Energy

1 8 The sudden drive for clean energy has been prompted by a confluence of motivations: a. projected increase in demand for power in these countries due to increased industrialization and improvement of living standards; b. to capitalize on abundant renewable energy resources to meet climate change targets in the Paris Agreement; and c. to free more hydrocarbon reserves to be supplied to international markets. The electricity markets in the region have traditionally been dominated by vertically integrated, state-owned monopolies relying predominantly on burning oil and gas (often in mature, inefficient power plants), as well as hydropower for their energy generation. RENEWABLE ENERGY HELPING ATTRACT FOREIGN CAPITAL INTO THE ELECTRICITY SECTOR The nascent renewable energy industry is viewed by governments in the region as a strategic path to partially privatizing the electricity sector and diversifying their economies. Attracting foreign capital into the electricity sector traditionally requires the host country to put in place an appropriate legislative framework, including addressing the following key issues: • managing foreign exchange risk including indexation of feed-in tariffs to the US Dollar if local currency is not pegged (or is subsequently de-pegged); • certainty and transparency in the regulatory landscape, including the scope of permits and consents requirements; • guaranteeing availability of foreign currency and the ability to convert local currency and make foreign transfers, e.g., to repay senior lenders or to make distributions to equity investors; • developing a standard form PPA, with industry standard provisions covering change in law, force majeure, material adverse government action and an offtaker/government buy-out following termination, as well as a bankable direct agreement with senior lenders (this has been a sticking point in the past in the region); • providing credit enhancement for local offtakers and utilities where there is no proven track record of making payments to independent power producers; and • grid-related issues such as how generators are treated following curtailment events and priority of dispatch and compensation payments to keep generators whole in the event of grid outages. Tax incentives are another device being used by governments in the region to improve the attractiveness of the country to overseas investors. We are also observing developers of pilot projects availing themselves of government support agreements with the host government in the absence of, or to further bolster, a robust existing legislative framework addressing the above issues. In addition to any contractual and statutory rights, overseas investors will also be keen to ensure their investment avails of protection from a bilateral investment agreement between their country of origin and the country in which the project is being developed. STATE OF THE MARKETS Uzbekistan is leading the way in the region. In May 2019, the Government of Uzbekistan ("GoU") adopted the "Law on use of renewable sources of energy" and the "Law on public private partnership." These laws have enabled the GoU to coordinate with IFC (under its scaling solar program) and ADB to develop the basis of a bankable PPP structure for renewable energy projects in the country. The first such project, the Nur Navoi 100 MW scaling solar project being developed by Masdar, reached financial close in December 2020, and commercial operations are scheduled for Q4 2021. Uzbekistan's power sector master plan aims to generate 15% of the country's electricity from renewable sources (excluding hydropower) within a decade. The plan targets the addition of 5 GW of solar power and 3 GW of wind power by 2030. 03 Update on the Central Asian Power and Renewables Energy Market INSIGHTS

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