Industry Industry No of Sub-projects Energy Savings (Mcal/year) Emission Reductions tco 2/year Cement 6 418,384, ,011 Chemicals 8 983,857, ,531 Energy Production 1 6,343,360 4,699 Steel 13 1,184,975, ,340 Waste Water 1 6,284,490 27,760 Treatment Total EE 29 2,599,845,117 1,468,340 34

51 (b) Overview of TKB Sub-projects Sub-project 38 Table 2.3. RE Sub-projects in TKB Portfolio Installed Capacity (MW) Electricity Generation (GWh/year) Emission Reductions (tco 2/year) Geothermal ,730 Geothermal sub-project Geothermal sub-project ,730 Hydro ,885 Hydro sub-project ,289 Hydro sub-project ,752 Hydro sub-project ,235 Hydro sub-project ,082 Hydro sub-project ,577 Hydro sub-project ,963 Hydro sub-project ,455 Hydro sub-project ,410 Hydro sub-project ,821 Hydro sub-project ,991 Hydro sub-project ,183 Hydro sub-project ,362 Hydro sub-project 5 9 6,240 Hydro sub-project ,853 Hydro sub-project ,674 Solar ,070 Solar sub-project Solar sub-project Solar sub-project Solar sub-project Solar sub-project Solar sub-project 5 7 4,041 Solar sub-project Solar sub-project Solar sub-project Solar sub-project Solar sub-project Solar sub-project ,033 Solar sub-project Wind ,442 Wind sub-project ,257 Wind sub-project ,625 Wind sub-project ,685 Wind sub-project ,000 Wind sub-project ,825 Wind sub-project ,050 Total 365 1, , See Footnote

52 Sub-project 39 Table 2.4. EE Sub-projects in TKB Portfolio Industry Energy Savings (Mcal/year) Emission Reductions (tco 2/year) EE sub-project Chemicals 130,042,958 33,579 EE sub-project Steel 346,483, ,840 EE sub-project Cement 164,300,000 21,900 Total 640,826, ,319 (c) Overview of TSKB Sub-projects Sub-project 40 Table 2.5. RE Sub-projects in TSKB Portfolio Installed Capacity (MW) Electricity Generation (GWh/year) Emission Reductions (tco 2/year) Geothermal Geothermal sub-project Hydro 328 1, ,433 Hydro sub-project ,696 Hydro sub-project ,973 Hydro sub-project ,377 Hydro sub-project ,109 Hydro sub-project ,721 Hydro sub-project ,362 Hydro sub-project ,288 Hydro sub-project ,021 Hydro sub-project ,337 Hydro sub-project ,754 Hydro sub-project ,213 Hydro sub-project ,583 Wind ,683 Wind sub-project ,030 Wind sub-project ,700 Wind sub-project ,028 Wind sub-project ,925 Total 569 2, , See Footnote See Footnote

53 Sub-project 41 Table 2.6. EE Sub-projects in TSKB Portfolio Industry Energy Savings (Mcal/year) Emission Reductions (tco 2/year) EE sub-project Energy production 6,343,360 4,699 EE sub-project Steel 29,240,000 21,658 EE sub-project Cement 32,164,000 20,271 EE sub-project Cement 30,100,000 22,295 EE sub-project Cement 52,438,500 38,841 EE sub-project Cement 32,012,640 20,176 EE sub-project Steel 12,053,581 4,290 EE sub-project Chemicals 42,776,250 10,370 EE sub-project Steel 97,161,682 71,967 EE sub-project Steel 17,553,130 11,063 EE sub-project Steel 61,920,000 41,256 EE sub-project Ferrochrome production 77,107,600 57,113 EE sub-project Steel 10,872,930 3,942 EE sub-project Steel 18,195,600 5,979 EE sub-project Sanitary paper 11,962,500 2,900 EE sub-project Waste water treatment 6,284,490 27,760 EE sub-project Steel 410,312, ,321 EE sub-project Steel 48,013,290 24,608 EE sub-project Steel 18,249,200 13,517 EE sub-project Plastic 12,040,000 8,918 EE sub-project Cement 107,369,280 79,528 EE sub-project Plastic food containers 4,118,712 3,051 EE sub-project Chemicals 63,640,000 47,138 EE sub-project Float glass 30,960,000 22,932 EE sub-project Steel 37,813,300 16,786 EE sub-project Petrochemistry 688,316, ,643 Total 1,959,019,018 1,115,021 (d) PDO Indicators by FI FI Table 2.7. RE Indicators by FI Installed Capacity (MW) Electricity Generation (GWh/year) Emission Reductions (tco 2/year) TKB 365 1, ,127 TSKB 569 2, ,116 Total 933 3,728 1,746, See Footnote

54 Table 2.8. EE Indicators by FI FI Energy Savings Emission Reductions (Mcal/year) (tco 2/year) TKB 640,826, ,319 TSKB 1,959,019,018 1,115,021 Total 2,599,845,117 1,468,340 (e) Financing for RE and EE from other IFIs Table 2.9. TKB s and TSKB s Financing for RE and EE from other IFIs Source Sector Year of SS Amount (EUR Amount million) (US$ million) EIB RE, EE EIB RE, EE KfW RE, EE TKB EIB RE, EE JBIC RE, EE IDB RE, EE JBIC RE, EE AFD RE, EE EIB RE, EE, Environment KfW RE, EE IFC RE, EE KfW RE, EE IDB RE, EE EIB EE, Sustainable Tourism KfW RE, EE, Resource Efficiency IDB RE, EE EBRD EE, Resource Efficiency AFD Innovative RE, Sustainable Tourism TSKB KfW RE, EE, Resource Efficiency, Environment OeB RE,EE EIB RE, EE, Improving Environmental Performance of Industrial Processes, Environment IFC RE, EE, Resource Efficiency JBIC RE, EE EIB RE, EE, Improving Environmental Performance of Industrial Processes, Environment KfW RE, EE, Resource Efficiency, Environment Total 1,458 1,215 Total since ,108 1,215 38

55 Annex 3. Economic and Financial Analysis Economic and Financial Analysis at Project Appraisal and under AF Since the Project was a FI operation and actual sub-projects to be financed were not known upfront, the financial and economic analysis at appraisal focused on a review of prototype sub-projects that could potentially be financed. The viability indicators determined at appraisal and AF were FRR and ERR. Sub-projects had to have a minimum FRR of 8 percent to be eligible for financing under the Project. While no threshold level was specified for ERR, the analysis indicated levels of ERRs that may be expected for different types of sub-projects (see Table 3.1 and Table 3.2). The assumed levels of tariffs were US$0.08/kWh at Project appraisal and US$0.087/kWh at AF. Table 3.1. Economic Analysis for Prototype Sub-projects at Project Appraisal Sub-project Type ERR At Tariffs of US$0.08/kWh Stress Test (15% Lower Tariff) Small hydro 11.2% 7.8% Wind 12.1% 8.5% Geothermal 11.3% 7.4% Biomass steam 7.0% 1.0% Biomass gasifier 3.3% Negative Concentrated solar CSP Negative Negative Solar PV Negative Negative Small land fill 7.9% 4.2% EE 13.1% 10.8% Table 3.2. Economic Analysis for Prototype Sub-projects at AF Sub-project Type At Tariffs of US$0.087/kWh Stress Test (15% Lower Tariff) FRR ERR FRR ERR HPP (22 MW) 17.3% 10.6% 11.7% 8.8% HPP (10 MW) 25.6% 16.3% 19.8% 14.0% HPP (122 MW) 17.8% 16.5% 14.2% 14.0% HPP (153 MW) 20.3% 18.2% 16.3% 15.1% Wind (15 MW) 12.1% 14.9% 9.8% 12.7% EE (Petrochemicals) 43.6% 44.3% 37.8% 39.1% EE (Steel) 20.9% 19.4% 17.4% 16.0% It was assessed at appraisal that, for newer RE technologies and EE investments, and for smallerscale hydro and wind projects, financial barriers existed which reduced the rates of return on equity (IRRs) below the levels required to attract investors. The desired thresholds were assessed as follows: 15 percent for small hydro, 20 percent for biomass, and 25 percent for solar. Based on an analysis of prototype sub-projects (see Table 3.3), it was determined that CTF resources would be made available to the following sub-project types: Emerging or less developed RE. Power generation and heat utilization investments using RE resources that were less developed and/or less economic such as wind, geothermal, solar biomass, and hydroelectric projects less than or equal to 10 MW capacity. EE. Sub-projects that show that at least 50 percent of the incremental benefits from the sub-project coming from a reduction in energy consumption or at least 20 percent energy savings from the specific investment. 39

56 Type Typical Capacity (MW) Typical Project Cost (US$ million) Table 3.3. Prototype Sub-projects for CTF Financing Assumed Feed-In Tariff (USc/ kwh) Equity IRR (%) without CTF Financing Threshold IRR on Equity (%) Add. Cost Covered by CTF Grant Amount (US$ 000) CTF Loan Amount (US$ 000) CTF Required to Cover add. Cost (%) Cost effectiveness of CTF (US$/ tco 2e) Small % 15% % 5.87 hydro Wind % 15% % 5.46 Geothermal % 15% % 5.24 Biomass % 20% % steam Biomass % 20% % gas Solar % 25% % thermal Solar % 25% % PV EE % 40% % 4.98 Post-completion Economic and Financial Analysis A total of 82 sub-projects were financed under the Project with a total investment cost of US$3,097 million equivalent 42 of which 53 were RE sub-projects with a total investment cost of US$2,337 million equivalent and 29 were EE with a total investment cost of US$760 million equivalent. The efficiency of the investments was assessed in terms of (i) cost-effectiveness, (ii) cost-benefit, and (iii) effectiveness of CTF financing. (i) Cost-effectiveness was Substantial Cost-effectiveness was assessed for all 53 RE sub-projects, which represent 75 percent of total investment cost in the Project. The indicator used to assess cost-effectiveness was investment cost per kw of capacity installed. Table 3.4 compares averages and ranges of this indicator for each category of RE sub-projects to estimates at Project appraisal and estimates by the International Renewable Energy Agency (IRENA). The averages achieved in the Project are below the estimates at appraisal for hydro, solar and wind, and above the estimates at appraisal for geothermal. All individual RE sub-projects have investment cost per kw that are within or even below the range estimates by IRENA; only one large RE sub-project (Gurmat geothermal power plant, which represents about 32 percent of the investment cost of all RE sub-projects) has investment cost per kw that exceed the range estimated by IRENA by about 20 percent (see Table 3.10 for cost-effectiveness of each individual RE sub-project). While similar indicators for EE sub-projects (investment costs per Tcal of energy savings and investment cost per ton of CO2 reductions) are provided in Table 3.11, benchmark comparisons could not be made due to lack of relevant data. Therefore, EE sub-projects are only evaluated by a cost-benefit analysis in the section below. 42 An exchange rate for EUR/US$ of 1.3, which represents the average exchange rate during Project implementation from 2009 to 2016, was used in the ICR to calculate US$ equivalent amounts. 40

57 Table 3.4. Investment Cost per kw of Capacity Installed (US$/kW) for all 53 RE Sub-projects by Category RE Subproject Achieved in Sub-projects Estimates at Appraisal 43 Estimates by IRENA 44 Type Average Range Average Range Geothermal 5,067 2,660-6,106 4,000 1,850-5,100 Hydro 1,990 1,032-3,069 2,361 1,000-3,500 Solar 1,529 1,423-1,604 7,060 1,570-4,340 Wind 1,661 1,232-2,018 1,987 1,280-2,290 (ii) Cost-benefit was Substantial A cost-benefit analysis was carried out for a representative sample of 29 RE and EE sub-projects, which represent 48 percent of total investment cost in the Project. Sub-projects in the sample were selected to represent the major sub-project types (hydro, wind, solar and geothermal for RE; cement and steel for EE) in the portfolio and based on availability of adequate information for the postcompletion analysis. The indicators used to assess cost-benefit were (a) Economic Rate of Return (ERR) and (b) Financial Rate of Return (FRR). (a) ERR. As describe above, no minimum threshold was specified for ERR at appraisal or AF. However, prototype sub-projects were reviewed to determine ERRs that may be expected for different types of sub-projects. These ERRs were used to evaluate the ERRs determined during the postcompletion assessment. Table 3.5 and Table 3.6 show weighted (by investment cost) averages of ERRs estimated during post-completion assessment compared to the expected ERRs estimated at appraisal/af for each type of sub-project. The ERR levels (with carbon benefits) estimated during post-completion are higher (for geothermal, hydro, solar, wind and cement) or less than one percentage point smaller (for steel) than the ERRs estimated at appraisal/af. Moreover, all 29 subprojects exceed the ERRs (6 percent to 8 percent) that are recommended in current Bank guidelines (Discounting Costs and Benefits for the Economic Analysis of Investment projects, May 2016) for economic analysis of investment projects for economies growing at annual rates similar to Turkey (see Table 3.12 and Table 3.13 for ERRs by sub-project). Table 3.5. Post-completion Economic and Financial Indicators for Sampled RE Sub-projects by Category ERR, Weighted Average (%) RE Subproject Type projects No of Sub- Without Carbon With Carbon Estimate at Benefits Benefits Appraisal/AF Geothermal Hydro Solar Negative Wind Total See PAD, Table 11.5 in Annex IRENA (2015). Renewable Energy generation Costs Estimates of expected ERRs at AF ranged from 10.6% to 16.5% for HPPs from 10 MW to 122 MW, which covers the range of capacities of HPPs in the sample. 41

58 Table 3.6. Post-completion Economic and Financial Indicators for Sampled EE Sub-projects by Category ERR, Weighted Average (%) EE Subproject Type projects No of Sub- Without Carbon With Carbon Estimate at Benefits Benefits Appraisal/AF Cement Steel Total 10 Costs considered in the ERR analysis include capital costs and incremental Operating and Maintenance (O&M) expenses. Benefits include the value of output estimated at economic prices. Economic benefits were valued for two cases: including and excluding CO2 reduction benefits. CO2 emission reduction benefits were valued at US$30/tCO2 as indicated under the Bank s currently applicable guidelines. For RE, power sales were valued at the estimated cost of the alternative source of energy that would have been used if the RE capacity were not available, that is Levelized Cost of Electricity (LCOE) for a Combined Cycle Gas Turbine (CCGT) unit that would have been the most likely marginal source of power supply. For EE, energy savings were valued at the unit cost (excluding taxes and duties) of the energy saved. Since Turkey imports much of its energy sources (oil, natural gas, steam and coking coal), the unit costs were estimated on the delivered cost of imports. Most sub-projects were appraised in the period 2009 to 2014 when energy prices were significantly higher than they have been since For re-estimation, the energy prices were adjusted for changes in price indices (for detailed assumptions see Table 3.7). All costs and benefits were estimated excluding taxes and duties. Table 3.7. Assumptions for Economic and Financial Analysis Exchange rates USD/TRY EUR/TRY Inflation rates (2010=100) Turkish domestic inflation index (WPI) Energy import prices index, OECD (2008=100) Heavy fuel oil Natural gas Steam coal Coking coal Total for energy Other parameters for RoR estimation Feed-in tariffs for RE (US$/kWh) 46 For EE sub-projects in the cement industry, no expected ERRs were estimated at appraisal or AF. Therefore, the expected ERR estimated for the generic EE sub-project type from the PAD is used for the cement industry. 42

59 Estimated levelized cost of energy (LCOE) for CCGT power plant Capacity factor 0.7 Capital cost component (US$/MWh) 8.3 Capital cost (US$/kW) 1,200 Fixed O&M expenses component 1.6 (US$/MWh) Life 25 years Variable expenses (including fuel) 69.1 component (US$/MWh) Discount rate 0.1 Transmission component 1.0 Total LCOE for CCGT (US$/MWh 80.0 Other parameters for RoR estimation Period of valuation 25 years Tax component of sales/purchases of 20% inputs & outputs Tax component of capital costs 15% Corporate tax rate 20% (b) FRR. For FRR, a minimum threshold of 8 percent was defined at appraisal as eligibility criteria for sub-projects. On a pre-tax basis, 26 out of 29 sub-projects (representing 85 percent of the investment cost in the sample), and on a post-tax basis, 23 out of 29 sub-projects (representing 76 percent of the total investment cost in the sample) exceed the FRR threshold of 8 percent. All FRRs are above 6 percent (see Table 3.12 and Table 3.13 for FRRs by sub-project). Costs considered in the FRR analysis include capital costs and incremental O&M expenses, including applicable taxes and duties. Power sales from RE were valued at the feed-in or market tariffs net of taxes and duties. Energy savings from EE were valued at the costs of energy including taxes and duties. Most sub-projects were appraised during the period 2009 to 2015 when energy prices were higher than they have been since For re-estimation, energy saving benefits were valued under two scenarios. Scenario 1 assumes that the post-2016 energy prices will continue at the same levels (in real terms) as in Scenario 2 assumes that energy prices will gradually increase to 2010 levels by the year 2020 and stabilize thereafter (in real terms). (iii) Effectiveness of CTF financing was High CTF financing was assessed based on (a) leveraging of other financing sources, (b) cost-effectiveness of CTF measured as US$ of CTF per ton of CO2 reductions, and (c) improvement of return to equity. US$100 million of CTF leveraged US$898 million of other financing from IFIs (including IBRD and IFC), private sector banks and owners equity (leverage ratio of 1:9) compared to the expected leverage of US$400 million estimated at appraisal (leverage ratio of 1:4). Cost-effectiveness of CTF in the Project was high. Across all CTF supported sub-projects, the average cost was only US$2.9 of CTF/tCO2 with a range from US$1.1 to US$11.8 of CTF/tCO2. This is significantly lower than the benchmarking results reported by CTF, which indicate an average cost of US$4 of CTF/tCO2 and a range from US$1 to US$40 of CTF/tCO2. Across the sub-projects in the sample, the weighted (by investment costs) average rate of return on investors equity was increased by 5.3 percent (from 17.9 to 23.2 percent) for RE sub-projects and by 3.0 percent (from 15.4 to 18.4 percent) for EE sub-projects (see Table 3.8). 43

60 Sub-project 47 Table 3.8. Improvement of Return on Equity for Sub-projects in the Sample Subproject Type Investment Cost (US$ thousands) CTF Financing (US$ thousands) Equity Financing (US$ thousands) Returns to Equity (%) Without With CTF CTF RE 119,979 12,862 32, % 23.2% Hydro sub-project Hydro 11,495 1,200 5, % 10.6% Wind sub-project Wind 10,644 1,582 2, % 16.3% Wind sub-project Wind 7, , % 15.8% Geothermal sub-project Geothermal 90,448 9,100 22, % 26.2% EE 392,399 36, , % 18.4% EE sub-project Steel 11, , % 17.0% EE sub-project Steel 172,000 15, , % 10.1% EE sub-project Steel 26,556 2,500 8, % 20.6% EE sub-project Steel 55,594 8,000 14, % 26.4% EE sub-project Cement 14,000 2,000 6, % 27.7% EE sub-project Steel 45,900 1,610 11, % 21.9% EE sub-project Cement 30,715 3,500 8, % 43.6% EE sub-project Cement 35,691 3,000 16, % 14.4% (d) Financial Situation of FIs TKB and TSKB are well-established banks in good standing. A summary of their main financial indicators is provided in Table 3.9. Table 3.9. Selected Financial Indicators for TKB and TSKB TKB TSKB Indicator TRY million Total assets 3, , , ,366.6 Loans 3, , , ,633.3 Shareholders equity , ,783.8 Total income ,195.3 Total expenditures Provision for taxes Net profit Ratios (%) Loans/total assets Shareholders equity/total assets Return on assets Return on equity Standard capital adequacy ratio See Footnote

61 Table Cost-effectiveness Indicators for RE Sub-projects Sub-project 48 Investment costs per kw of Investment cost per ton of CO 2 capacity (US$/kW) reductions (US$/tCO 2) Geothermal 5, Geothermal sub-project 6,106 Geothermal sub-project 3,138 Geothermal sub-project 2, Hydro 1, Hydro sub-project 3, Hydro sub-project 2, Hydro sub-project 2, Hydro sub-project 2, Hydro sub-project 2, Hydro sub-project 2, Hydro sub-project 2, Hydro sub-project 2, Hydro sub-project 2, Hydro sub-project 2, Hydro sub-project 2, Hydro sub-project 2, Hydro sub-project 2, Hydro sub-project 2, Hydro sub-project 1, Hydro sub-project 1, Hydro sub-project 1, Hydro sub-project 1, Hydro sub-project 1, Hydro sub-project 1, Hydro sub-project 1, Hydro sub-project 1, Hydro sub-project 1, Hydro sub-project 1, Hydro sub-project 1, Hydro sub-project 1, Hydro sub-project 1, Solar 1, Solar sub-project 1, Solar sub-project 1, Solar sub-project 1, Solar sub-project 1, Solar sub-project 1, Solar sub-project 1, Solar sub-project 1, Solar sub-project 1, Solar sub-project 1, Solar sub-project 1, Solar sub-project 1, Solar sub-project 1, Solar sub-project 1, Wind 1, Wind sub-project 2, Wind sub-project 1, Wind sub-project 1, Wind sub-project 1, Wind sub-project 1, Wind sub-project 1, Wind sub-project 1, Wind sub-project 1, Wind sub-project 1, Wind sub-project 1, Total 2,

62 Table Cost-effectiveness Indicators for EE Sub-projects Sub-project 49 Investment Costs per Tcal of Investment Cost per Ton of CO2 Energy Savings (US$/Tcal) Reductions (US$/tCO2) Cement 19, EE sub-project (cement) 34, EE sub-project (cement) 23, EE sub-project (cement) 21, EE sub-project (cement) 20, EE sub-project (cement) 15, EE sub-project (cement) 14, Chemicals 7, EE sub-project (chemicals) 66, EE sub-project (chemicals) 38, EE sub-project (chemicals) 10, EE sub-project (chemicals) 9, EE sub-project (chemicals) 7, EE sub-project (chemicals) 7, EE sub-project (chemicals) 7, EE sub-project (chemicals) 5, Steel 18, EE sub-project (steel) 156, EE sub-project (steel) 49, EE sub-project (steel) 29, EE sub-project (steel) 27, EE sub-project (steel) 24, EE sub-project (steel) 20, EE sub-project (steel) 19, EE sub-project (steel) 15, EE sub-project (steel) 15, EE sub-project (steel) 13, EE sub-project (steel) 12, EE sub-project (steel) 10, EE sub-project (steel) 8,023 9 Waste Water Treatment 63, EE sub-project (waste water treatment) 63, Energy Production 38, EE sub-project (energy production) 38, Total 14, See Footnote See Footnote

63 Table Post-completion Economic and Financial Indicators for Sampled RE -projects FRR Total Electricity 51 (%) ERR 52 (%) Sub-project 50 Capacity Without With Estimate Investment Generation Pretatax Post- (MW) Carbon Carbon at Cost (US$) (GWh/year) Benefits Benefits Appraisal Geothermal 90,447, Geothermal subproject 90,447, Hydro 756,433, , Hydro sub-project 63,186, Hydro sub-project 71,722, Hydro sub-project 50,793, Hydro sub-project 165,902, Hydro sub-project 11,495, Hydro sub-project 58,852, Hydro sub-project 130,572, Hydro sub-project 19,464, Hydro sub-project 78,442, Hydro sub-project 44,324, Hydro sub-project 35,328, Hydro sub-project 26,349, Solar 20,500, Negative Solar sub-project 6,971, Solar sub-project 1,602, Solar sub-project 11,926, Wind 127,993, Wind sub-project 109,957, Wind sub-project 7,391, Wind sub-project 10,644, Total 995,374, , See Footnote FRRs and ERRs by sub-project type are averages weighted by investment cost. 52 See Footnote Estimates of expected ERRs at AF ranged from 10.6% to 16.5% for HPPs from 10 MW to 122 MW, which covers the range of capacity of HPPs in the sample. 47

64 Table Post-completion Economic and Financial Indicators for Sampled EE Sub-projects Sub-project 54 FRR Total Energy (%) ERR 56 (%) Without With Estimate Investment Savings Scenario Scenario Carbon Carbon at Cost (US$) (Mcal/year) 1 2 Benefits Benefits Appraisal Cement 132,193, ,207, EE sub-project (cement) 14,000,000 30,100, EE sub-project (cement) 35,691,000 52,438, EE sub-project (cement) 51,787, ,300, EE sub-project (cement) 30,715, ,369, Steel 366,993, ,523, EE sub-project (steel) 11,943,000 12,053, EE sub-project (steel) 55,000,000 17,553, EE sub-project (steel) 45,900,000 77,107, EE sub-project (steel) 172,000, ,312, EE sub-project (steel) 26,556,000 48,013, EE sub-project (steel) 55,594, ,483, Total 499,186,029 1,265,730, See Footnote FRRs presented in both scenarios are post-tax FRRs. FRRs by sub-project type are averages weighted by investment cost 56 See Footnote For EE sub-projects in the cement industry, no expected ERRs were estimated at appraisal or AF. Therefore, the expected ERR estimated for the generic EE sub-project type from the PAD is used for the cement industry. 48

65 Table Leveraged Amounts and Cost-effectiveness by Sub-project Supported by CTF (i) Leveraging (ii) CTF Cost Sub-project 58 Total Investment Cost (US$) CTF Financing (US$) 59 Effectiveness (US$ of CTF per tco2) EE 566,101,300 59,427, Cement 80,406,000 8,500, EE sub-project (cement) 14,000,000 2,000, EE sub-project (cement) 35,691,000 3,000, EE sub-project (cement) 30,715,000 3,500, Chemicals 116,312,300 16,777, EE sub-project (chemicals) 5,497, , EE sub-project (chemicals) 9,226,100 1,250, EE sub-project (chemicals) 1,825, , EE sub-project (chemicals) 80,915,000 12,000, EE sub-project (chemicals) 6,545, , EE sub-project (chemicals) 12,304,000 1,768, Steel 356,578,000 32,500, EE sub-project (steel) 3,300, , EE sub-project (steel) 11,943, , EE sub-project (steel) 4,745, , EE sub-project (steel) 26,556,000 2,500, EE sub-project (steel) 172,000,000 15,000, EE sub-project (steel) 8,840,000 1,080, EE sub-project (steel) 7,020, , EE sub-project (steel) 45,900,000 1,610, EE sub-project (steel) 20,680,000 2,000, EE sub-project (steel) 55,594,000 8,000, Waste Water Treatment 7,927,400 1,200, EE sub-project (waste water treatment) 7,927,400 1,200, Energy Production 4,877, , EE sub-project (energy production) 4,877, , RE 331,935,217 40,397, Geothermal 90,447,671 9,100, Geothermal sub-project 90,447,671 9,100, Hydro 104,633,034 11,262, Hydro sub-project 19,783,400 4,300, Hydro sub-project 6,883,832 1,350, Hydro sub-project 11,495,000 1,200, Hydro sub-project 16,267,174 1,500, Hydro sub-project 4,930, , Hydro sub-project 10,443, , Hydro sub-project 2,890, , Hydro sub-project 10,226, , Hydro sub-project 21,711, , Wind 136,854,512 20,035, Wind sub-project 44,040,260 6,157, Wind sub-project 29,383,900 4,015, Wind sub-project 45,394,700 7,300, Wind sub-project 10,644,000 1,581, Wind sub-project 7,391, , Total (RE and EE) 898,036,517 99,825, See Footnote Amounts disbursed by TKB/TSKB as of December 31,

66 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team Members Names Title Unit Responsibility/ Specialty Lending Ayse Seda Aroymak Sr Financial Management Specialist GGO21 Bernard Baratz Consultant GEEDR Salih Kemal Kalyoncu Senior Procurement Specialist GGO03 Selma Karaman Program Assistant ECCU6 Shinya Nishimura Sr Financial Analyst GEE08 Kari J. Nyman Lead Specialist GEE03 Ahmet Gurhan Ozdora Senior Operations Officer ECSEG HIS Norval Stanley Peabody Consultant GEEDR Sameer Shukla Operations Adviser GEE08 TTL Yukari Tsuchiya Temporary GSU01 Supervision/ICR Bernard Baratz Consultant GEEDR Sergio Augusto Gonzalez Coltrinari Senior Energy Specialist GEE04 Salih Kemal Kalyoncu Senior Procurement Specialist GGO03 Selma Karaman Program Assistant ECCU6 Zeynep Lalik Sr Financial Management Specia GGO21 Shinya Nishimura Sr Financial Analyst GEE08 TTL Kari J. Nyman Lead Specialist GEE03 Ahmet Gurhan Ozdora Senior Operations Officer ECSEG - HIS Norval Stanley Peabody Consultant GEEDR Carla Pittalis Senior Country Officer ECCU4 Yukari Tsuchiya Temporary GSU01 Fan Zhang Senior Economist SARCE Chukwudi H. Okaforr Senior Social Development Specialist ECSS4 Jari Väyrynen Senior Energy Specialist GEE03 TTL Arzu Uraz Social Development Specialist GSU03 Esra Arikan Senior Environmental Specialist GEN03 Ayse Seda Aroymak Sr Financial Management Specialist GGO21 Alessandro Palmieri Lead Dam Specialist GSU18 Salih Kemal Kalyoncu Senior Procurement Specialist GGO03 Zeynep Durnev Darendeliler Social Development Specialist OPSPF Natasa Vetma Senior Operations Officer ECSEN Ayse Yasemin Orucu Energy Specialist GEE03 Regina Oritshetemeyin Nesiama Operations Analyst GCCCI Kishore Laxmikant Nadkarni Consultant GEEDR 50

67 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$ Thousands (including travel and No. of Staff Weeks consultant costs) Lending FY Supervision/ICR FY FY FY FY FY FY FY FY Total ,

68 Annex 5. Beneficiary Survey Results Not Applicable 52

69 Annex 6. Stakeholder Workshop Report and Results Not Applicable 53

70 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR Summary of borrower s ICR by TKB 1. Introduction Private Sector Renewable Energy and Energy Efficiency Project Loan Agreement was signed between TÜRKİYE KALKINMA BANKASI A.Ş. and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT on June 9, 2009 in the amount 150 m USD. CTF agreement was also signed at the same time between TKB and IBRD who is acting as an implementing entity of the Clean Technology Fund. CTF fund was allocated in the amount 30m USD, the total loan allocated to TKB summing up to 180 m USD. Republic of Turkey was the guarantor of the loans. 150 m USD IBRD loan was distributed as 130 m USD and 15.7 m EUR. An Additional Loan Agreement was signed between TKB and IBRD on December 5, 2011 for a loan in the amount 300 m USD to TKB. Republic of Turkey was also the guarantor of the additional loan. 300 m USD was distributed as 135 m USD and m EUR. Total loan for TKB became 450 m USD IBRD loan and 30 m USD CTF fund which sum up to 480 m USD. The closing date of the loan has been determined as December 31, All the loan and the CTF fund was allocated and disbursed in compliance with the conditions of the Loan Agreements, CTF Agreement and Operational Manuals attached to them. The project has been implemented successfully, all the projects in the scope have been implemented and most of them are in operation by the end Only few projects which were committed recently are in construction phase however these projects are solar power projects with quite short construction phases and the project sponsors are well experienced in their fields so that they are expected to be commissioned in few months. Two WPP projects are also under construction but they are in time with their scheduling. The project has been an important experience for TKB in many aspects. TKB had been allocating loans to industrial, tourism, health and education sectors for many years. By REL I loan from World Bank TKB has started to give financial support to energy sector. After full utilization of REL I facility, TKB started to utilize REEE loan and by means of this loan TKB has maintained his continuity in energy sector financing. Also with REEE line TKB entered to energy efficiency in various sectors. Today TKB has quite big energy efficiency projects of industry and energy sectors in its portfolio financed from various international loan sources. 2. Project Development Objectives The project was developed to help increase privately owned and operated energy production from indigenous renewable sources within the market-based framework of the Turkish Electricity Market Law, enhance energy efficiency, and thereby help reduce greenhouse gas emissions. Within this framework The Bank proposed a Specific Investment Loan with a Variable Spread (VSL) denominated in US dollars and Euros with level repayment of the principal to TSKB and TKB. The Loan guaranteed by the Republic of Turkey. CTF resources were proposed to be made available to eligible sub-projects through the two banks at harder concessional terms and with a guarantee by the Republic of Turkey. At appraisal stage as of May 2009, project objectives were compatible with the Turkey s targets to raise the share of electricity generated from renewable sources (hydro, wind, biomass, geothermal, solar, landfill gas). This target would also result in reduced CO2 emissions. Additional generating 54

71 capacity and increased focus on energy efficiency would also improve the security of supply. Increased Electricity generating capacity from indigenous sources would also reduce the energy import costs. By means of the project through the loan allocation to TKB for renewable energy and energy efficiency projects of the private sector, 365 MW installed capacity has been achieved. From these projects 640,826,099x1000 kcal has been saved. Electricity generation capacity from the installed power plants are 1,342 GWh/year. Annual CO2 emission reduction potential of the projects are 1,128,446 ton. The results are still compatible with Turkey s targets in raising the share of renewable energy in electricity generation and reducing the CO2 emissions resulting from fossil fuels. As of November 2016, total installed power of Turkey is 78,592 MW out of which 14,063 MW is renewable energy. This makes about 18 percent share in total installed capacity. Together with large hydro capacity, total share increases to about 42.6 percent. The REEE project has contributed to increasing the renewable energy generating capacity of Turkey. 3. Project Design The Project was designed in the way to realize the Project objectives which was primarily increasing the private sector participating in electricity generation from renewable and indigenous sources such as (hydropower, geothermal, wind or solar) or energy efficiency projects achieving reduction in energy consumption. The project was designed as a framework loan facility with unknown beneficiaries at the beginning of the project. The framework was formed compatible with the World Bank policies and project objectives and thus the project documents (loan agreements, operation manuals) were constituted. The design was in relevance to TKB s loan operations in general but some new additions become necessary for the implementation. TKB is experienced on extending credits from different loan sources especially foreign based to support private sector in different areas contributing to development of Turkey and achieving economic benefits. TKB assess the projects for the investment and working capital needs to estimate foreign and equity sources corresponding to these needs. Additionally, the adequacy of the revenues of the project in the operation period is tested to pay back the proposed loans. This assessment includes four main parts: Information on the sponsor and the project, Technical evaluation, Economical evaluation, Financial evaluation In this context the design was helpful for maximizing the efficiency of implementation as the implementation of the project was in usual scope of TKB. The project also provided TKB improving its capacity for environmental and social evaluation. In addition to above sections, projects are evaluated for environmental and social conditions in detail not to cause any one affect from the project negatively. 4. Implementation Arrangements For the implementation of the project TKB has established a Project Implementation Unit experienced with World Bank Projects in Credit I Department. The PIU team maintained the financial 55

72 management and reporting systems for the Project and the credit line. The PIU unit has gathered sufficient knowledge and experience for renewable energy investments and World Bank practices. The PIU has people from different areas as financial, economic and technical, all experienced in their own proficiency. They appraise and evaluate the projects. They also help marketing in cooperation with the marketing department. In framework of the loan conditions the companies are approached by marketing department and the pre-investigation of the company is made by intelligence and financial analysis department. The projects of eligible companies are evaluated accordingly for technical, financial, social and environmental suitability. The implementation of the project necessitates the cumulative study of different departments in cooperation from the beginning to the end. Especially the marketing, financial institutions, intelligence and financial analysis, credit evaluation department and fiscal affairs. This in turn provides capacity improvement at all the related departments. The Government s target is to raise the share of electricity generated from renewable sources (hydro, wind, biomass, geothermal, solar, landfill gas), from 19 percent in 2007 to 25 percent by The Renewable Energy Law was passed in May This provides a number of incentives to encourage renewable energy, including a feed-in tariff and an off-take agreement with Distribution Company as expressed in project development objectives. There has been a significant upsurge in private sector interest in renewable energy in since The project helped to increase privately owned and operated energy production from renewable sources within the market-based framework of the Turkish Electricity Market Law. Under REEE loan facility three energy efficiency projects were financed. The first one is the heat recovery project of an integrated iron and steel plant. Iron and steel manufacturing process is an energy intense project. It is a high temperature process at the same time. High energy consumptions under high temperature working conditions always provide energy saving potential. The heat recovered from the exhaust gases are utilized in a newly constructed 50 MW power plant. Thus 403 Gwh/year energy generation capacity has been achieved. The second one is the energy efficiency project of a high capacity cement production plant. Cement production is also an energy intensive process. Renewing the energy consuming units under the EE project provided less energy consumption in terms of electricity and heat. The third one is a big industrial manufacturing plant producing hygienic and paper products. This project has also provided lower energy consumptions in terms of heat and electricity. TKB had experience in financing via project appraising and disbursing according to the physical progresses. TKB had its own capacity for doing this business. Through REEE line TKB needed to expend this capacity in different areas. TKB had been allocating loans in line with Turkish legislations in every aspect. All the related legislations were strictly fallowed in the past experiences. Beginning to utilize the World Bank loan, TKB was associated also with the World Banks policies. This lead to involvement in safeguard and resettlement (and the like) policies. TKB needed to build capacity in environment and social assessments. Today TKB has its own staff to evaluate the projects in environmental and social views. Many reports have been prepared and reviewed under the control this experienced staff. TKB has also contributed to capacity building in this sector by demanding more qualified and comprehensive work from the sector firms. 56

73 Sponsors were also directed to do business with more care to environmental and social issues at sites, do better practices in procurement, constitute better relations with local people, create more employment for locals in the vicinity, take social corporate responsibilities. Moreover public consultations, document disclosures have improved the transparency in business. The restrictions were time consuming procedures. Especially the environmental and social safeguards reporting requirements sometimes delay the realization of the project when too much detailed information is requested. As sponsors are always in short of time they never want to spend time for procedures. In this respect, TKB has learned to be proactive in implementing the procedures, and also be more selective in allocating the loans. These have spread to all other loan sources over time. The realization of the projects require the participation of companies, co-financers and TKB and the Bank s staff. The companies tried their best to meet the loan conditions concerning the procurement, environmental and social safeguards, dam safety and monitoring requirements appropriately during the implementation of the project. There has been co-financed projects with other foreign sources and in these projects also working with the other institutions increased TKB s experience for credit options. During the disbursement period of the projects some delays were occurred due to approval process of World Bank when it lasted longer than estimated. Delays were originated from all parties including WB. However everyone was willing to overcome the delays and this was succeeded as project progressed. World Bank staff were cooperative and helpful in implementing the project. As the project progressed, the team became more familiar with the Turkish renewable energy investors and were more successful in speeding up the procedures. The project has provided TKB being sustainable in energy sector. TKB has an enlarged portfolio of renewable energy companies. The successful companies will be again be considered for supporting in framework of government s policy to increase electricity generation from renewable sources. From the sponsors point of view, most of them have a continuing interest in investing in energy sector. This will provide more investments channeling to renewable energy sector. The investments extent to different types of renewable sources parallel to the improvements in investing environments and technologies. This will lead to diversity in utilizing renewable and indigenous resources of Turkey. Being the state owned development bank of Turkey, TKB will continue to take place in financing renewable energy and energy efficiency with successful investors and channeling more investors to this sector from other sectors. Different sectors may also be supported for instance waste to energy facility seems to be more popular in the near future. TKB will take the needs of country into consideration and try to support the projects in related areas. 57

74 Summary of borrower s ICR by TSKB 1. Introduction Loan agreements for original IBRD Loan and CTF Loan were first signed on in the context of Private Sector Renewable Energy and Energy Efficiency (PSREEE) Project. They were closed as of December 31, 2014, with the funds fully disbursed. An additional loan was extended from IBRD with an agreement, dated Also all the funds from this loan were completely disbursed successfully by TSKB as of June Totally USD 310 million and EUR178.9 million of IBRD funds and USD 70 million of CTF fund were used to finance private sector renewable energy and energy efficiency projects that were realized in Turkey. 2. Project Development Objectives The Project s development objective is to support privately owned and operated energy production from indigenous renewable sources within the market-based framework of the Turkish Electricity Market Law, enhance energy efficiency, and thereby help reduce greenhouse gas emissions. The indicators are proposed as follows: For renewable energy: Incremental capacity of renewable electricity or thermal heating plants created; Incremental production of electricity or heat; Increase in share of renewable generation; and Emission reduction potential For energy efficiency: Extent of savings in heat or electricity; and Emission reduction potential Cost-effectiveness of CTF Proportion of renewable energy and energy efficiency projects in the FI s portfolios over the course of the Project. All these indicators seem to be relevant and appropriate for the objectives of the project. At least they are the basic parameters for renewable energy and energy efficiency projects. Throughout the Project, they are also well monitored and reported to the Bank via Aide Memoires and Cost Effectiveness Excel regularly. 3. Project design At the beginning of the project parties were aware of some issues that may be obstacles preventing the Project from efficient implementation. One of the issues was the IBRD s procurement procedure related with both ICB (International Competitive Bidding) limits and procurement from affiliated companies. The other one was the single EE criterion that was hard to ensure. After having series of meetings and discussions with various private sector investors, it is decided for the removal of the World Bank s 10 million USD procurement limit for international competitive bidding with an additional implementation of independent procurement audit. World Bank s procurement procedure was also prohibiting the procurement of the borrower from its affiliated companies. This was a big issue since the sponsors of the RE projects were mainly the construction companies in Turkish market therefore sponsors were subcontracting the construction works to their affiliated construction companies. After the negotiations with the Bank and market study done by the Bank, this limitation was removed. Energy efficiency criterion was also one of the most critical factor in defining the EE projects. The existing criterion at least 20 percent energy savings in the specific investment was one of the biggest limiting factor throughout the appraisal of EE projects. After negotiations and cooperative discussions 58

75 with World Bank s experts second EE criterion was also implemented, which is formulated as show at least 50 percent of incremental benefits from the Project coming from a reduction in energy consumption. This second criterion enables TSKB to identify and reach more EE projects in the market. Additionally, this second criterion was also discussed with other IFIs after World Bank s approval and also accepted by them. Now this criterion is a common criterion applied by most of the IFIs EE projects. TSKB was not able to finance any HEPPs with PSREEE Additional Financing because of the cumulative impact assessment (CIA) requirement, which was added to operational manual with the additional financing. Even though CIA was an important and necessary issue, the existing circumstances (also legislative framework) of Turkey prevent conducting satisfactory CIAs for the sub-projects. CIA requires proficient consulting companies and sufficient data about the environmental and social issues of neighboring (all the projects in the related river basin area) projects. Since both were lacking, TSKB was not able to receive and supply a satisfactory river basin CIA and could not finance HEPP with PSREEE Additional Financing facility. CIA study cannot be done by any financial institution or individual investors so that this studies should be organized by a public body such as Ministry of Environment and Urbanization and also should be done by experienced consultants. 4. Implementation arrangements On-lending of funds were completed in accordance with the Operations Manual. TSKB has wellequipped experienced teams in charge of marketing, project evaluation, appraisal, safeguards aspects and implementation. These teams are working in the same manner not only for IBRD projects but also for other projects of TSKB (other IFIs sources) and also trying to transfer the experience gained to the other institutions if possible and vice versa. TSKB s main components for Project Implementation Unit (PIU) includes the following departments with the following responsibilities. PSREEE General Coordination: Development Finance Institutions Management of Credit Applications and Management within TSKB: Corporate Marketing, Project Finance Economic, financial and technical evaluation of projects: Financial Analysis and Evaluation, Engineering and Technical Consultancy Compliance of the Projects Procurement Guidelines and Safeguards: Engineering and Technical Consultancy Delivery of Reports and Applications to IBRD: Development Finance Institutions Disbursement, repayments and invoice documentation: Loan Operations During the preparation and implementation of the Project parties (IBRD staff abroad, IBRD Ankara Office and TSKB PIU) had a very cordial relationship and issues related to the implementation of the project were swiftly resolved. TSKB s technical staff joined IBRD s various training and workshops both abroad and in Turkey on safeguard policies and procurement procedures. 59

76 In addition to existing environmental studies for HEPP projects, an independent environmental consultant was hired to prepare environmental assessment. This study was completed and presented to the Bank on Since 2010 TSKB has been calculating the grid emission factor for the electricity system in Turkey to evaluate the impacts of the financed projects. These projects can be either renewable energy projects, energy or resource efficiency projects. This emission factor defines the equivalent CO2 emission resulting from production of 1 kwh of electricity by means of grid connected power plants. During the calculation Tool to calculate emission factor for an electricity system methodology of UNFCCC is used. The main data is taken from TEİAŞ (Turkish Electricity Transmission Company), IPCC Guidelines for National Greenhouse Gas Inventories. Having such a tool and capacity to calculate the current emission factor makes TSKB distinctive compared with other financial institutions. By this means it is possible to calculate the emission reductions of the financed RE and EE projects. 5. Assessment of the outcome of the operation against the project development objective Financed renewable energy projects contain 12 hydroelectric power plants (HEPPs), 4 wind power plants (WPPs) and 1 geothermal power plant (GPP) of private sector. The total installed capacity of supported renewable energy projects were 569 MW with an expected annual electricity production of 2,386 GWh and this resulted in 971,116 tonnes of annual CO2 equivalent emission reduction. Similarly, 26 energy efficiency projects result in less energy usage in the industry (demand side), mainly in steel, cement, petro chemistry, chemicals, glass sectors. These investments resulted in 1,959 Tcal of energy savings and 1,115,021 tonnes of annual CO2 equivalent emission reduction. 6. Evaluation of the borrower s own performance during the preparation and implementation of the operation, with special emphasis on lessons learned that may be helpful in the future At the beginning it was estimated that most of the funds from the Project would be used to finance RE projects and it was hard to estimate the amount of EE financing because it was a new subject for both TSKB and TKB. In Project Appraisal Document it was assumed that the EE projects will be 10 percent of the funds extend for the Project. After the start of the Project it was observed that there was high potential for industrial Energy Efficiency investments so TSKB focused on EE financing. As a result, 74 percent of CTF was disbursed to EE projects and also approximately 40 percent of total loan was disbursed to EE projects. With contribution and concentration of PSREEEE, as of the end of June 2016, totally 73 energy efficiency projects of 45 companies were financed by TSKB. These projects result in approximately 3,500,000 giga calories energy saving and 1,900,000 tonnes of CO2e emission reduction, which are equal to approximately the need of a medium city with 350,000 households. In addition to that, the gained experience was also used for designing and handling resource efficiency credit lines. In line with the EE projects, with contribution of Renewable Energy (7221 TU), PSREEE projects of IBRD and other IFIs, TSKB financed totally 167 RE projects as of end of the end of June 2016, which is composed of 84 HEPPS, 20 WPPs, 6 biomass plants, 7 GPPs, 50 SPPs. These investments will have total installed capacity of 3,714 MW, when they are completed and their total investment amount is about 7.87 billion USD with 2.95 billion USD TSKB contribution. 60

77 TSKB gained a lot of experience during the Project mainly on the technical, environmental and social issues. Besides that, TSKB enhanced its internal capacity in the fields of renewable energy and energy efficiency. TSKB benefited from this experience in other credit lines of other IFIs too. In addition to accumulated technical experience, TSKB gained also a valuable reputation among the Turkish market and today TSKB is well known as a renewable energy and energy efficiency financier. TSKB is now considering resource efficiency (including EE) as one of its emerging business lines, as it has gained significant experience and knowledge through the Bank project. TSKB sees business opportunity in differentiating themselves from the other FIs who have also started to enter into the RE sphere. At the beginning of the PSREE, eligible projects for CTF financing was defined as mini hydros (less than 10 MW), solar, wind and EE projects. Later as expected, it was seen that environmental and social impacts of the mini hydro projects were not in proportion to its capacity and most of the time they required extensive environmental and social studies like bigger hydros so that low installed capacity projects were not specifically feasible in terms of both of both financial and environmentally/socially. This is why only two HEPP projects were financed through CTF Fund. These projects only received 5.5 mn USD funds from CTF. On the other hand, on contrary to initial expectation, EE projects took main portion of the CTF funds totaling 51.4 mn USD which also fueled TSKB s entrance to EE financing market. 7. Evaluation of the performance of the Bank, any co-financiers, or of other partners during the preparation and implementation of the operation, including the effectiveness of their relationships, with special emphasis on lessons learned Most of the projects financed under this facility were also partially financed by the funds that were extended through other IFIs like EIB, KfW, IDB and AFD. Since the standards of IBRD on safeguards (environmental and social issues) and procurement procedures are followed by other IFI s, this is an easing progress for TSKB to deal with other IFI s requirements. The documentation supplied and prepared for WB were always satisfactory for the other IFIs. Furthermore, other FIs, which also directly participate in the financing of those projects, are minimizing their risks within those projects. We appreciate the efforts made by IBRD in the approval process of Gürmat project, which is one of the biggest geothermal power plants constructed in Turkey. Geothermal energy production is one of the indigenous renewable sources, especially an expanding business line in Turkey in the last decade. Even though the emission reduction is a performance indicator of the Project, IBRD approved the project, whose emission factor is slightly higher than Turkey s grid emission factor. This process was concluded successfully after many site visits, detailed technical, environmental and social evaluation of the project with a close cooperation with IBRD. 8. Description of the proposed arrangements for future operation of the project, for example how the results of the project can be sustained or be built upon; for example how TKB/TSKB intend to continue the RE&EE business line After completing the PSREEE successfully, IBRD and TSKB signed a new loan agreement within the context of Geothermal Development Project on This is basically focused on financing of capacity drilling and geothermal power plant construction. TSKB believes that this will again be an example of good cooperation between IBRD and TSKB in new emerging energy business, which needs long-term financing. 61

78 With the help of PSREEE funds and experience, TSKB has developed a solid RE and EE portfolio so that TSKB was able to issue Turkey s first Green/SRI Bond in May 2016 with an amount of 300 mn USD. Furthermore, resource efficiency concept has developed with the help of PSREEE, which includes energy, material, water efficiency and waste minimization. PSREEE s RE portfolio was hydro intensive. On the other hand, with increasing number of wind projects developed, the RE portfolio shifted towards WPP side. Currently TSKB focused more on WPPs and solar power plants. TSKB and IBRD can cooperate closer in innovative renewable energy projects and resource efficiency areas in the near future. 62

79 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Not Applicable 63

80 Annex 9. List of Supporting Documents Climate Investment Funds (2013). Cost-effectiveness of CTF projects CTF Guarantee Agreement TF CTF Guarantee Agreement TF CTF Loan Agreement TF CTF Loan Agreement TF Guarantee Agreement 7714-TU Guarantee Agreement 7715-TU Impact assessment report of CTF in RE and EE market in Turkey 2013 Loan Agreement - Additional Loan TR and TR Loan Agreement - Additional Loan TR and TR Loan Agreement 7714-TU Loan Agreement 7715-TU National Renewable Energy Action Plan for Turkey, 2014 World Bank (2004). Project Appraisal Document for Turkey RE Project World Bank ( ). Aide Memoires and Management Letters World Bank (2009). Operational Manual for Private Sector RE and EE Project, TKB World Bank (2009). Operational Manual for Private Sector RE and EE Project, TSKB World Bank (2009). Project Appraisal Document for Turkey Private Sector RE and EE Project World Bank (2009). Turkey - Country Partnership Strategy Progress Report World Bank ( ). Implementation Status and Results Reports Seq. No World Bank (2011). Operational Manual for Private Sector RE and EE Project, TKB World Bank (2011). Operational Manual for Private Sector RE and EE Project, TSKB World Bank (2011). Project Paper on Additional Loan for Turkey Private Sector RE and EE Project World Bank (2011). Restructuring Paper for Turkey Private Sector RE and EE Project World Bank (2012). Turkey - Country Partnership Strategy Corrigendum World Bank (2014). Turkey - Country Partnership Strategy Progress Report 64

81 Annex 10. Supporting Information Risks and Mitigation Measures AT Appraisal At the time of appraisal, the overall risk rating was Moderate based on the experience with the preceding Turkey Renewable Energy Project and an assessment of additional risks due to the introduction of CTF resources and EE in the new Project. The PAD identified seven key risks (and mitigation measures) of which one was rated Substantial, two Moderate, and four Low (see Table 10.1 for an overview of the identified risks, mitigation measures and risk rating at appraisal). None of the identified risks materialized. Table Overview of Identified Risks, Mitigation Measures and Risk Rating at Appraisal Potential Risks Mitigation Measures Residual Rating after Mitigation International illiquidity and capital outflows. Inadequate demand from the private sector for new investment in emerging renewable technologies or EE. Sustained decline in electricity demand. Inadequate capacity to prepare and design EE sub-projects with clear focus on energy savings. Unwillingness of sub-project sponsors to follow safeguard policies. Delays in Project due to delays in approval of CTF terms, and/or because of inadequate clarity on processing requirements. The financial crisis may have an impact on the financial condition of the FIs. Overall Rating Actions of the Government included: (i) Strong capitalization and regulation, and modest bank credit to the private sector. (ii) Measures to protect FX liquidity and confidence in the banking system. (iii) Strong fiscal management and prudent monetary/regulatory policy to maintain confidence in the domestic financial system. FiTs for technologies such as solar, geothermal, etc. were raised. For EE, capacity building was planned as part of the Project for the FIs, industry and agencies involved in the subsector. Demand growth was forecast to slow down in 2009, but expected to rise again. Additional (preferably RE) capacity would still be needed since even with falling demand tight reserve margins would only relax slightly. Capacity building was planned as part of the Project, with some TA ongoing (UNDP, bilaterals). The Bank together with the FIs developed generic EMPs for specific RE technologies, which the FIs would then provide to sub-project sponsors. Moreover, Turkish environmental regulation was made more stringent for hydro projects. Finally, borrowers would apply the agreed requirements for safeguards (as specified in the OM). Turkey s CTF Investment Plan and the decision-stage PAD were submitted together to CTF in January It was expected that donors to CTF would put into effect their contribution in time. Measures were implemented that made the banking sector in Turkey more resilient than their peers in other countries, such as FX exposure limits, prudential requirements including higher target of capital adequacy ratio than BIS standards and detailed reporting requirements. Additionally, both of the FIs followed very conservative policies, such as provisioning policies and lower leverage ratios than their peers. Substantial Moderate Low Low Low Moderate Low Moderate 65

82 Adequacy of Results Framework The PDO indicators adequately monitor progress towards the three specific objectives of the PDO statement as shown in Table Although not captured in the PDO statement, the indicator framework included cost-effectiveness of CTF (Indicator 7) since CTF was particularly used to promote EE and newer RE technologies. RE EE RE Table PDO Indicators Measuring Progress Toward the PDO a No PDO Indicator Specific Objective i ii iii 1 Capacity of renewable electricity or thermal heating plants (MW) 2 Potential incremental production of electricity (GWh) 3 Incremental emissions reduction potential (1,000 tons CO 2) 4 Renewable electricity generation as a percent of total generation 5 Extent of savings in heat or electricity (Tcal) 6 Emission reduction potential (1,000s tons CO 2) 7 Cost-effectiveness of CTF (US$ of CTF per ton CO 2) 8 Generation capacity of hydropower constructed or rehabilitated (MW) 9 Generation capacity of RE (other than hydropower) constructed (MW) Note: a. The PDO was to (i) help increase privately owned and operated energy production from indigenous renewable sources within the market-based framework of the Turkish Electricity Market Law, (ii) enhance EE, and (iii) thereby help reduce GHG emissions. Overall, the target setting for the PDO indicators at appraisal was based on experience from previous projects, analysis of sample projects and scenario calculations (see Table 10.3). No PDO Indicator 1 Capacity of renewable electricity or thermal heating plants (MW) 2 Potential incremental production of electricity (GWh) 3 Incremental emissions reduction potential (1,000 tons CO 2) [from RE] 4 Renewable electricity generation as a percent of total generation 5 Extent of savings in heat or electricity (Tcal) 6 Emission reduction potential (1,000 tons CO 2) [from EE] 7 Cost-effectiveness of CTF (US$ of CTF per ton CO 2) Table Rationale for Setting PDO Indicator Targets at Entry Target Setting was based on loan amount, projected capital costs of different RE technologies (derived from past trends and assumptions) and an expected mix in the Project portfolio. typical capacity factors of different RE technologies and an expected mix in the Project portfolio. the assumption that the investments would offset the need for constructing incremental generation capacity, which comprised a mix of lignite and natural gas plants, resulting in avoided emissions of 1,031 tco 2/GWh. the Government s target to raise the share of electricity generated from renewable sources to 25% by loan amount, projected capital costs of different technologies (derived from past trends and assumptions), and expected mix in the Project portfolio. See Indicator 3. calculation of scenarios with different investment portfolios, which resulted in cost-effectiveness ranging from US$4.98 to US$8.16 of CTF per ton CO 2. 66

83 Nevertheless, at the time of restructuring/af in 2011, all indicators exceeded the originally defined targets for the end of the Project by far (with the exception of emission reductions from RE, see Table 10.4). Table Comparison of Original PDO Indicator Targets with Actual Values Achieved at the Time of Restructuring/AF in No PDO Indicator Original Target for Year 5 Achieved as of Sep 30, 2011 RE 1 Capacity of renewable electricity or thermal heating plants (MW) 1,973 (baseline 1, (baseline 0) 2 Potential incremental production of electricity (GWh) 1,814 3,315 3 Incremental emissions reduction potential (1,000 tons 2,270 2,157 CO 2) 4 Renewable electricity generation as a percent of total generation EE 5 Extent of savings in heat or electricity (Tcal) 554 1,504 6 Emission reduction potential (1,000 tons CO 2) Cost-effectiveness of CTF (US$ of CTF per ton CO 2) For example, the indicators for production of electricity (Indicator 2) reached 183 percent and energy savings (Indicator 5) reached 271 percent. A major reason for the overachievement of the original targets was probably the high availability of co-financing (sponsor equity and other borrowing sources), which was underestimated. At appraisal, other financing sources were estimated to be leveraged at a ratio of 1:0.92, while the actual leverage ratio for the entire Project was about 1: Other reasons may include differences between the projected and actual sub-project portfolio mix, and differences between projected and actual capital costs for RE and EE investments. Justification of Overall Outcome Rating Table Overall Outcome Rating Under Original Targets Under Revised Targets Outcome rating Satisfactory Satisfactory Rating value 5 5 Disbursement before/after revision of PDO IBRF IBRD Level Indicator Target values (US$ million) CTF CTF Weight (Disbursement before/after revision of PDO Level Indicator Target values as percentage of total disbursement) Overall IBRD CTF Total Total Total 1, % 50.8% 100% Weighted value Overall Outcome Rating - - Satisfactory 60 The leverage ratio for the entire Project is used as a proxy since the ratio for the period before restructuring/af is not available. 61 According to downloaded disbursement table from the Portal Disbursements Detailed Financial Activity 67

84