Sub-step 2b: Option III: Benchmark analysis While applying the Benchmark Analysis, Option III, the Equity IRR is selected as the financial indicator for the demonstration of the additionality of the project as permitted in the additionality tool.
Benchmark rate is calculated in line with “Tool for the demonstration and assessment of additionality” (v.7) which suggests using the government bond rates, increased by a suitable risk premium. The government bonds are used for determining the Benchmark because there is no pre-determined value for IRR or any other financial indicator for wind power projects in Turkey at the investment decision date of the project.
According to the Tool, benchmark can be derived from ‘Estimates of the cost of financing and required return on capital (e.g. commercial lending rates and guarantees required for the country and the type of project activity concerned), based on bankers views and private equity investors/funds’. As a banker view, according to Worldbank loan appraisal document28, threshold equity IRR for wind power investments (i.e. required returns of equity for wind power plant investors) in Turkey is 15%.
