ANNUAL REPORT 2018

25th YEAR

www.zorluenerji.com.tr ZORLU ENERJİ 2018 ANNUAL REPORT

www.zorluenerji.com.tr TABLE OF CONTENTS

OVERVIEW OF 2018 SUSTAINABILITY

6 Key Operational and Financial Indicators 84 Zorlu Enerji and Sustainability

10 Highlights of 2018 90 Corporate Social Responsibility

14 Chairman’s Letter ADDITIONAL DISCLOSURES AS PER 18 Board of Directors THE LEGISLATION

22 CEO’s Letter 96 Additional Disclosures as per the Legislation 28 Senior Management

CORPORATE GOVERNANCE ZORLU ENERJİ IN BRIEF 110 Risks and Assessment of the Board of 36 Zorlu Enerji in Brief Directors 40 Zorlu Enerji’s Installed Capacity and 114 Internal Audit Activities and Internal Investments Control System 46 Zorlu Energy Group’s Fields of Operation 116 Statement of Compliance with Corporate Governance Principles

THE ENERGY SECTOR AND ZORLU 117 Corporate Governance Compliance ENERJİ IN 2018 Report

50 The Global Energy Market Outlook 124 Corporate Governance Information Form

54 The Turkish Energy Sector in 2018 132 Board Committees

58 Activities of Zorlu Enerji in 2018 136 Board of Directors’ Evaluation Regarding the Board Committees 60 Electricity Generation 138 Statements of Independence 66 Electricity Distribution and Retail Sales

70 Electricity Trade and Electricity Sales to FINANCIAL INFORMATION Eligible Consumers 142 Consolidated Financial Statements and 72 Smart Systems Independent Auditor’s Report

74 Zorlu Solar 228 Investor Information

75 Natural Gas Distribution 229 Directory

78 Human Resources IF YOU HAVE ENOUGH POWER AND PASSION WITHIN YOU, YOU WILL HAVE THE OPPORTUNITY TO REALIZE YOUR DREAMS IN THE RESOURCES OF TODAY’S WORLD. Overview of 2018 2018 2018 28% 1,854 2017 2017 20% 1,016 2016 413 2016 34% 2015 2015 260 37% 186 2014 2014 23% EBITDA MARGIN (%) EBITDA EBITDA (MILLION TL) (MILLION EBITDA EBITDA reached TL 1.85 billion, representing an TL 1.85 billion, representing reached EBITDA Net debt/ growth. all-time high, with an 82% yoy 8.2x. 5.8x from declined to EBITDA during in financial markets the volatility Despite was 35 million of TL a net profit the year, in operating growth strong thanks to recorded profitability. 6 2018 2018 22% 6,730 2017 2017 17% KEY OPERATIONAL AND OPERATIONAL KEY 4,988 FINANCIAL INDICATORS* FINANCIAL 2016 2016 22% 1,224 2015 2015 23% 709 2014 10% 2014 807 GROSS PROFIT MARGIN (%) GROSS NET SALES (MILLION TL) NET SALES * Based on consolidated financial statements prepared in accordance with the Turkish Accounting Standards/Turkish Financial Reporting Standards Reporting Financial Standards/Turkish Accounting Turkish with the in accordance prepared statements financial * Based on consolidated Consolidated revenues increased by 35% yoy to yoy 35% by increased revenues Consolidated the full operation by driven billion in 2018, TL 6.73 March units from III GPP with two of Kızıldere and strong YEKDEM revenues increasing onward, electricity sales. in retail growth

OVERVIEW OF 2018 ***Net income/(loss) represents the income/(loss) attributable to theowners ofthe parent company. natural gasdistribution activities. **EBITDA calculation includesthedepreciation expense whichisreported underoperating expenses andfinancialincome from electricity and and theincome statement for 2017 were restated to reflect the consolidation of TrakyaGaziantepGaz. Gaz and Doğal Doğal Enerji DağıtımAŞ. to Pursuant the“Accounting for Business Combinations underCommon Control”, theCompany’s balance sheetsfor 2017 and2016 DağıtımAŞGaz (Gaziantep whichare DoğalGaz), engagedinregional gasdistribution, from Zorlu Group via itswholly-owned subsidiaryZorlu *On June29, 2018, Zorlu Enerjiacquired 90%oftheshares ofTrakya DağıtımAŞ BölgesiDoğalGaz (Trakya and Gazdaş Gaziantep DoğalGaz) Doğal * Financialstatements prepared inaccordance with theTurkish Accounting Standards andtheCapitalMarkets Board regulations SUMMARY BALANCESHEET (THOUSAND TL)-BASED ON CMBFINANCIALS* SUMMARY INCOME STATEMENT (THOUSAND TL)-BASED ONCMBFINANCIALS EBITDA Margin Net FinancialDebt Gross Profit Margin Gross FinancialDebt Net Profit/(Loss) for the Period*** Equity Total Liabilities&Shareholders’ Net FinancialExpenses Shareholders’ Equity EBITDA** Non-Current Liabilities Financial Income/(Expenses) Operating Profit/(Loss) before Current Liabilities Method Accounted for UsingtheEquity Share of Profit/(Loss) of Associates Total Assets Operating Income/(Loss) Non-Current Assets Gross Profit Current Assets Revenues (308,349) (224,240) 1,936,404 4,962,781 2,501,427 4,962,781 4,369,129 3,217,706 3,103,134 806,947 524,950 593,652 185,864 51,562 12,333 23.0% 82,132 63,911 10.2% 2014 2014 2,044,489 5,678,096 5,678,096 (263,407) (425,286) 4,872,348 4,149,059 3,990,513 2,881,629 805,748 260,257 7 709,417 751,978 127,445 162,541 145,187 16,824 22.9% 36.7% 2015 2015 4,494,570 6,904,232 (339,086) 6,074,846 7,620,067 7,620,067 6,787,053 1,223,594 3,263,291 1,545,221 268,620 -137,794 233,766 (4,034) 413,244 240,186 22.0% 33.8% (884) 2016 2016 8,683,808 5,034,629 6,029,976 2,566,334 (507,308) 12,125,603 12,125,603 9,559,269 1,060,998 8,314,740 1,016,430 4,987,911 605,758 656,158 829,136 20,096 35,087 20.4% 16.6% 2017 2017

13,749,333 (1,385,271) 6,729,806 17,163,860 17,163,860 11,279,727 1,486,057 6,208,212 1,249,854 8,586,531 3,414,527 10,681,151 1,853,991 1,295,015 2,369,117 34,548 44,923 27.5% 22.1% 2018 2018

ZORLU ENERJİ ANNUAL REPORT 2.19 1.23 1.07 2,460 32.0% Free Float Free 63,962,332,047 200,000,000,000 200,000,000,000 17.6% Korteks Mensucat Korteks Sanayi ve Ticaret AŞ Ticaret ve Sanayi 8 1.7% Group Other Zorlu Companies 48.7% AŞ Holding Zorlu Number of Shares in Free Float in Free Number of Shares High Yearly Low Yearly Price Closing Year-End (Million) Value* Market Total Number of Shares Total * As of December 31, 2018 * As of December SUMMARY PRICE INFORMATION FOR 2018 (TL) 2018 FOR PRICE INFORMATION SUMMARY ZORLU ENERJİ - SHAREHOLDING STRUCTURE - SHAREHOLDING ENERJİ ZORLU Zorlu Enerji Elektrik Üretim AŞ (“Zorlu Enerji” or “Company”) offered 20% of its shares to the public in 2000. to the public in 2000. 20% of its shares offered Enerji” or “Company”) (“Zorlu AŞ Üretim Enerji Elektrik Zorlu shares Enerji’s 32% of Zorlu ticker. under the ZOREN (BIST) on Borsa Istanbul quoted are shares Company’s The on traded are Zorlu Enerji shares Turkey, in company energy publicly listed the first Being on BIST. tradable are Bursa, ALL, BIST BIST 100-30, BIST 50, BIST 100, BIST STAR, included in the BIST MARKET and are the STAR end of 2018. as of the indices SUSTAINABILITY and BIST SERVICES BIST ELECTRICITY, BIST ZORLU ENERJİ SHARES ENERJİ ZORLU

OVERVIEW OF 2018 ZORLU ENERJİ -RELATIVE PERFORMANCE The Company’s share price declinedby 22%in2018 inlinewiththeBIST-100 Index. Zorlu Enerjihasamarket capitalization ofTL2,460millionastheend2018. ZORLU ENERJİ -SHAREPRICEPERFORMANCE TL 100 140 160 120 0,5 2,0 2,5 40 60 80 20 1,0 1,5

29.12.17 29.12.17 19.01.18

29.1.18 09.02.18

02.03.18 28.2.18 23.03.18

31.3.18 13.04.18

04.05.18 30.4.18 25.05.18

31.5.18 15.06.18 9

06.07.18

30.6.18

27.07.18 Daily Trading Volume (TLmn)

31.7.18 17.08.18

07.09.18 Share Price (TL) 30.9.18

BIST 100 28.09.18 ZOREN

31.10.18 19.10.18

09.11.18 30.11.18 30.11.18

31.12.18 21.12.18

200 300 400 500 600 100 TL MN TL

ZORLU ENERJİ ANNUAL REPORT The fluidized bed steam boiler withsteam bed fluidized The which a capacity of 2x40 tons/hour, the steam increase built to was Lüleburgaz capacity at generation Power Gas Cogeneration Natural and in March completed Plant, was production. began commercial OF NATURAL ACQUISITION DISTRIBUTION GAS FROM COMPANIES GROUP ZORLU operational achieve to In order under its umbrella, integration 90% of the Enerji acquired Zorlu Bölgesi Doğal of Trakya shares Doğal (“Trakya Gaz Dağıtım AŞ Gaz”) Gaziantep and Gazdaş (“GaziantepDoğal Gaz Dağıtım AŞ engaged Doğal Gaz”) - which are - gas distribution in regional a total for Group, Zorlu from million Turkish of 293 consideration its wholly-owned through lira, Enerji Dağıtım AŞ subsidiary Zorlu in June 2018. Doğal Trakya As of the end of 2018, in the Edirne- Gaz, operating serves region, Kırklareli-Tekirdağ subscribers, and Gaziantep 313,000 in the Doğal Gaz, operating serves region, Gaziantep-Kilis-Nizip subscribers. 309,000 COMMISSIONING OF COMMISSIONING BOILER THE NEW STEAM NATURAL LÜLEBURGAZ AT PLANT POWER GAS 10 COMPLETION OF THE COMPLETION AT EXPANSION CAPACITY İKİZDERE HEPP which work, rehabilitation The increasing for in July 2016, started capacity of İkizdere the installed Power and Hydroelectric Regulator Plant (“HPP”), in the İkizdere located 18.6 MW to from of Rize, district in completed MW was 24.94 plant and the power early March, operations. resumed in milestones One of the first generation power hydroelectric HPP was the İkizdere in Turkey, without technologically upgraded the principle ofcomprising people and nature, respecting work the rehabilitation through carried out with a responsible approach. citizen corporate awards and trade shows. shows. trade and awards HIGHLIGHTS OF 2018 OF HIGHLIGHTS with new investments, sustainability initiatives and numerous numerous and initiatives sustainability investments, with new Zorlu Enerji left behind a dynamic and productive year in 2018, in 2018, year and productive Enerji left behind a dynamic Zorlu The first unit of Kızıldere III unit of Kızıldere first The Plant (“GPP”), Geothermal Power field, in the Kızıldere developed the highest which possesses of geothermal in terms potential commissioned was in Turkey, energy second plant’s The 2017. in August unit, with 65 MW of installed in March onstream came capacity, on the provincial Located 2018. Denizli and Aydın, between border largest III GPP is Turkey’s Kızıldere plant in a single geothermal power with its 165 MW of installed facility capacity. COMMISSIONING OF COMMISSIONING OF UNIT THE SECOND KIZILDERE III GPP

OVERVIEW OF 2018 100 MW in total. 100 MWintotal. 30 MWinitiallyandwillreach upto country. The investments willbefor meet theelectricitydemandof different regions of Palestine to plants are plannedto bebuiltin Under theagreement, solarpower of Palestine. 2018 for meetingtheenergy needs Agreement” was signedinFebruary electricity, in2017, a“Joint Venture which distributes 25%ofPalestine’s Electricity Company (JDECO), signed withtheJerusalemDistrict pursuant to theLetter ofIntent projects. Inlinewiththisvision, abroad withitsrenewable energy experience inthefieldofenergy to its 25years ofknow-how and Zorlu Enerjicontinues to export PALESTINEIN SOLAR POWER PLANTS AGREEMENT TO BUILD Invest. Republic ofKazakhstan andKazakh Infrastructural Development ofthe Trade, theMinistry ofIndustry and Republic ofTurkey Ministry of Relations Board ofTurkey (DEIK), organized by theForeign Economic Investment Forum” inAnkara, as partofthe“Turkey-Kazakhstan The Letter ofIntent was signed between Turkey andKazakhstan. bilateral trade andinvestments The project aimsto increase power plantproject inKazakhstan. the development ofa50MWsolar Region signedaLetter ofIntent for and theAkimat oftheTurkestan of theRepublic ofKazakhstan, Zorlu Enerji,theMinistry ofEnergy KAZAKHSTAN PLANT INVESTMENT IN 50 MWSOLARPOWER performance. improve theirinitialsustainability use green loansto maintainor aims to encourage companies that rate willbereduced. This approach be raised; otherwise, theinterest base score, theinterest rate will obtaining arating lower thanthe If theCompany performs poorly, every year basedonthisscore. to Zorlu Enerjiwillbereviewed and theinterest rate to beapplied assessment agency Vigeo-Eiris, by theinternational sustainability governance willberegularly rated environmental, socialandcorporate Loan, Zorlu Enerji’s performance in Within thescope oftheGreen reduction ininterest rate. the term oftheloanthrough a its sustainability performance during encourage Zorlu Enerjito improve performance, Garanti Bankplansto loan to theCompany’s sustainability indexing theinterest rate ofthe Enerji’s working capitalneeds.By loan willbeusedto finance Zorlu Agreement. The US$10million signed Turkey’s first “Green Loan” Zorlu EnerjiandGaranti Bank TO ZORLU ENERJİ LOAN” FROMGARANTİ TURKEY’S FIRST “GREEN (FMO) andDenizbankAŞ. Development Finance Company Corporation (IFC), theNetherlands (EBRD), theInternational Finance Reconstruction andDevelopment 2020 from theEuropean Bankfor be undertaken untiltheendof of itsnetwork investments to term financing for thefunding obtained US$330millionoflong- Osmangazi Elektrik DağıtımAŞ INVESTMENTS DISTRIBUTION FOR ELECTRICITY PROJECT FINANCE INTERNATIONAL 11 transactions. their performance andfinancial awarded theprize basedon financial institutions, have been institutions, primarilybanksand the event heldsince 2013, various for theBonds&Loans Award. In Turkey are considered eachyear transactions invarious sectors in The most successful financial 200 millionTurkish lira. sector inTurkey withitssize of sukuk issue realized by thereal October 3,2017. This was thelargest issue, whichwas completed on Loans Award for itsleasecertificate Zorlu Enerjireceived theBonds& Achieving anotherfirst initssector, SUKUK ISSUE FOR ZORLU ENERJİ’S BONDS &LOANS AWARD ecosystem inTurkey. development oftheelectricvehicle stations that willcontribute to the of electricvehicle charging has accelerated theinstallation Zorlu Energy Solutions (ZES) generation technology brand in Istanbul, Zorlu Enerji’s next- charging stations at Zorlu Center After installing Turkey’s fastest FAST CHARGINGSTATIONS NON-STOP TRAVEL WITH

ZORLU ENERJİ ANNUAL REPORT ) 2 The Horizon 2020 Program is the is Program 2020 Horizon The and Innovation Research largest Union in the European Program of funding available with €80 billion Program The years. seven over major discoveries, take aims to from ideas and inventions creative markets the world to the laboratory world. sustainable a more create to will Program 2020 Horizon The Zorlu support to a grant provide the in its participation Enerji for the considering Project, GECO performance successful Company’s in this field. includes various Project GECO The and organizations institutions including France, countries from Iceland Kingdom, Italy, the United Enerji and Zorlu and Germany. University Technical Middle East from the only participants are conduct aims to project The Turkey. test field applications, international equipment and technologies, new of know- and enable the transfer to in order and experience how (CO carbon dioxide reduce emissions from geothermal energy geothermal energy from emissions inin line with the goals set forth of Electricity the Costs “Reducing Energy Renewable from Generation 2020 in the Horizon Sources” Program. with initiated Under the project, of a grant Agreement,” the “Grant €15 will be million approximately use in Enerji for Zorlu to provided of sustainable in the area R&D work of geothermal energy. generation to Enerji will contribute Zorlu with its vast Project the GECO in and R&D resources experience the field of geothermal energy. Zorlu Enerji, which is one of Zorlu in leading companies Turkey’s has been energy, renewable Sustainability included in the BIST ZORLU ENERJİ ZORLU IN THE BIST INCLUDED INDEX SUSTAINABILITY THE THIRD TIMEFOR 12 Zorlu Enerji continues to be the to Enerji continues Zorlu not Turkey, to gateway energy but also by its investments only by the through sharing its know-how international with realized projects has Company The cooperation. one of the become recently (Geothermal partners of the GECO Project, Gas Control) Emission support sustainable which aims to mineral management of natural resources. ZORLU ENERJİ BECOMES BECOMES ENERJİ ZORLU ONE OF THE PARTNERS PROJECT OF THE GECO As it continues to shape its to As it continues maximizing vision by sustainability and renewable the use of domestic Enerji Zorlu sources, energy it the value prove to continues and on the environment places the society with the certifications the independent from received institutions. Enerji In line with this vision, Zorlu with its subsidiary Zorlu together (“Zorlu AŞ Üretimi Doğal Elektrik energy first Turkey’s Doğal”) were and certify calculate to companies the i.e., footprints, their water used during the amount of water from good and service, of any life With consumption. to production Water ISO 14046 first Turkey’s in issued Certificates Footprint Enerji and Zorlu sector, the energy pioneers in Doğal, Turkey’s Zorlu to management, continued water on the place they the value prove and society. environment ZORLU ENERJİ IS THE ENERJİ ZORLU COMPANY ENERGY FIRST WATER ITS CALCULATE TO FOOTPRINT Bringing together the largest solar the largest Bringing together Turkey from companies energy Solarex the world, and across First company U.S. hosted Istanbul Series 6 Solar’s next-generation Solar modules, which Zorlu PV the For in 26 countries. distributes exhibited Zorlu Solar time, first the Series 6 thin film photovoltaic maximumsolar panels, which offer and superior durability efficiency Series production. in solar energy 6, which has a modular structure, with its attention great attracted installation. and easy thin form Creating awareness about solar awareness Creating with its experience, energy and technological knowledge Solar Zorlu innovations, Istanbul in the Solarex participated Fair and Technology Solar Energy its showcase to 2018, on April 5–7, and solutions. products newest ZORLU SOLAR EXHIBITED ZORLU SOLAR’S NEXT- FIRST PANEL GENERATION SOLAREX AT Thanks to new installations, ZES installations, new to Thanks the number of has increased can be simultaneously that vehicles and 40, to on its network charged can now owners electric vehicle within non-stop and freely travel triangle. the İstanbul-İzmir-Ankara The ZES branded electric vehicle vehicle electric ZES branded The installed first were stations charging areas rest and O68 the O3, O37 at and motorway on the İstanbul-İzmir Outlet and the Bozüyük-Sarar at following Through Susurluk-Festiva. the number of ZES investments, to increased stations fast-charging with further nine during the year, locations, three at installations Rest including the Afyon-Kolaylı and Bolu Uşak-Festiva Area, Highway.

OVERVIEW OF 2018 REPORT REPORT FIFTH SUSTAINABILITY third timeinarow. sustainability performance, for the Istanbul withahighcorporate of listed companies onBorsa Index, whichcomprises theshares trading activities,willserve their is engagedinelectricitysalesand provinces andZorlu Elektrik, which Afyonkarahisar, Kütahya andBilecik electricity salesinEskişehir, Uşak, OEPSAŞ, whichundertakes retail “Zorlu Enerji” brand. Accordingly, its group companies underthe Zorlu Enerji has consolidated all ZORLU ENERJİ BRAND OPERATE UNDERTHE ELEKTRİK STARTED TO OEPSAŞ ANDZORLU sector. accepted reporting system inthe Initiative (GRI), whichisaglobally set by theGlobalReporting Sustainability Reporting Guidelines accordance withthe“Basic” The report was prepared in 2016 and2017. performance oftheCompany in environmental practices and covers theeconomic, social,and fifth Sustainability Report, which in 2018, Zorlu Enerjipublishedits As partofitssustainability vision, carbon dioxide emissions and 4 of paper. Inaddition,62tons of thanks to thereduction intheuse 221 trees and1,101 liters ofwater EDMS inDecember 2015, saved and OEPSAŞ, whichstarted to use The regional offices ofOEDAŞ investment. reducing the useofpaperwiththis System (EDMS), significantly Electronic Document Management paperless office concept withthe Both companies have adopted the survey conducted by enVision. participated inthe“Green Office” Kütahya andUşak provinces, Afyonkarahisar, Bilecik, Eskişehir, and retail salesactivitiesin undertake electricitydistribution OEDAŞ andOEPSAŞ, which OFFICES” SELECTED AS “GREEN OSMANGAZİ REGION SALES OFFICESIN be completed in2019. and thesaleprocess isexpected to potential buyers have beeninitiated companies. Negotiations with plants andnatural gasdistribution opportunities for itswindpower potential saleandpartnership two different banks to evaluate and priorities,mandated in lightofitsstrategic objectives reviewed itsexisting operations markets inAugust 2018, Zorlu Enerji Following theturmoilinfinancial ENERGY COMPANIES DISTRIBUTION ANDWIND OF THENATURAL GAS MANDATE FOR THESALE its customers. business partners,thesector and and pioneeringcompany for its to provide services asanactive policy, Zorlu Enerjiwillcontinue With itsone-brand andone-logo “Zorlu Enerji”. customers underthetrademark of 13 influential CFOs. selected asoneofthetop 50most Enerji’s CFO ElifYener was criteria were evaluated. Zorlu of theirCFOs incriticalsuccess companies andtheperformance performance ofmore than 1,000 CFOs” survey, thefinancial the third “Top 50Most Influential cooperation withData Expert. In “Top 50Most InfluentialCFOs” in Fortune Turkey announced the OF THETOP 50CFOs ELİF YENERNAMEDONE 17 which was organized for the The Respect for People Award, THE SIXTHTIME PEOPLE AWARD FOR THE RESPECTFOR ZORLU ENERJİ RECEIVES for thesixthtimein2018. with theRespect for People Award criteria, Zorlu Enerjiwas presented rate. Having fulfilledalltheeligibility highest andthefastest response most employment andhave the job applications andprovide the companies that receive themost realized as0.93 seconds. about theirapplications was of customers askingfor information subscribers astheaverage calltime but alsosaved timefor their the damageto theenvironment and OEPSAŞ notonlyminimized Thanks to theEDMS,OEDAŞ total. sheets ofA4paperwere saved in prevented. Asaresult, 1,835,000 tons ofsolidwaste production were th timein2018, isawarded to

ZORLU ENERJİ ANNUAL REPORT anniversary in 2018. From day day From in 2018. anniversary th one, we have focused on success. on success. focused have we one, we of a century, During this quarter - which story our introduced have plant - with a single power started committed remain We the world. to adding our growth, our strong to of our the excitement to experience day. first both for year not an easy was 2018 economy. and the Turkish the world and the U.S. between wars Trade developments, China, Brexit-related hike rate Reserve’s Federal the U.S. borrowing decisions, increasing and and ongoing political costs, have geopolitical uncertainties of rates the growth affected the world. across countries suit with the OECD, Following for its forecast which reduced to 2019 for growth global economic risk of trade increased 3.5% due to the IMF cut its global growth wars, 3.7% which was 2019, for forecast Outlook Economic in the World 2018, published in October Report 3.5% in January 2019. to DearStakeholders, our celebrated Enerji, we Zorlu At 25 14 CHAIRMAN’S LETTER CHAIRMAN’S

OVERVIEW OF 2018 anti-inflation program anddeclining 2019 withthecontribution ofthe starting from thesecond halfof in. Inflation is expected to decline economic rebalancing haskicked the economy indicates that the in netexports’ contribution to down since August, theincrease and investments have beenslowing change. Whiledomestic demand defined asbalancing,discipline, and objectives oftheprogram were current account deficit. The main 2019, regional issues, inflation, and effects ofglobaldevelopments in The NEPfocuses onthenegative 2.3%, respectively. for 2018 and2019 are 3.8%and Finance, theprojected growth rates Turkey Ministry ofTreasury and announced by theRepublic of New Economic Program (NEP) respectively. According to the 3.5% and0.4% in2018 and2019, the Turkish economy willgrow by countries, theIMFpredicts that Turkey andmany otherdeveloping Reducing itsgrowth forecasts for billion. for exports, whichreached US$168 2018 turnedoutto bearecord year Despite slower domestic growth, activity anddomestic demand. in financialmarkets oneconomic adverse impactsofthevolatility 1.6% inthethird quarter dueto economic growth decelerated to 7.2% and5.3%,respectively, the two quarters withgrowth rates of showed strong growth inthefirst Although theTurkish economy volatility inexchange rates. risks, andthejumpincreased with theUnited States, geopolitical developments, tension inrelations despite theglobaleconomic out withitsgrowth performance Turkey, ontheotherhand,stood CONTINUED TO GROW TURKISH ECONOMY quarter oftheyear. were alsocompleted inthefirst Plant from 18.6 MWto 24.94 MW, Regulator andHydroelectric Power the installed capacityofİkizdere The rehabilitation works to increase with 65.5MWofinstalled capacity. was commissioned inMarch 2018 a total installed capacityof165MW, Geothermal Power Plant,whichhas 2018. The second unitofKızıldere III renewable energy investments in to remain committed to our As Zorlu Enerji,we continued capacity brought onlinein2018. accounted for 93% ofthenew and renewable energy sources Turkey’s generation mix,domestic and renewable energy sources in increasing theshare ofdomestic 2018. Inlinewiththestrategy of of Turkey’s energy agendain security were at theforefront policies andincreasing supply Domestic andrenewable energy energy policies. energy, new technologies and the coming perioddriven by green fastest growing energy source in is expected to betheworld’s consumption. Renewable energy response to therapidly increasing energy sources stand outin by 28%until2040. Renewable energy consumption willincrease 2018 Report projects that global The KPMGEnergy Sector Outlook FOREFRONT TO REMAINAT THE RENEWABLE ENERGY the world economies. to present asignificantrisk for all The slowdown inChinacontinues are expected to continue in2019. Abroad, theeffects oftrade wars exchange rate andinterest rates. 15 2018, afirst in Turkey. car-sharing platform “electrip” in this end,we introduced ourelectric use ofelectricvehicles inTurkey. To foremost focused onspreading the Systems in2018. We first and to develop ourwork on Smart At Zorlu Enerji,we continued individual, societyandtheplanet. the future prosperity ofthe “sustainable solutions”that ensure we remain focused ondeveloping knowledge withallitsstakeholders, developments andshares its that rapidly adaptsto technological future. Asaninnovative institution brains andtools to buildabetter believe that we have thenecessary appliances to electronics, we energy to textiles, household operates indifferent sectors, from solutions. AsaGroup which through innovative technological future by designingasmarter life our dream ofbuildingabetter At Zorlu Group, we want to realize WITH SMART SYSTEMS SUSTAINABLE SOLUTIONS FOCUS ONGENERATING export ofthesepanelsto Jamaica. in Turkey. We alsomadethefirst completed thefirst installations distribution ofthesepanelsand power applications. We started for ourindustrial rooftop solar membrane-based solarpanels in Turkey for the production of domestic solarpanelmanufacturers energy. We cooperated with which offer highpotential insolar Middle East andGulfcountries, business opportunitiesacross the the year. We alsocloselyfollow Palestine andKazakhstan during undertake solarpower projects in we signednew agreements to on solarenergy. Inthiscontext, In 2018, we continued ourwork

ZORLU ENERJİ ANNUAL REPORT 16 Sincerely yours, Sincerely ZORLU Zeki Chairman WE CONTINUE TO TO WE CONTINUE GREAT WITH WORK COMMITMENT! steps firm Enerji is taking Zorlu a responsible As the future. towards which and pioneering organization, we 25 years, for been have we projects value-added will develop and the energy the economy for our country, to add value sector, dedication with utmost and work of our country. the future for like I would On this occasion, our thank our employees, to partners, business shareholders, their for and all our stakeholders and support. dedication In line with this vision, in 2018 we we In line with this vision, in 2018 company energy became the first certify and calculate to in Turkey and receive Footprint our Water Footprint the ISO 14046 Water Turkey’s We signed Certificate. with Loan agreement Green first year the third Bank. For Garanti included in the were we in a row, which Index, Sustainability BIST of listed includes the shares with on Borsa İstanbul companies sustainability a high corporate performance. GUIDED BY GUIDED BY SUSTAINABILITY understanding with the work We is not a choice sustainability that towards but a responsibility generations. and future current is a guide sustainability Therefore, shape our sustainability us. We for in line with the objectives policy change, climate of combating management of greenhouse efficiency, energy gas emissions, resources of natural conservation stakeholder and responsible our continue and we dialogue, pace. steady at a efforts In tandem with electrip, we we electrip, with In tandem ZES digital brand launched our address to Solutions) Energy (Zorlu - the lack of a hurdle an important electric - for infrastructure charging Under the ZES in Turkey. vehicles building Turkey’s are we umbrella, for network station charging fastest primarily Starting electric vehicles. to continue with the big cities, we stations charging on installing work throughout electric vehicles for Turkey.

OVERVIEW OF 2018 COMMITMENT WE CONTINUE TO COUNTRY. FOR THE FUTURE OF OUR WORK WITH GREAT 17

ZORLU ENERJİ ANNUAL REPORT 18 Bekir Ağırdır Bekir Chairman Vice the Department of Business from graduated Bekir Ağırdır (1956–Denizli) Middle at Sciences, and Administrative of Economics Faculty Administration, as a Sales Manager and then working before in 1979 University Technical East 1980 and between AŞ Malzemeleri Bilsan Bilgisayar Manager at Deputy General 1984 and between Ltd. Meteksam at as the Sales Coordinator 1984. He served Basım Sanayi ve Malzemeleri Pirintaş Bilgisayar Manager at 1986 and as General Manager General as the Deputy and 1996. He then served 1986 between AŞ 1996 and 1999 and as General between AŞ Sanayi Defter ve Kâğıt Atılım at between AŞ Teknolojileri Bilgi ve PMB Akıllı Kart Member at Manager and Board (History Vakfı Tarih at and 2005, he worked 2003 Between 1999 and 2003. Ağırdır Mr. Manager. and then as General as a Coordinator of Turkey) Foundation ve Araştırma KONDA Member at Manager and Board has been the General Chairman of the Board Vice as the 2005. Appointed since Co. Danışmanlık Ltd. Ağırdır Mr. 8, 2018, Meeting held on May Annual General 2017 Enerji’s Zorlu at namely Vestel companies, Group other Zorlu of two on the Boards also serves AŞ. Ticaret ve Sanayi Elektronik and Vestel AŞ Ticaret ve Sanayi Eşya Beyaz Chairman business textile in the family-owned began his career Zorlu Zeki (1939–Denizli) Zorlu Zeki Trabzon, in store textile his first opened in Babadağ, Denizli. Having Holding Zorlu founded Zorlu Mr. in Bursa in 1976. of Korteks laid the foundations the Holding’s to and added Vestel Ahmet Nazif Zorlu with his brother together and in the foundation a critical role in 1994. He also played portfolio business estate and real tourism in the energy, companies of numerous acquisition also Zorlu Enerji, Zeki of Zorlu as Chairman his role In addition to industries. Holding and as Chairman of the Zorlu Chairman of Zorlu as the Vice serves also Zorlu Mr. industries. estate and real in textile operating companies Group Industry of the Textile President in NGOs. He is the Vice roles active assumes of Exchanges of Chambers and Commodity Union (The of TOBB Assembly and Business of BUSIAD (Bursa Industry on the Board served Having Turkey). a member of the International is currently Zorlu Zeki years, two for Association) Management Emergency and Disaster (Bursa BUFAD Union, Cooperation Patent of Uludağ University, the Empowerment for the Foundation Association), Synthetic of Artificial Quality), SUSEB (Association Society for (Turkish KalDer for and the Association Foundation, Bursa Research the Fiber Manufacturers), and Technology. Competition International Zeki Zorlu Zeki BOARD OF DIRECTORS BOARD

OVERVIEW OF 2018 as aBoard Memberat Zorlu Holdingand various otherZorlu Group companies. 1998. Inadditionto hisboard membership at Zorlu Enerji,Mr. Zorlu alsoserves operations. Mr. Zorlu started servingasaBoard Memberat Zorlu Holdingin 1988 andmanagedtheirforeign market research andbusiness development started to serve inmanagerialpositionsat various Zorlu Group companies in administration intheUK,OlgunZorlu beganhisprofessional career in1986.He (1965–Trabzon) Uponcompleting hishighereducation intextiles andbusiness Board Member Olgun Zorlu (Turkish HomeTextile Industrialists’ Association). Denizli), BASIAD (BabadağIndustry andBusiness Association), andTETSIAD Association), DENSIR(Education andCulture Foundation ofthePeople of (Foreign Economic Relations Board), TUSIAD(Turkish Industry andBusiness AŞ. With akeen interest inNGOs,AhmetZorlu sitsontheBoard ofDEIK Vestel Elektronik Sanayi ve Ticaret AŞ andVestel Beyaz Eşya Sanayi ve Ticaret at numerous Zorlu Group companies operating indifferent industries, primarily Enerji, AhmetZorlu currently serves asChairmanorVice ChairmanoftheBoard metallurgy, anddefense. Inadditionto hisdutyasaBoard Memberat Zorlu as householdappliances, consumer electronics, energy, property development, manifest itselfinmore companies operating inawiderange ofindustries such Mr. Zorlu’s entrepreneurialism, whichbeganwiththetextile sector, went onto 1994, AhmetZorlu openedthedoorto new linesofbusiness for Zorlu Holding. companies undertheumbrella ofZorlu Holdingin1990. Acquiring Vestel in Zorlu setuphisfirst company, Korteks, in1976 and consolidated allthegroup the foundations ofZorlu Holdingtogether withhisbrother, Zeki Zorlu. Ahmet Trabzon. In1970, Zorlu moved thecompany’s headquarters to Istanbul andlaid owned textile business inBabadağ,Denizli.Heopenedhisfirst textile store in (1944-Denizli) AhmetNazifZorlu beganhisprofessional career at afamily- Board Member Ahmet Nazif Zorlu 19

ZORLU ENERJİ ANNUAL REPORT 20 Bekir Cem Köksal Cem Bekir Member Board the Department of Mechanical from graduated Köksal Cem (1967–Ankara) at degree a Master’s in 1988 and completed Boğaziçi University Engineering at Manager Deputy General begun serving as Having in 1990. University Bilkent in 2002. Financial Officer as Chief joined Vestel Köksal Mr. Denizbank in 1997, at of Group Vestel at Member Committee as an Executive serves He currently Zorlu Holding. Mr. at Group and as the Head of Financial Affairs Companies General Ordinary 2011 Enerji’s Zorlu Member at as a Board selected was Köksal since. year every and has been reelected 31, 2012 Meeting held on May Assembly Mehmet Emre Zorlu Emre Mehmet Member Board the Department of Electrical and from graduated Zorlu Emre (1984–İstanbul) a master’s in 2006 and completed University Koç Engineering at Electronics in of Essex the University Management at and Technology in Innovation degree of Companies Group Vestel at Kingdom in 2008. He began his career the United also Zorlu Enerji, Emre Zorlu membership at his board In addition to in 2009. companies. Group Holding and other Zorlu of Zorlu on the Boards serves and of Turkey Association Businessmen is a member of the Young Zorlu Mr. Turkey. Endeavor Selen Zorlu Melik Selen Member Board of Business the Department from Melik graduated Selen Zorlu (1975–Trabzon) at Sciences and Administrative of Economics of the Faculty Administration Denizbank in 1998. at career her professional She began Uludağ University. Denizbank, she joined the bank’s of the Bursa branch at her internship Following in a number of positions at working After in 1999. Program Management Trainee at Program Certificate a Marketing attended Mrs. Melik office, head Denizbank’s the Korteks at began working She in 2001. Berkeley of California, the University in company Member of the same and became a Board in 2002 Factory Yarn Enerji Zorlu Member at has been serving as a Board Melik 2004. Selen Zorlu 2002. since

OVERVIEW OF 2018 Ltd., İzmirEnternasyonel Otelcilik AŞ andEntegre Harç Sanayi ve Ticaret AŞ. Gayrimenkul Yatırım OrtaklığıAŞ, TFI GıdaYatırımları AŞ, Burger KingChinaJV Mr. Araz serves asaBoard Memberat Ata Yatırım Menkul KıymetlerAŞ, Ata Eşya Sanayi ve Ticaret AŞ, whichare otherZorlu Group companies. Inaddition, Board Memberat Vestel Elektronik Sanayi ve Ticaret AŞ andVestel Beyaz at Zorlu Enerji’s 2017 AnnualGeneral MeetingheldonMay 8,2018, isalsoa senior positionsat Ata Group. Mr. Araz, whowas appointed asaBoard Member (2008-2013) andEnka İnşaat ve Sanayi AŞ (2012-2018). He currently serves in Member at anumberofcompanies, includingZorlu EnerjiElektrik Üretim AŞ Mr. Araz worked asaconsultant invarious majorprojects andserved asaBoard position incorporate andinvestment bankinginTurkey. After leaving Interbank, playing aleadingrole inelevating Interbank to arespected andpioneering Manager at Interbank AŞ, asubsidiaryofÇukurova Holding,for eightyears, expansion ofCitibank’s operations inTurkey. Helater served astheCEO/General New York offices and assumed key responsibilitiesinthe establishment and He served inexecutive positionsat the bank’s Istanbul, Bahrain, Athens, and his career infinance andbanking at CitibankN.A.’s office in Turkey in 1977. Management Program at Harvard Business Schoolin1988.MelihAraz started where hewas aUSAID/TEV scholar. Mr. Araz alsoattended theExecutive He completed hisMBAat Kelley SchoolofBusiness, IndianaUniversity, in1975, DegreeBachelor’s from Ankara University, Faculty ofPolitical Science, in1972. (1948–İstanbul) MelihAraz isagraduate ofRobert College andreceived his Board Member MelihElmas Araz Board Memberat Eczacıbaşı HoldingAŞ. Sanayi ve Ticaret AŞ andVestel Beyaz Eşya Sanayi ve Ticaret AŞ -andisalsoa serves ontheBoards oftwo otherZorlu Group companies -Vestel Elektronik Zorlu Enerji’s 2017 AnnualGeneral MeetingheldonMay 8,2018. Ms.İldenizalso Turkish Philanthropy Funds.Ms.İldenizwas appointed asaBoard Memberat Valley Network andaBoard MemberoftheAmerican-Turkish Societyand (TOA) Magazinein2015. Ms.İldeniziscurrently thePresident ofTUSIADSilicon the “Third Most Influential Turkish-American Woman” by the Turks ofAmerica Persons inBusiness” by theSanFrancisco-based Fast Company Magazineand Year” in2006by Dünya Newspaper andasoneofthe“Top 100Most Creative selected asthe“ITFemale oftheYear” in2004and“Female Executive ofthe innovation, technology, andfuture visioninSilicon Valley andIstanbul. Shewas with 26millioncustomers. Ms.İldenizassumes apioneeringrole inthefieldsof a NYSE-listed company listed that controls halfoftheU.S. smartenergy market Ayşegül IldenizbecametheChiefOperating Officer atSilver SpringNetworks, the New Devices Group at Intel Headquarters inSilicon Valley in2013. In2016, Europe, before beingappointed to thepositionofGlobalVice President of East, Turkey andAfrica, overseeing 67 countries andaBoard MemberofIntel chronologically, asGeneral ManagerofIntel Turkey; Regional Director, Middle the leadingglobalmicroprocessor company, in1998,where sheserved, Arts from SanFrancisco State University. Ms.İldenizjoinedIntel Corporation, from BoğaziçiUniversity andamaster’s degree inElectronic Communications (1969–İzmir) Ayşegül degree İldenizhasabachelor’s inBusiness Administration Board Member Ayşegül İldeniz 21

ZORLU ENERJİ ANNUAL REPORT DearStakeholders, is sector energy world The change. a dramatic undergoing an going through are Oil prices of volatility. period unprecedented of shale oil and While production is growing shale gas in the U.S. LNG has been claiming rapidly, of the world’s share a greater with increased gas trade natural and Qatar in Australia production China is becoming besides the U.S. gas importer. largest the world’s becoming is energy Renewable important because increasingly costs of the decline in investment fight against to and its contribution Solar and wind change. climate leading this in particular are energy On the other hand, global growth. rise to demand continues energy the global turbulence. despite is also map of the world energy The had the the U.S. changing. In 2000, in the consumption energy highest the European by followed world, Union (EU) and China. Recently, change has been a surprising there first China takes in the ranking. the by followed today, place change is This and the EU. U.S. in the coming continue to expected estimates, to According years. to behind Africa the EU will fall as China and India are fifth place, two the top occupy to projected change will This 2040. spots by too. investments energy affect 22 CEO’S LETTER CEO’S

OVERVIEW OF 2018 and smarthomesystems. distributed generation, smartcities, vehicles, energy management, as energy storage systems, electric be builtonnew applications such understanding that thefuture will systems andtechnologies, withthe will continue ourwork onsmart and changingenergy sector. We pace withtheevolving technology future needsandhelpTurkey keep service modelswhichwillmeet priority to innovative business and taking place. We give strategic world andadaptto thechanges strategic role we play intheenergy At Zorlu Enerji,we review the and plans. strategies for new investments develop fast andaccurate countries andcompanies to This rapid changeleadsboth ENERGY COMPANY A NEXT-GENERATION FORWARD TO BECOME WE TAKE FIRMSTEPS markets accounted for only20%. demand, whileAsian emerging more than40%ofglobalenergy and NorthAmericaaccounted for and India.Yet, until2000, Europe emerging markets, ledby China that thegrowth willcome from the the detailsofthisincrease, we see oriented policies.Whenwe look at development ofsustainability- in energyno efficiency and demand ifthere isnoimprovement greater increases inglobalenergy Undoubtedly, we could seeeven by 2040. energy demand by more than25% population willincrease global 1.7 billionincrease inurban economic growth andtheexpected report’s New Policies Scenario, striking data. According to the in theglobalenergy sector with Report clearlyreveals thechanges The World Energy Outlook2018 ENERGY DEMAND CHANGING GLOBAL investments inthesector. also ledto aslowdown innew tightening financing conditions addition, increased uncertainty and restructure theexisting loans.In affected, leading to aneed to energy companies were adversely balance sheetsofhighlyleveraged based inTurkish lira, cashflows and for YEKDEMsales) are primarily finance loans,and revenues (except denominated long-term project are mostly financed withFX the investments inthesector starting from August. Because exchange rates andinterest rates the sector withtheincrease in even more importantfactor for sustainability hasbecome an On theotherhand,financial increasing supplysecurity. renewable energy sources and the development ofdomestic and the energy sector mainlyincluded year for Turkey. The agendaof scenarios, 2018 was alsoanactive Given theseglobalfacts and ENERGY SECTOR YEAR FOR THETURKISH 2018: QUITEANACTIVE in total energy mix. energy to rapidly increase itsshare investment costs helprenewable developments, anddeclining future. Policy support,technological expected to risefurtherinthe energy consumption, andthisis accounts for almost 20% ofglobal applications. Today, electricity energy technologies anddigital more affordable renewable the spreading ofelectricvehicles, with new developments suchas future energy demand,along role ofelectricityinmeeting development goalsistheincreasing achieving theworld’s sustainable One ofthecriticalfactors for companies are inChina. Europe, whiletoday, 6ofthetop 10 terms ofinstalled capacitywere in biggest power companies in Fifteen years ago, theworld’s 23 85% ofthenew capacitythat came this fieldhas exceeded 5,000 MW. Turkey’s total installed capacity in solar energy with1,642MW, and biggest capacity increase was in in 2018. Asinrecent years, the with anetincrease of3,351 MW Turkey hasreached 88,551MW, The total installed capacityin kWh in2018. 1.8% year-over-year to 300billion consumption increased by only the economy. Asaresult, electricity in financialmarkets in August on the negative effects ofthe volatility the second halfoftheyear dueto Electricity consumption declinedin began to operate inSeptember. regional hubinnatural gastrade, gas market andmakingTurkey a towards liberalizing thenatural Market, whichisanimportantstep Organized Natural Wholesale Gas Akkuyu NPP, was alsoinitiated. The Turkey’s first nuclearpower plant, During theyear, theconstruction of activities intheMediterranean Sea. ship, Fatih, beganitsexploration in 2017. Turkey’s first oildrilling cubic meters was commissioned phase ofwhichwith550million StorageGas Facility, thefirst phases oftheTuz GölüNatural financing was obtained for thenew commissioned; aUS$1.2billion storage regasification unit was The country’s first LNGfloating pipeline project was completed. of theTurkStream natural gas construction oftheseasection of Turkey, was commissioned; the the future energy supplysecurity pipeline, whichisimportantfor were: theTANAP natural gas the Turkish energy sector in2018 The importantdevelopments in sector. sustainable growth intheenergy investments to continue for a of thesector in2019 inorder for continue to behighontheagenda transition to cost-based pricingwill terms, increased predictability, and to new financingwith favorable Financial sustainability, access

ZORLU ENERJİ ANNUAL REPORT of installed capacity. We aim to to aim We capacity. of installed plant in power the commission 2019. a “Joint also signed we In 2018, with Agreement” Venture Electricity Jerusalem District 25% which distributes Company Under the electricity. of Palestine’s build solar plan to we agreement, regions of plants in different power MW of installed with 30 Palestine phase (which capacity in the first 100 MW) up to can be expanded of meet the electricity demand to the country. also signed a “Letter we In 2018, with the Kazakhstan of Intent” and the of Energy Ministry Region of Turkistan Governorate a 50 MW solar power develop to in Kazakhstan. plant project in sales steps concrete took We solar panels, a of and distribution In year. last started we business started we market, the domestic membrane sell and distribute to solar panels photovoltaic in roofs industrial for produced the local solar with cooperation product, This panel manufacturers. with solar panels which integrates provides system, the membrane industrial solution for an innovative export of the first The roofs. Jamaica. made to was product become Solar aims to Zorlu field leader in the the market for applications of solar energy In in Turkey. rooftops industrial off its kicked the company 2018, Ecosystem Solution Partnership be to which is planned application, of 12 regions in a total implemented will start project The in Turkey. solution partners, 24 with up to which will support the marketing, of the and expansion promotion of the products areas application distributes. the company we of 2018, quarter In the first work the rehabilitation completed Regulator İkizdere at undertaken 24 WE ARE GROWING IN GROWING WE ARE ENERGY RENEWABLE shape our Enerji, we Zorlu At of all thesegoals and plans in light national global developments, In this and regulations. strategies, on renewable our focus context, to aim We continues. energy diversity our resource improve of the share and further increase (geothermal energy renewable in particular) in and solar energy Our total portfolio. our generation MW as of is 1,086 capacity installed energy Renewable the end of 2018. of our 87% for account sources and in Turkey capacity installed capacity. installed 64% of our total important completed we In 2018, in the and investments projects energy. renewable field of increased we In geothermal energy, 305 MW, capacity to installed our total in player largest Turkey’s becoming this field. field, geothermal In the Kızıldere in potential which has the highest we of geothermal energy, terms of unit the second commissioned Power III Geothermal the Kızıldere Plant with 65.5 MW of installed of 2018. quarter capacity in the first largest III GPP is Turkey’s Kızıldere plant in a single geothermal power in and is also one of the few facility capacity with an installed the world of 165 MW. in our drilling work continue We and plan the Alaşehir II GPP project in 2019. ground break to on solar our work also continue We energy another renewable energy, continue in. We believe we source finance project on raising work to I GPP project, the Bahawalpur for which will be built in the Punjab with 100 MW of Pakistan province of the licensed power plants to be plants to power licensed of the YEKDEM has reached included in 21 GW. As a result of the increase in of the increase As a result the Renewable rates, exchange Support Resources Energy Mechanism (YEKDEM) continued the maintain its appeal for to plants in 2018. energy renewable capacity of the installed The plants, which power licensed YEKDEM in 2018, from benefited while in total GW 19.3 to amounted capacity installed the total 2019, for Another important development Another important development the was in 2018 in the sector resort of the last implementation which supply tariff (“LRST”), this With on April 1, 2018. started which is an important practice, of the the liberalization for step with consumers market, energy an annual electricity consumption 50 million kWh became least of at is above which the LRST, subject to of the instead price, the market this limitFor 2019, tariff. national 10 million kWh. This to reduced was support the to decision is expected in market in the free sales volumes 2019. Because the increase in energy in energy Because the increase not was costs procurement tariffs, fully in the national reflected the number of eligible consumers the sharply during decreased the number of Accordingly, year. their right exercising consumers up to which went of eligibility, to decreased 4.8 million in 2017, the end of 2018. by 139,000 In 2018, BOTAŞ took an important took BOTAŞ In 2018, a to transitioning towards step and increased pricing cost-based gas used in of natural the price to 103% by electricity generation rates exchange the rise in reflect in increase The and oil prices. gas of natural costs generation reflected partially plants was power and the average prices, in market market in the spot electricity price in 231.6 TRY/MWh 42% to by rose 2018. onstream in 2018 was in renewable in renewable was in 2018 onstream enery sources.

OVERVIEW OF 2018 to optfor alower capacityinstead. local peopleandnature andchose our principleofshowing respect to we didnotwant to compromise on its electricitygeneration potential, of thepower plantfurther, given could have increased thecapacity company approach. Althoughwe continued to applyourresponsible again. Inthisinvestment, we and theplantresumed operations MW 24.94 capacity fromto 18.6MW to increase theplant’s installed hydroelectric power inTurkey, one ofthefirst milestones in and Hydroelectric Power Plant, to any currency risk. cash flows, we willnotbe exposed accordance withOEDAŞ’s TLbased will usethisloaninTurkish lira in done inDecember. Becausewe amounting to TL600millionwas of 2020. The first loandrawdown will beundertaken untiltheend finance itsinvestments, which (FMO) andDenizbankAŞ to Development Finance Company Corporation (IFC), theNetherlands (EBRD), theInternational Finance Reconstruction andDevelopment from theEuropean Bank for Elektrik DağıtımAŞ (“OEDAŞ”) financing obtained by Osmangazi the US$330millionlong-term developments of2018 for uswas One ofthemost important INVESTMENTS DISTRIBUTION FOR OURELECTRICITY TERM PROJECT FINANCE WE OBTAINED LONG- platform “electrip”, afirst in Turkey, launched ourelectric car-sharing year in2018. Accordingly, we established in2017 hadanactive Department whichwe have of thefuture, theSmartSystems becoming theenergy company In linewithourstrategy of COMPANY OFTHE FUTURE BECOMING THEENERGY TO OURCLAIMOF WE REMAINCOMMITTED profitability. Oursales revenues strong results inoperating was ayear inwhichwe achieved interest rates duringtheyear, 2018 the increase inexchange rates and Despite thepressures causedby PROFITABILITY ENERJİ INTERMSOF YEAR FOR ZORLU 2018 HAS BEENASTRONG IN FINANCIALMARKETS, DESPITE THEVOLATILITY in thisfield Turkey. channels that willbeabenchmark as possible, introducing digital Elektrik DağıtımAŞ assoon Perakende Satış AŞ andOsmangazi customers ofOsmangaziElektrik mobile applications for the for them.We alsoplanto launch mobile application developed via theirsmartphonesusingthe payment channelsandcampaigns access past billinginformation, Elektrik’s retail customers caneasily limited to electricvehicles. Zorlu Our digitalization work isnot vehicles throughout Turkey. charging stations for electric continue to work rapidly to build Ankara-İzmir arterial roads, we priority given to theIstanbul- with thebigcitiesandservice electric vehicles. Starting primarily charging station network for we are buildingTurkey’s fastest in 2018. UndertheZESumbrella, “ZES” (Zorlu Energy Solutions) launched Zorlu Enerji’s digitalbrand In linewiththisproject, we everyone to enjoy thisexperience. by leaving thevehicle. We invite are done, finishingtheirjourney long asthey need,andwhenthey renting andusingthevehicle for as vehicles ontheirsmartphones, experience by bookingelectric can experience atotally digital with electricvehicles only. Users an hourlycar-sharingservice primary focus. This platform offers vehicles inTurkey, whichisour to promote thespread ofelectric 25 and renewable sources through generating energy from domestic main pivots ofsustainability when and economic fields,whichare the future inthesocial,environmental we contribute more to Turkey’s a guideinallourwork. Eachyear activities. We seesustainability as people andthesocietyinallour value to theenvironment, nature, At Zorlu Enerji,we focus onadding ZORLU ENERJİ BUSINESS PROCESSES OF INTEGRATED INTO ALL SUSTAINABILITY under bilateral agreements. profitability ofourelectricitysales year, alsopositively affected the especially inthesecond halfofthe increase inelectricityprices, distribution businesses, andthe electricity andnatural gas generated from ourregulated in 2018 increased therevenues In addition,therisinginflation OEDAŞ. the profitability ofOEPSAŞ and companies positively affected electricity distribution andsupply new regulatory changesfor the in itssalesvolumes and4)the OEPSAŞ saw astrong growth free market to regulated market, 3) dueto customers’ shiftfrom YEKDEM revenues inTLterms; the year positively affected our increasing US$/TLrate during the first timethis year; 2)the and participated inYEKDEMfor commissioned inAugust 2017) with two units(thefirst unit was started to operate infullcapacity 1) InMarch 2018, Kızıldere IIIGPP results to thefollowing key factors: We canattribute oursuccessful in 2018 from 8.2xto 5.8x. EBITDA ratio continued to decline EBITDA, ournetfinancialdebt/ over-year. With strong growth in million), withan82%growth year- high at TL1.85billion(US$386 while EBITDA reached anall-time increased by 35% to TL6.7 billion

ZORLU ENERJİ ANNUAL REPORT WE GET FROM OUR OUR FROM GET WE THE STRENGTH THE STRENGTH AND THE SUPPORT AND THE COUNTRY’S ENERGY ENERGY COUNTRY’S CONTINUE TO MAKE US MAKE TO CONTINUE OF THE ZORLU BRAND ZORLU THE OF STRONG. In the coming period, we we period, coming In the our expand to will continue and in renewable investments particularly sources, clean energy solar on geothermal and focusing work to will continue We energy. sustainable and more a smarter for we with the investments future in the smart energy will undertake as in as well of the future systems models. and service business new of all these the framework Within the strength and strategies, targets energy our country’s from get we brand Zorlu and the support of the us strong. make to continue will continue we this strength, With with resolve ceaselessly work to thank to like I would and passion. partners, business our shareholders, and all other employees customers, us their support to for stakeholders in this journey. was there but not least, And last I us all this year. for loss a bitter Foreign our late commemorate dear my Director, Investments Özdemir, Ahmet Yağmur colleague Allah have May on this occasion. on his soul. mercy Sincerely yours, Sincerely AK Sinan İ. CEO Group Energy Zorlu 26 In 2018, we became part of became we In 2018, which aims Project, the GECO support the sustainable to mineral of natural management companies and involves resources are that institutions and reputable different in their fields from experts Only Zorlu in Europe. countries Technical East Enerji and the Middle taking are Turkey from University which is part part in this project, the Program, 2020 of the Horizon and innovation research biggest Union. in the European program power geothermal Enerji’s Zorlu Turkey field in plants in the Kızıldere with the other power will cooperate and Germany. Iceland plants in Italy, to proud are Enerji, we As Zorlu in Turkey represent successfully in the field arena the international our with of geothermal energy as with our as well investments and experience. know-how WE OFFER OUR 25 YEARS THE OF EXPERIENCE TO WORLD been a have Enerji, we As Zorlu 25 years. for pioneer in our sector have we that the projects With of years and our 25 undertaken fly our to proud are we experience, at home and abroad. flag both We continue to increase our increase to continue We We society. to contributions our social investments increased million, TL3.1 million from TL9.6 to than three-fold a more representing year-over-year. increase Doğal won Enerji and Zorlu Zorlu awards, and international national Leadership” including the “Climate CDP Climate in the “2017 Award and the “Low Change Program” the “Our for Award Carbon Hero” As Project. Children” is for Energy included in were Enerji, we Zorlu the for Index Sustainability the BIST in 2018. in a row year third OUR SOCIAL MORE INVESTMENTS THAN TRIPLED As the first energy company energy As the first in the participate to in Turkey we Project, Carbon Disclosure sharing our carbon been have with the public reports footprint manner since in a transparent obtained the we In 2018, 2011. Footprint ISO 14046 Water again once proving Certificate, the nature, value much we how With and society. environment managing we are this certification the efficient use for of our studies of and reduction resources water with all our facilities at wastewater Through approach. a systematic will continue we the CDP platform, in a our performance share to manner with the public. transparent after launched this project We with our stakeholders, negotiations public with the aim of increasing about efficient and awareness use of water. economical In this respect, the Green Loan the Green In this respect, signed with Garanti agreement that step Bank is a substantial to our commitment demonstrates vision anmaking our sustainability business of our entire part integral which this agreement, model. With one of the and Turkey in is a first we will not only world, in the firsts Enerji’s Zorlu improve be able to in the environmental, performance but areas, social and governance The costs. our financing also reduce be made within the to assessment again of this loan will once scope reached have the point we certify with As a company in sustainability. terms in Turkey in firsts so many this I hope that of sustainability, signed will set have we agreement in companies many for an example the world. innovative approaches. We make make We approaches. innovative all our stakeholders, that sure suppliers employees, including our Zorlu partners in the and business in line with act Enerji ecosystem, vision.our sustainability

OVERVIEW OF 2018 STRONG. OF THE ZORLU BRAND CONTINUE TO MAKE US COUNTRY’S ENERGY AND THESUPPORT THE STRENGTH WE GET FROM OUR 27

ZORLU ENERJİ ANNUAL REPORT 28 CEO of Zorlu Energy Group Energy CEO of Zorlu of the Department from Sinan Ak graduated İbrahim (1971–Ankara) his career He started University. Technical İstanbul at Management Engineering He then received Değerler. Menkul Yatırım Evgin at specialist as an investment 2000 and Between in the USA. Old Dominion University from his MBA degree 2002 and between Komünikasyon Vestel Chief at as Finance he worked 2002, Energy Ak joined Zorlu Mr. Eşya. Beyaz Vestel Manager at and 2006 as Finance of Financial in charge Manager as Deputy General in 2006. He served Group General and became the AŞ until 2012 Üretim Zorlu Enerji Elektrik at Affairs Ak has been serving as the CEO of Mr. Enerji in January 2012. Manager of Zorlu since is a member, AŞ Üretim Enerji Elektrik Zorlu of which Group, Energy Zorlu 1, 2016. December İbrahim Sinan Ak İbrahim Sinan Fuat Celepci Fuat Electricity and Gas for Manager Responsible General Operations Distribution the Civil Engineering Department of from graduated Celepci Fuat (1959–Kayseri) in Law degree in 1982 and obtained a graduate University Technical Middle East Turkish as a civil engineer at his career His started in 2011. University Bilkent from as he served where in 1982. In 1984, he joined BOTAŞ, Electricity Corporation retiring 2005. After 1999 to Member from Manager and as Board Deputy General as the served Celepci Mr. Manager in 2012, General BOTAŞ as an advisor to Bölgesi and Trakya Gaz Doğal Gaziantep Dağıtım AŞ Manager of Gazdaş General Manager named General He was 2017. to 2012 from Doğal Gaz AŞ Dağıtım Group Energy Zorlu at Electricity and Gas Operations for Distribution responsible as of January 1, 2017. SENIOR MANAGEMENT MANAGEMENT SENIOR

OVERVIEW OF 2018 and Maintenance asofJanuary1,2017. was appointed astheGeneral Managerresponsible for Investments, Operations Thermal Power PlantInvestments at Zorlu EnerjiElektrik Üretim AŞ. Mr. Kındap Ticaret AŞ. In2011, hewas namedDeputyGeneral Managerresponsible for 2008 asDeputyGeneral Managerat Zorlu Endüstriyel ve EnerjiTesisleri İnşaat AŞ andGürişInşaat ve MühendislikAŞ. Mr. KındapjoinedZorlu Energy Group in professional career at GAMAGroup ofCompanies andlater worked at Meteksan Engineering at MiddleEast Technical University in1990. Hebegan his (1968–Çankırı) AliKındapgraduated from theDepartmentofMechanical and Maintenance General ManagerResponsible for Investments, Operations KındapAli Applications. has beenservingastheGeneral Managerresponsible for Industrial Projects and Üretim AŞ inOctober 2012, apositionhehelduntil2017. From January1,2017, he named DeputyGeneral Managerresponsible for Projects at Zorlu EnerjiElektrik Engineering Managerat thesamecompany from 2008to 2011. Mr. Akat was at Zorlu Endüstriyel ve EnerjiTesisleri İnşaat Ticaret AŞ andlater served as from 1996to 2005.HejoinedZorlu Energy Group in2005asProject Manager İnşaat in1990andworked invarious construction projects at Tekfen İnşaat Civil Engineeringat İstanbul University in1996.Hebeganhiscareer at Cevahirler Middle East Technical University in1990andgraduated from theDepartmentof (1970–Erzincan) Aydın Akat received anassociate degree inconstruction from Applications General ManagerResponsible for Industrial Projects and Aydın Akat 29

ZORLU ENERJİ ANNUAL REPORT 30 Government Affairs Director Affairs Government the Department of Electrical from Bahadır graduated Servet (1958–Nevşehir) in 1983 as an in 1982. He began his career Kiel University Engineering at in served (TEK). He later Electricity Corporation Turkish Electrical Engineer at & Transmission Owned Electricity Generation (State TEAŞ positions at various He joined Zorlu Corp.). & Contracting Owned Trading (State and TETAŞ Corp.) Bahadır has Mr. Manager until 2013. Trade as Energy in 2008 and served Group since Group Zorlu Energy of Director Affairs been serving as the Government 2013. October Servet Bahadır Servet Öniz Sayıt Saban Sayıt Öniz Director Human Resources of Communication the Faculty from graduated Saban Öniz Sayıt (1979–İzmir) Resources a Human which she completed after in 2001, University Istanbul at Saban also holds an MBA degree at Boğaziçi University. Program Certificate Resources the Human at working After University. Yıldız Technical from Fabrikası Otomobil Türk and Tofaş (2000-2005) Group Departments of Akkök Mrs. Saban has been in 2007. Group Energy she joined Zorlu (2005-2007), AŞ October since Group Energy Zorlu at Director serving as the Human Resources 2013. İnanç Salman İnanç Director Trade of Business the Faculty from İnanç Salman graduated (1981–İstanbul) in degree a Ph.D. and obtained University, Technical Istanbul at Administration in Group Salman joined Zorlu Mr. university. the same from engineering industrial 2004 Department from Holding Human Resources in the Zorlu 2004 and served as Project he served where Group, Energy Zorlu he joined In 2007, 2007. to Development Supervisor and Organization Development Organization Engineer, for Manager responsible as the Deputy General Salman served Mr. Manager. January 2017 to 2013 October Enerji from Zorlu and Planning at Trade Energy as of January 1, 2017. Director Trade named and was

OVERVIEW OF 2018 Nihat Türksever Purchasing andLogistics Director asof1August 2018. Zorlu SolarDirector at Zorlu Enerjisince May 2017, hasalsoassumed therole of Turkey at First Solarfrom 2014 to 2017. Mr. Evcit, whohasbeenservingasthe Officer and later asCEO atAnelEnerji. Mr. Evcit wastheManagingDirectorof Boğaziçi University. After hisgraduation, heserved astheChiefOperating Engineering at İstanbul Technical University andobtainedhisMBAdegree from (1978–İstanbul) Evren Evcit graduated from theDepartmentofMechanical Zorlu Solar&Purchasing andLogistics Director Evren Evcit Group’s FinancialAffairs Director since September 1,2015. Manager at Zorlu Energy Group onAugust 12,2014, andhasbeenservingasthe Development Managerin2012. Mrs.Yener becameFinancialAffairs Group Holding thesameyear and was appointed to thepositionofStrategy &Business at Columbia University andreceived herMBAdegree in2011. ShejoinedZorlu Department at Denizbankfrom 2004to 2009, sheenrolled intheMBAprogram Engineering at BoğaziçiUniversity in2004.After working intheProject Finance (1980–İstanbul) ElifYener graduated from theDepartmentofIndustrial Financial Affairs Director YenerElif Investments, PlanningandBusiness Development asofJanuary1,2017. from February 2016, was namedDeputyGeneral Managerresponsible for Mr. Türksever, whohasbeenservingasthePurchasing and Logistics Manager Contract Administration Managerfollowing thecommissioning oftheproject. Project Managerfor theKızıldere IIGeothermalPower Plantandas Project Manager to work intheGroup’s Israeli projects in2009. Heserved asthe Project Manager. Mr. Türksever joinedZorlu Energy Group asTechnical Office between 1997 and2008,where helastly served asBusiness Manager/Deputy Engineering at UludağUniversity. Heheldvarious positionsat Enka İnşaat (1975–Bulgaria) Nihat Türksever graduated from theDepartmentofIndustrial Planning andBusiness Development Deputy General ManagerResponsible for Investments, 31

ZORLU ENERJİ ANNUAL REPORT 32 Abdurrahman Yaşar Abdurrahman and Drilling for Responsible Manager Deputy General Management Resource Geothermal of Petroleum the Department from graduated Yaşar Abdurrahman (1949–Urfa) as a his career He started 1972. in University Technical İstanbul at Engineering and Etibank in 1972 at Exploration of Mineral the Department drilling engineer at the at Department Head of Machinery Servicing and Construction as the served 2008. He to 1975 from Corp.) Petroleum (Turkish of TPAO Directorate General as the Planning and Coordination in 2008 and served Group Energy joined Zorlu as the Deputy appointed was Yaşar Mr. until 2017. Enerji Manager of Zorlu Management Resource Drilling and Geothermal for Manager responsible General as of January 1, 2019. and retired as of January 1, 2017, Deputy General Manager Responsible for Geothermal for Manager Responsible Deputy General Projects the Department of Electronics from Ünlü graduated Yusuf (1980–İstanbul) and received in 2003 University Kocaeli Engineering at and Communication İstanbul Engineering from and Automation in Control degree his Master’s Engineer at as a Control his career He started in 2007. University Technical Zorlu as an Engineer at Group He then joined Zorlu in 2003. Otomasyon ASP Ünlü was Department in 2008. Mr. and Control Instrumentation Endüstriyel’s served and later Manager in 2013 and Control Instrumentation as the appointed He was III GPP Projects. the Alaşehir and Kızıldere Manager for as the Project of Geothermal Manager in charge Deputy General then named the Acting Manager responsible as the Deputy General and has been appointed Projects 1, 2018. as of March Geothermal Projects for Yusuf Ünlü Yusuf Murat Arıcan Murat Operations Site for Manager Responsible Deputy General of Mechanical the Department from Arıcan graduated Murat (1971–Balıkesir) at his career He started in 1993. University Technical İstanbul Engineering at in Maintenance Mechanical as Deputy Manager for Fabrikaları Gübre Bagfaş UMDE Mühendislik (2004-2009), at Leader as Project and then served 1995 İşletmeleri (2009-2012), Liman Kimya-Nemport Akdeniz Manager at Technical (2012- Geri Dönüşüm Şirketi Vulcan-Bahm his own at self-employed and was and served Manager in 2014 as Site Group Energy Arıcan joined Zorlu Mr. 2014). of the Geothermal Project Manager in charge Deputy General as the Acting of Manager in charge being named the Deputy General prior to Applications, 1, 2018. as of March Operations Site

OVERVIEW OF 2018 İhracat ve Toptan Ticaret AŞ andZorlu Tedarik DoğalGaz Ticaret AŞ. the natural gastrade companies oftheGroup, namelyZorlu İthalat DoğalGaz DağıtımAŞDoğal Gaz andGazdaş DağıtımAŞ Gaziantep DoğalGaz andfor for thenatural gasdistribution companies oftheGroup, namelyTrakya Bölgesi Group in2012 andhasbeenservingastheDeputyGeneral Managerresponsible 2010 andasManagerat MedgazAŞ between 2010-2012. HejoinedZorlu Energy 2005-2008, asManagerat Energaz Elektrik SuDağıtım AŞ Gaz between 2008- worked astheDeputyGeneral DağıtımAŞ ManagerofİzmirDoğalGaz between of Natural Operations Gas inthelast five years ofhisemployment. Mr. Arslantay Arslantay worked at BOTAŞ during1984-2005,where heserved astheDirector and Communications Engineeringat YıldızTeknik University in1984.Mr. (1955–Adana) Recep Arslantay graduated from theDepartmentofElectronics Group Deputy General ManagerResponsible for theNatural Gas Recep Arslantay September 2017. responsible for Operations andMaintenance at Zorlu Energy Group since Mühendislik in2017. Mr. Örge hasbeenservingastheDeputyGeneral Manager at Pöyry Switzerland between 2011-2017 andasGeneral Managerat Örge 2002-2011, asDepartmentManagerresponsible for Turkey andnearby countries Operating EngineerandChiefOperating Engineerat Enka Power between Quality Control/Process Engineerat Bechtel Enka JVbetween 2001-2002, as Kazakhstan ChiefSite Managerat Bechtel Enka JV in 1996,thenserved as Engineering at YıldızTechnical University in1995. Hestarted hiscareer as (1970–Eskişehir) ÖmerHarunÖrge graduated from theDepartmentofChemical Maintenance Deputy General ManagerResponsible for Operations and Ömer HarunÖrge 33

ZORLU ENERJİ ANNUAL REPORT

34

YOUR FEARS. YOUR YOUR DREAMS YOUR

START TO HAPPEN WHEN YOU YOU WHEN HAPPEN TO START MIRACLES

GIVE AS MUCH ENERGY TO TO ENERGY MUCH AS GIVE AS YOU DO TO DOASTO YOU

OVERVIEW OF 2018 Zorlu Enerji in Brief of installed capacityof installed of installed capacityof installed of installed capacity in capacity of installed 305 MW MW 272 119 MW in geothermal energy, in geothermal energy, in wind energy, in wind energy, energy. hydroelectric – – – – – – WORK CONTINUES IN THE CONTINUES WORK FIELD OF SOLAR ENERGY Zorlu investments, In its foreign into on tapping Enerji focuses in the Asian and the potential where markets, Middle Eastern rise and demand is on the energy The underway. is still liberalization look into to continues Company opportunities in solar investment with high growth an area power, potential. Enerji, Zorlu Under this strategy, built a 56.4 MW which previously Pakistan, plant in Jhimpir, wind power realized farm wind first the country’s through investment, with foreign Zorlu subsidiary, its wholly-owned in began investing Enerji Pakistan, Towards in this country. solar power Solar Pakistan Zorlu this end, in 2017, Solar (“Zorlu Limited (Private) owned which is 99.7% Pakistan”), the Enerji, commenced Zorlu by I Solar of Bahawalpur development with 100 MW Plant project Power As of the end of 2018, Zorlu Enerji Zorlu As of the end of 2018, has % % % 87 76 67 62% 34% 45% 46% 36 2015 2018 2012 2013 2014 2016 2017 its generation portfolio. In line portfolio. its generation of the share with this objective, Enerji’s in Zorlu energy renewable has in Turkey capacity installed five in the last increased steadily the Company’s thanks to years especially in wind and investments Renewable geothermal energy. which had a 34% sources, energy installed Enerji’s in Zorlu share to rose in 2012, capacity in Turkey while they the end of 2018, by 87% 64% of the Company’s for account capacity. installed total Share of Renewable Energy in in Energy Renewable of Share (%) in Turkey Capacity Installed based on renewable energy sources. sources. energy based on renewable ZORLU ENERJİ IN BRIEF ENERJİ ZORLU energy in its generation portfolio. As of 2018, 87% of Zorlu Enerji’s Enerji’s of Zorlu 87% As of 2018, portfolio. in its generation energy The total installed capacity of Zorlu Enerji stands at 1,086 MW as of 1,086 at Enerji stands of Zorlu capacity installed total The 1 wind farm in Pakistan and in Pakistan 1 wind farm plants in gas power 3 natural Israel. 7 hydroelectric, 3 wind, 4 7 hydroelectric, gas geothermal and 3 natural in Turkey, plants power installed capacity in Turkey and 64% of its total installed capacity are capacity are installed of its total and 64% capacity in Turkey installed – – the end of 2018. The Company aims to increase the share of renewable of renewable the share increase aims to Company The the end of 2018. Zorlu Enerji acts with the principle Zorlu that of undertaking projects in sustainability to contribute aims Company aspect. The every diversity its resource improve to the share and further increase especially energy, of renewable in geothermal and solar energy, TARGET TO INCREASE THE INCREASE TO TARGET SHARE OF RENEWABLE ENERGY – – As of the end of 2018, the total As of the end of 2018, Enerji of Zorlu capacity installed Company’s The MW. is 1,086 comprises: portfolio generation Zorlu Enerji, which commenced Enerji, which commenced Zorlu as the first in 1993 operations Group, Energy of Zorlu company one of the leading players is today with sector energy in the Turkish portfolio, generation its balanced and resource both which offers integrated diversity, geographical involving structure business distribution, electricity generation, as well and sales activities trade andgas distribution as natural and strong expertise sectoral vast position. market

ZORLU ENERJİ IN BRIEF subsidiary of Zorlu Enerji, began to distribute and sell First Solar’s solar PV panels both in Turkey and abroad in the second quarter of 2017.

Zorlu Enerji is among the few private sector energy companies operating in Israel. Together with its partners, the Company constructed and brought online three natural gas power plants with a total installed capacity of 1,031 MW in Israel. The Company’s stake adjusted total installed capacity in Israel amounts to 290 MW. Zorlu Enerji participated as the sole founder in Zorlu Enerji Israel Ltd., established in Israel in February 2017, to undertake energy projects in this country.

Zorlu Enerji established a wholly- of installed capacity in the Punjab and Sharekat will have 75% and 25% owned new subsidiary Zorlu Enerji province of Pakistan. A 25-year stakes respectively, will be established. Asia Holding Ltd. in the Dubai generation license was obtained for Under the agreement, solar power International Financial Centre, a free the project from Pakistan National plants will be built in different regions economic zone in Dubai, in May 2018, Electric Power Regulatory Authority. of Palestine, which will initially start to undertake investments in renewable The power plant is planned to be with an installed capacity of 30 MW, energy in the Asian countries. commissioned in 2019. and will reach up to 100 MW to meet the electricity demand of the country. DISTRIBUTING In 2017, pre-licenses were obtained for ELECTRICITY TO two more solar power plant projects Zorlu Enerji’s controlling shareholder, NEARLY 1.79 MILLION to be developed in Punjab province Zorlu Holding AŞ (“Zorlu Holding”), SUBSCRIBERS IN THE with 100 MW of installed capacity and the U.S. company First Solar, Inc.

OSMANGAZİ ELECTRICITY REPORT ANNUAL ENERJİ ZORLU each, as well as for a hybrid solar (“First Solar”) signed a Distribution DISTRIBUTION REGION power plant project with 30 MW of & Supply Agreement in February capacity to be built on the existing 2017. The agreement covers the In February 2017, Zorlu Enerji site of the Jhimpir Wind Farm in the exclusive distribution of high- expanded into the electricity Sindh region of Pakistan. performance thin-film photovoltaic distribution business by acquiring (PV) solar modules produced by 100% of the shares of Osmangazi Additionally, in July 2017, Zorlu First Solar in 26 selected countries. Elektrik Dağıtım AŞ (“OEDAŞ”) Enerji signed a Letter of Intent According to the agreement, which and Osmangazi Elektrik Perakende with Jerusalem District Electricity will be effective for five years, Zorlu Satış AŞ (“OEPSAŞ”). Company (“JDECO”), which is Holding and its subsidiaries will be responsible for the distribution the sole authorized distributor of OEDAŞ distributes electrical of electricity in Jerusalem and its First Solar’s PV solar modules in energy within the provincial environs, to establish and operate a total of 26 countries including borders of Eskişehir, solar power plants to supply electricity Turkey, Albania, Bosnia-Herzegovina, Afyonkarahisar, Bilecik, Kütahya to Palestine. The partnership talks Bulgaria, Cyprus, Georgia, Kosovo, and Uşak, serving nearly 1.79 million initiated on the basis of the Letter of Libya, Macedonia, Pakistan, Romania, subscribers as of the end of 2018. Intent were concluded in 2018, and a Serbia, Turkmenistan, Ukraine, and OEPSAŞ is the assigned supplier “Joint Venture Agreement” was signed the Commonwealth of Independent for the region and also sells between Zorlu Enerji and JDECO’s States. Additionally, Zorlu Enerji will electricity to eligible consumers. In sister company Sharekat Kahrabaa make use of First Solar’s solar PV 2018, OEPSAŞ sold electricity to a Mohavazat AL-Quds AL-Urdineyyah panels in its own projects. Within the total of 1.77 million customers. (“Sharekat”). As per the afore- scope of this distribution agreement, mentioned agreement, a new joint Zorlu Solar Enerji Tedarik ve Ticaret venture company, in which Zorlu Enerji AŞ (“Zorlu Solar”), a wholly-owned

37 with Garanti Bank for a US$10 Bank for with Garanti million loan. The first Turkish energy Turkish energy first The publish a to company Report. Sustainability – Zorlu Enerji continues to report report to Enerji continues Zorlu on a progress on its sustainability basis and communicates regular to performance its sustainability in a transparent its stakeholders published its Company The manner. covering Report, fifth Sustainability The period, in 2018. the 2016-2017 in accordance prepared was report with the “Basic” Sustainability the Guidelines set by Reporting (GRI). Initiative Global Reporting in Turkey wind farms Enerji’s Zorlu “Gold awarded were and Pakistan Certificates. Standard” set a that Launching projects energy, benchmark in renewable entitled for Enerji was Zorlu Sustainability inclusion in the BIST basis for on a voluntary Index 2016. time in November the first of the listed consists index The with on Borsa İstanbul companies sustainability a high corporate maintained its Having performance. criteria, with the index compliance passed Enerji successfully Zorlu the November for the assessments and was period 2019 2018-October be included in the index entitled to time in a row. the third for – 38 The first Turkish company to company Turkish first The the ISO 14046 Standard receive Verification. Footprint Water to company Turkish first The agreement Loan sign a Green The first Turkish energy Turkish energy first The sign a “Carbon to company with Sales Contract” Emission its at implemented the project Farm. Wind Gökçedağ energy sole Turkish The the have to company for Standard ISO 14064-1 Gas Emissions. Greenhouse energy sole Turkish The in the participate to company Project Carbon Disclosure received Company The (CDP). Carbon the CDP “Turkey in Award Leadership” Disclosure and 2017. 2014, 2012, 2011, The first Turkish energy Turkish energy first The its carbon calculate to company in 2009. footprint Aims to minimize the negative the negative minimize to Aims its activities on theimpacts of and human life. environment – – – – – – – Zorlu Enerji undertakes all the Enerji undertakes Zorlu comply to investments necessary limits imposedwith the emission and international national the by energy and generates standards for consideration with the highest and nature. the environment electricity generation first The obtain a quality to company Zorlu Enerji Turkey, in certificate ISO 9001-2000, holds the TS/EN 14001 and ISO 18001 OHSAS conducts its and Certificates of an within the scope operations System. Management Integrated Enerji is; Zorlu – – – – – – – Builds its portfolio on the basisBuilds its portfolio supply of energy, of secure of with an awareness Acts in all of its global responsibility with and complies investments and international the legislation standards, – – – – Making a difference with its Making a difference and on supply security focus Enerji; Zorlu sustainability, Zorlu Enerji plans its investments Enerji plans its investments Zorlu citizen corporate as a responsible making an increasing to committed of the the future to contribution manner. in a responsible world ZORLU ENERJİ: ZORLU A RESPONSIBLE CITIZEN CORPORATE As of the end of 2018, Trakya Doğal Trakya As of the end of 2018, in the Edirne- Gaz, operating serves region, Kırklareli-Tekirdağ subscribers, and Gaziantep 313,000 in the Doğal Gaz, operating serves region, Gaziantep-Kilis-Nizip subscribers. 309,000 With the aim of achieving the aim of achieving With by integration operational gas distribution the consolidating Zorlu activities under its umbrella, the shares 90% of Enerji acquired gas distribution regional of two Bölgesi namely Trakya companies, (“Trakya Doğal Gaz Dağıtım AŞ Doğal Gaz”) Gaziantep and Gazdaş (“GaziantepDoğal Gaz Dağıtım AŞ a for Group Zorlu Doğal Gaz, from million of 293 consideration total its wholly- through lira, Turkish Enerji subsidiary Zorlu owned in June 2018. Dağıtım AŞ, ACQUISITION OF NATURAL OF NATURAL ACQUISITION DISTRIBUTION GAS ZORLU FROM COMPANIES GROUP

ZORLU ENERJİ IN BRIEF ZORLU ENERJİ ANNUAL REPORT ANNUAL ENERJİ ZORLU

39 Gaziantep Kilis Tokat Osmaniye Eskişehir 40 Bilecik Yalova Afyonkarahisar Denizli Uşak Bursa ZORLU ENERJİ’S INSTALLED INSTALLED ENERJİ’S ZORLU Kütahya CAPACITY AND INVESTMENTS AND CAPACITY Manisa Kırklareli Tekirdağ Edirne 739 MW 739 Capacity in Turkey Installed Total

ZORLU ENERJİ IN BRIEF Geothermal Power Plant

Wind Power Plant

Hydroelectric Power Plant

Natural Gas Power Plant 56 MW Under Development Total Installed

Electricity Distribution Capacity in Pakistan Natural Gas Distribution

Pakistan Punjab

Rize Pakistan Kars Jhimpir

Erzurum ZORLU ENERJİ ANNUAL REPORT ANNUAL ENERJİ ZORLU Erzincan

Tunceli Israel Ashdod

Israel Ashkelon 290 MW* Total Installed Capacity in Israel Israel Ramat Negev

*Stake adjusted

41 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 INDIRECT STAKE (%) STAKE DIRECT OR - 30 239.5 239.5 209.5 HOUR) STEAM CAPACITY (TONNES/ GENERATION 15 15 57 45 80 5.5 135 165 15.9 15.4 16.8 305 23.3 24.9 34.3 49.5 20.9 20.4 99.8 118.9 215.3 739.0 (MW) CAPACITY CAPACITY ELECTRICITY GENERATION GENERATION 42 Cogeneration Natural Gas Natural Cogeneration Combined Cycle Natural Gas Natural Cycle Combined Cogeneration Natural Gas Natural Cogeneration Hydroelectric (Reservoir) Hydroelectric (Reservoir) Hydroelectric (Reservoir) Hydroelectric (Reservoir) Hydroelectric (Reservoir) Hydroelectric (Reservoir) Hydroelectric (Reservoir) Hydroelectric Wind TYPE Geothermal Geothermal Wind Wind Geothermal Geothermal ZORLU ENERJİ’S INSTALLED INSTALLED ENERJİ’S ZORLU Altınova, Yalova Altınova, Bursa OSB Lüleburgaz, Kırklareli Lüleburgaz, Erzincan Erzurum To ka t Tunceli Kars Rize Eskişehir Osmaniye LOCATION Denizli-Aydın Manisa Osmaniye Osmaniye Denizli Denizli CAPACITY AND INVESTMENTS AND CAPACITY 1 Yalova TOTAL Bursa Natural Gas Natural Lüleburgaz Hydroelectric Tercan Kuzgun Ataköy Mercan Çıldır İkizdere Beyköy Demirciler POWER PLANT POWER Kızıldere III Kızıldere Alaşehir I Wind (Rotor) Gökçedağ Sarıtepe Geothermal I Kızıldere II Kızıldere Pursuat to the technical and financial evaluations, the installed capacity of the power plant was reduced from 125.99 MW to 49.53 MW in December 2018. MW in December 49.53 to 125.99 MW from reduced was plant capacity of the power the installed evaluations, and financial the technical Pursuat to 1 INSTALLED CAPACITY IN TURKEY CAPACITY INSTALLED Plants Power Operational

ZORLU ENERJİ IN BRIEF Ongoing and Planned Projects

ELECTRICITY DIRECT OR PROJECT LOCATION TYPE GENERATION INDIRECT CAPACITY (MW) STAKE (%)

Projects in Financing Phase

Geothermal

Alaşehir II Manisa Geothermal 24.9 100

Pre-Licenses

ELECTRICITY DIRECT OR PROJECT LOCATION TYPE GENERATION INDIRECT CAPACITY (MW) STAKE (%)

Geothermal REPORT ANNUAL ENERJİ ZORLU

Kızıldere IV1 Denizli-Aydın Geothermal 60 100

Alaşehir III2 Manisa Geothermal 50 100

Solar

Alibeyhöyüğü3 Konya Solar (Photovoltaic) 18 100

1 The term of the pre-license was extended from 36 months to 54 months in December 2018. 2 After extensive resource exploration studies, an application was made to the Energy Market Regulatory Authority (EMRA) in March 2018 to lower the installed capacity specified in the license of the project from 50 MW to 30 MW. 3 With the approval of EMRA, the grace period for the project’s pre-license to enter into force was extended from 30 months to 42 months, in November 2018.

43 75 100 100 100 100 STAKE (%) STAKE DIRECT OR INDIRECT 1,200 DIRECT OR INDIRECT STAKE (%) STAKE DIRECT OR INDIRECT ELECTICITY GENERATION GENERATION CAPACITY (MW) CAPACITY 44 Natural Gas Natural TYPE TYPE Geothermal Geothermal Geothermal Geothermal LOCATION Tatvan, Bitlis Tatvan, Şefaatli, Yozgat Şefaatli, Sarayköy Simav Kırklareli LOCATION 2 1 1 PROJECT Kıyıköy Natural Gas Natural PROJECT Bitlis Geothermal Yozgat Denizli Kütahya Zorlu Jeotermal Enerji Elektrik Üretim AŞ, a wholly-owned subsidiary of Zorlu Enerji, won the exploration license for the Yeniköy geothermal field, which geothermal the Yeniköy for license the exploration Enerji, won of Zorlu subsidiary a wholly-owned AŞ, Üretim Enerji Elektrik Jeotermal Zorlu EMRA accepted the pre-license application for the project on the condition that the Environmental Impact Assessment process for the project is the project for process Impact Assessment the Environmental that on the condition the project for application pre-license the EMRA accepted Zorlu Enerji leased the geothermal field in Sarayköy, tendered by the Metropolitan Municipality of Denizli, for 25 years (until June 2, 2041) in order to in order (until June 2, 2041) years for 25 Municipality of Denizli, by the Metropolitan tendered in Sarayköy, Enerji leased the geothermal field Zorlu was tendered out by the Kütahya Special Provincial Administration. Provincial Special the Kütahya out by tendered was 1 Pre-License Applications Pre-License 2 1 Exploration and Operation Permits Operation and Exploration completed in two years. in two completed generate electricity from geothermal sources. electricity from generate

ZORLU ENERJİ IN BRIEF INSTALLED CAPACITY ABROAD

Operational Power Plants

STEAM ELECTICITY GENERATION DIRECT OR GENERATION POWER PLANT LOCATION TYPE CAPACITY INDIRECT CAPACITY (TONNES/ STAKE (%) (MW) HOUR)

Wind 56.4

Jhimpir Pakistan Wind 56.4 100

Natural Gas 290.5 110

Dorad Israel Combined Cycle Natural Gas 840 - 25

Ashdod Israel Cogeneration Natural Gas 64.54 40 42.15

Ramat Negev Israel Cogeneration Natural Gas 126.4 70 42.15

TOTAL1 347 110

1 Total installed capacity is calculated on the basis of Zorlu Enerji’s ownership stakes in the power plants in Israel.

Ongoing and Planned Investments

STEAM ELECTICITY GENERATION DIRECT OR GENERATION POWER PLANT LOCATION TYPE CAPACITY INDIRECT CAPACITY (TONNES/ STAKE (%) (MW) HOUR)

Ongoing Investments

Solar REPORT ANNUAL ENERJİ ZORLU

Bahawalpur I Pakistan Solar PV 100 99.7

Planned Investments

Natural Gas

Solad1 Israel Cogeneration Natural Gas 77 70 42.15

1 The completion rate for the planned Solad NGPP is approximately 10%.

Pre-Licenses

ELECTICITY DIRECT OR POWER PLANT LOCATION TYPE GENERATION INDIRECT CAPACITY (MW) STAKE (%)

Solar

Bahawalpur II Pakistan Solar PV 100 99.7

Bahawalpur III Pakistan Solar PV 100 99.7

Jhimpir Hybrid Plant1 Pakistan Solar PV 30 100

1 The power plant to be built as a hybrid project on the existing site of the Jhimpir Wind Farm in Sindh, Pakistan is expected to generate electricity from wind and solar energy simultaneously.

45 in Pakistan. It also provides It also provides in Pakistan. a number to services maintenance the plants in Europe, of power South Asia and Central Middle East, Asia under individual contracts. and operation Apart from O&M Zorlu services, maintenance the commissioning also undertakes plants. power of newly-built Natural Gas Trade ve İhracat Gaz İthalat, Doğal Zorlu Doğal AŞ (“Zorlu Ticaret Toptan Gaz Tedarik Doğal Gaz”) and Zorlu Gaz Doğal AŞ (“Zorlu Ticaret Tedarik”): Doğal Gaz and Zorlu Zorlu involved are Doğal Gaz Tedarik sale and export in the domestic gas (LNG) of liquefied natural abroad. and Turkey from procured 46 construction, installation and installation construction, industrial for work commissioning plants in Turkey plants and power and abroad. Zorlu O&M provides long-term O&M provides Zorlu and repair maintenance operation, gas (natural thermal to services cycle and combined cogeneration wind hydroelectric, gas), natural plants and geothermal power as by as well Group Zorlu by owned O&M provides parties. Zorlu third and maintenance operation natural Group’s Zorlu to services and plants in Russia gas power as the wind farm as well Israel Maintenance, Repair and and Repair Maintenance, Operation Services İşletme Tesisleri Enerji O&M Zorlu AŞ (“Zorlu Bakım Hizmetleri ve O&M”): FIELDS OF OPERATION OF FIELDS ZORLU ENERGY GROUP’S ENERGY ZORLU sales activities undertaken by Zorlu Enerji. Zorlu by undertaken sales activities Zorlu Energy Group offers a wide spectrum of integrated a offers Group Energy Zorlu services in various areas of the energy industry, including the electricity industry, of the energy areas in various services and steam generation and sales, electricity trade, electricity distribution electricity trade, and sales, electricity generation and steam and retail sales, natural gas distribution, and solar panel distribution and and solar panel distribution gas distribution, sales, natural and retail Zorlu Endüstriyel ve Enerji Enerji ve Endüstriyel Zorlu AŞ (“Zorlu İnşaat Ticaret Tesisleri Endüstriyel”): turnkey provides Endüstriyel Zorlu procurement “EPC” (engineering, contracting and construction) and solutions, including services feasibility, development, project basic design, engineering, supply, Construction of Power Plants Construction Power of In addition to the activities carriedIn addition to Energy Zorlu Enerji, out under Zorlu of in the areas also operates Group repair maintenance, construction, plants and power of and operation other through gas trade natural within the Group. companies INTEGRATED SERVICE INTEGRATED STRUCTURE

ZORLU ENERJİ IN BRIEF ZORLU ENERJİ ANNUAL REPORT ANNUAL ENERJİ ZORLU

47 IF THERE IS NO LIGHT SOURCE FROM OUTSIDE THE EYES WILL NOT PERCEIVE THE COLORS. The Energy Sector and Zorlu Enerji in 2018 from the U.S. Shale oil and gas the U.S. from on traditional pressure put greater countries, oil and gas exporting export on energy heavily which rely of their support most to revenues development. PREFERRED FUEL SOURCE: ELECTRICITY is electricity sector The dramatic its most experiencing its emergence. since transformation theElectricity is becoming in economies fuel source preferred and digitalbased on services Electricity accounts technologies. global 20% of total almost for and this consumption, energy rising.constantly is figure electricity consumption 2010, Since 30 in 18 of the has decreased Energy (International IEA-member growth The economies. Agency) in demand will depend on how quickly electricity becomes homes, use in heating for available and also in the factories and offices of transportation. electrification in electricity increase A twofold economies demand in developing universally this cleaner, will place affordable and more available of the core at source energy and development economic strategies. reduction emission 50 India. In 2000, Europe and North and Europe India. In 2000, than more for America accounted demand and 40% of global energy in Asia for economies developing this situation 2040, 20%. By around reversed. will be completely As energy consumption shifts consumption As energy investments, Asia, energy mainly to also are fuels and technologies for half of Asia accounts affected. gas in natural the global increase in demand, 60% of the increase 80% of the solar and wind energy, than 100% in oil, and more increase and nuclear in coal of the increase the ago, years Fifteen energy. companies power biggest world’s were capacity of installed in terms 10 six of the top Today, European. Chinese. are companies continues shale gas revolution The the oil and gas deck, reshuffle to with ranks is breaking and the U.S. oil largest the pack as the world’s the U.S. 2025, By and gas producer. than half of more for will account gas in oil and natural the growth for (75% in the world production By gas). natural oil and 40% for of barrels five one in every 2025, and one in every oil in the world of gas will come 4 cubic meters GROWING IMPACT IMPACT GROWING ON ENERGY OF ASIA CONSUMPTION MARKET OUTLOOK OUTLOOK MARKET THE GLOBAL ENERGY ENERGY GLOBAL THE gas will continue to constitute more than 50% of total demand. than 50% of total more constitute to gas will continue demand for energy continues to grow. By 2040, 25% of the energy of the energy 25% 2040, By grow. to continues energy demand for According to the World Energy Outlook (WEO) 2018 Report, global Report, 2018 (WEO) Outlook Energy the World to According demand will be met by renewable energy sources; while oil and natural while oil and natural sources; energy renewable be met by demand will Global energy demand is expected is expected demand Global energy than 25% by more by increase to and rising incomes 2040 due to 1.7 by growing global population in urban mostly billion people, The countries. of developing areas demand would in energy increase if it were as large be about twice in improvements continued not for policy powerful a efficiency, energy security and energy address to tool All of the concerns. sustainability from will come growth expected led by economies, the developing According to the Report’s “Current “Current the Report’s to According the pressure Scenario”, Policies energy and sustainable on secure policy unless supply will increase In the more made. changes are Policies “New comprehensive the which incorporates Scenario”, policies and objectives, announced somewhat improves the situation a remains still although there huge gap with the “Sustainable under Scenario”, Development clean energy which the accelerated put the to expected are transitions meet the goals to on track world universal change, climate to related clean air. and access The world energy sector is sector energy world The The a major change. undergoing outlines this Report WEO 2018 of clearly in terms change very sources. energy

THE ENERGY SECTOR AND ZORLU ENERJİ IN 2018 Electric motors in China account RENEWABLE ENERGY offices will also support this for 1 in every 5 kWh of growth in BECOMING MORE growth. Although new solar power global electricity demand while the IMPORTANT plants may not be able to replace increasing demand for cooling in the existing thermal capacity in the developing economies has a similar Renewable energy is becoming absence of policy support, they are impact on growth. If policies fail to increasingly important due to expected to be more competitive better focus on energy efficiency, falling costs and its contribution to than new coal power plants. In the one in every three units of spending fight against climate change. Solar “New Policies Scenario”, the share on global energy supply in all areas and wind energy in particular are of renewable energy and coal will go to electricity generation and leading this growth. Renewable change places in the power mix. network investments in developing energy in electricity production, Renewable energy accounts for economies. On the other hand, which accounts for 25% today, 25% of electricity generation today. there is a risk of creating excess will rise to almost 67% by 2040. While the share of renewables goes capacity in highly regulated In heat production, renewables up to 40% by 2040, coal follows markets, i.e., increasing the capacity will rise from 10% to 25%, and in the exact opposite trend. faster than the growth in demand. transportation from 3.5% to 19% Today, there is approximately (including both direct and indirect Today, the share of nuclear energy, 350 GWh of excess capacity in use, as in the case of electricity which is the second largest source China, India, Southeast Asia, and produced from renewable energy of low-carbon electricity after the Middle East, and this creates sources). hydroelectricity, is around 10%. an additional cost burden for While no new investment decisions consumers. FLEXIBILITY: THE are being made in Europe and the U.S. in this field, nuclear energy NEW BUZZWORD IN In 2017, the number of people is growing in many countries, led without access to electricity fell ELECTRICAL SYSTEMS by China, Russia and India. When below one billion for the first China leaves the U.S. and the EU As a result of the increasing time in history. This was due to behind by 2030, the geographical competitiveness of solar PV the success of India. However, picture of nuclear energy will technology, installed capacity in more than 700 million people change. Two-thirds of the nuclear solar energy is expected to exceed predominantly in rural areas in capacity in developed economies wind in 2025, hydroelectricity in Sub-Saharan Africa will still have no is over 30 years old. Decisions to 2030, and coal by 2040. Although access to electricity in 2040, and increase or shut down capacity most of the capacity increase in progress is far from satisfactory in in nuclear energy globally will REPORT ANNUAL ENERJİ ZORLU solar energy is expected to come reducing dependence on traditional be important in terms of energy from utility-scale investments, biomass fuels for cooking. supply security, investments, and distributed electricity generation emissions. from solar energy in homes and Renewable energy technologies will play an important role in universal access to electricity. In 2040, when all economically feasible applications aimed at improving efficiency are completed, total energy demand will still be at the same level as today. In addition to the strong growth in electrification of end-uses, the direct use of renewable energy (bioenergy, solar and geothermal) in heating and transportation is also rapidly spreading.

51 a sharp decrease is expected in is expected a sharp decrease in plant projects power coal new However, 2020. after the world, for coal to abandon it is difficult the short in electricity production in global and no decrease term, in is expected consumption coal years. five the next GROWING DEMAND GROWING OIL FOR an enter about to are Oil prices period of volatility. unprecedented impact of the shale oil The has reduced in the U.S. revolution of the Organization the importance Exporting Countries of Petroleum decisions. There on oil price (OPEC) decline in oil demand is a rapid and rapid countries in developed countries. in developing growth 20% for account still Automobiles Althoughof oil consumption. 52 electrification provides benefits provides electrification in local pollution, such as reducing targets, climate achieve to order needed to are additional measures electricity production. decarbonize is a risk of shifting there Otherwise, end- from emissions carbon dioxide generation. power to use sectors CONTINUED CONTINUED OF COAL CONSUMPTION increased consumption Coal a two-year after again in 2017 different two are There decline. demand. In Asia, in coal trends due to demand is increasing coal In Europe, growth. economic strong America and other countries, China it is on the decline. however, half of the for alone accounts the Once consumption. coal world’s plants currently power coal-fired completed, are under construction Increased access to electricity to access Increased use of electricity in and greater could and transportation heating in growth the expected increase 60% to electricity demand from Policies 2040 in the “New 90% by is equal difference The Scenario”. U.S. the current twice almost to is Electric demand. In the “Future of electricity in the share Scenario”, rises by consumption energy total when half 2040, by nearly one-third converted fleet is of the automobile and electricity electric vehicles into and residential dominates needs. However, energy industrial such as long-haul areas certain shipping and transportion, road for ready not yet are aviation electricity using to conversion Although technologies. current HOW MUCH ELECTRICITY HOW CAN WE MANAGE?

THE ENERGY SECTOR AND ZORLU ENERJİ IN 2018 the use of oil in automobiles is markets and will continue to be required for the energy supply in expected to peak in the mid- the largest gas exporter in the the world each year is made either 2020s, the main growth in the world. The increasing integration directly by the state-owned entities demand for oil will come from the of the European energy markets or by private companies under petrochemical sector, commercial will offer new alternatives to full or partial revenue guarantees. transport (trucks), shipping and buyers in natural gas supply. The The frameworks to be established aviation. Especially in Asia, there growing share of wind and solar by the public institutions is significant growth in these energy in electricity production will also determine the pace of areas. Production in certain oil-rich help reduce the share of natural improvement in energy efficiency regions in the world has declined, gas power plants in Europe, and and technology innovation. and investments have decreased. improvements in existing buildings Government policies and decisions On the other hand, shale oil will decrease gas consumption in will play a very important role in production in America is growing heating. However, natural gas will shaping the road ahead of us. rapidly. In 2025, U.S. oil production continue to be of vital importance is projected to match the total in terms of heating and suppling production of Russia and Saudi uninterrupted power, especially in Arabia combined. winter.

NATURAL GAS: SECOND GOVERNMENT POLICIES MAJOR ENERGY SOURCE TO SHAPE THE LONG- TERM FUTURE OF ENERGY Natural gas is predicted to become the second largest source of For fast and low-cost energy energy in the global energy mix, transformations, investments in surpassing coal by 2030. Industry cleaner, smarter and more efficient will be the biggest contributor to energy technologies need to be the expected 45% growth in natural stepped up. However, policymakers gas demand. Due to the increasing must ensure the robustness and demand in emerging economies reliability of all key elements in (primarily China), the world’s the energy supply, including the LNG trade is expected to double. electricity grid. More than 70% With new pipeline investments, of the US$2 trillion investment Russia is opening up to the Asian REPORT ANNUAL ENERJİ ZORLU

53 32% 12.2% EÜAŞ and TOR 20.9% BOT, BOO BOT, 29% Gas Natural Power Plants Power Other 2.3% Hydroelectric 1.4% Geothermal 5.7% Solar 7.9% Wind 21.5% and Domestic Coal Imported Breakdown of Installed Capacity Installed of Breakdown Ownership by (BOO) and transfer of operating of operating and transfer (BOO) and the schemes, rights (TOR) independent 66.8% to remaining and unlicensed producers power plants. power Capacity Installed of Breakdown Source by 66.8% Independent Producers Power and Unlicensed Plants Power 54 of 2018, with a net increase of a net increase with of 2018, foradjusting (after MW 3,351 and retired capacity reductions capacity in installed capacity). The MW by 5,063 reached solar energy 1,642 MW, up by the end of 2018, installed the biggest representing the during capacity increase in capacity increases The year. geothermal wind and hydropower, MW, 1,018 were in 2018, energy respectively. and 219 MW, MW, 489 plants, the Among thermal power fired coal capacity of domestic 331 MW, by increased plants power gas while the capacity of natural MW 616 by decreased plants power and rates rising exchange due to during the year. gas prices natural power energy renewable In 2018, 85% of the for plants accounted capacity commissioned new As a result, (3,986 MW in gross). energy of renewable the share installed total in Turkey’s sources the by 47% to capacity increased end of 2018. hydroelectric As of the end of 2018, 32% of total for accounts energy gas for natural capacity, installed coal and imported 29%, domestic solar for 7.9%, 21.5%, wind for for 1.4% and other geothermal for 5.7%, the remaining for sources energy installed of the total 2.3%. 20.9% (the EÜAŞ capacity belongs to Electricity Generation state-owned plants power 12.2% to Company), under the build-operate- operated build-operate-own (BOT), transfer SECTOR IN 2018 IN 2018 SECTOR THE TURKISH ENERGY ENERGY TURKISH THE Turkey’s total installed capacity reached 88,551 MW in 2018. reached capacity installed total Turkey’s accounted for 85% of the total newly commissioned capacity. commissioned newly of the total 85% for accounted with an increase of 1,642 MW. In 2018, renewable energy sources sources energy renewable In 2018, of 1,642 MW. with an increase The highest growth in installed capacity was realized in solar energy, in solar energy, realized was capacity in installed growth highest The Total installed capacity in Turkey capacity in Turkey installed Total the end 88,551 MW by has reached With the contribution of new of new the contribution With plants power energy renewable the share in 2018, commissioned of wind, geothermal and solar electricity in total plants power 9% to from increased generation in 11.4%. Because of the increase of natural costs the production plants during the year gas power guarantees and the purchase plants power coal-fired to provided of the share coal, using domestic plants in power and lignite coal increased electricity generation of while the share 37% 33% to from plants decreased gas power natural 30%. Hydroelectric 36.6% to from 20% for plants accounted power electricity generation, of the total year. the previous similar to According to data published by published by data to According Electricity Transmission the Turkish which (TEIAŞ), Corporation plants, power includes unlicensed increased electricity consumption with a 1.8% in 2018, GWh 300,109 to In line with the growth yoy. growth in demand, electricity generation to 1.8% yoy by also increased economy Turkish GWh. 300,717 half in the second down slowed in volatility due to of the year This August. in financial markets electricity affected has negatively significantly curtailingconsumption, as in 2018 the demand growth years. previous to compared

THE ENERGY SECTOR AND ZORLU ENERJİ IN 2018 ELECTRICITY AND Resources Support Mechanism) to 13.61% for the 2018-2020 period NATURAL GAS PRICES continued to maintain its appeal by the Energy Market Regulatory for the renewable power plants Board’s (“EMRA”) resolution no. The spot electricity price, which in 2018. While the total installed 7501-12 dated December 7, 2017. moved within a relatively narrow capacity of the licensed power The additional income resulting band in the first half of the year, plants participating in YEKDEM from this amendment was added increased in the second half due to was approximately 19.3 GW in 2018, to the revenue requirements of the rising natural gas prices, and the this number has increased to 21 GW electricity distribution companies average price for 2018 was realized for 2019. for the 2018-2020 period, leading as 231.6 TL/kWh, up by 42% yoy. to an increase in the companies’ National electricity tariffs were revenues for these years. In 2018, Petroleum Pipeline also increased in 2018 due to rising Corporation (BOTAŞ) made a exchange rates and production Increase in Non-Tariff Revenues change in the tariff applied to costs. Electricity prices for for the Illegal Use of Electricity natural gas power plants, taking residential users were increased by an important step in the transition 44% (excluding funds and taxes), With the “Communiqué Amending to cost-based pricing. BOTAŞ and the tariffs applied to industrial the Communiqué on the Regulation implemented graduated pricing and commercial users were of Distribution System Revenues” to natural gas power plants in the increased by 72%. published in the Official Gazette first seven months of the year and dated December 16, 2017 and switched to dollar-based pricing, GENERATION numbered 30272, the portion of fixing the natural gas price at PRIVATIZATIONS revenues accrued for the illegal use US$270/1,000 m3 as of August 1. of electricity by subscribers and However, due to the rapid increase In 2018, eight hydroelectric excluded from tariff calculations in exchange rates in August, BOTAŞ power plants with a total installed was increased from 20% to fixed the USD/TL exchange rate capacity of 201.1 MW were 40% for 2018. In addition to this used in the price calculations at 6.5 privatized and transferred to amendment, it was decided by Turkish lira during the month and private ownership. In addition, EMRA’s resolution no. 8034-2 then reverted back to the Turkish tenders for the privatization of dated August 29, 2018, that 15% lira-based tariff in September. six other hydroelectric power of the electricity theft-related BOTAŞ increased the price of plants (Gönen, Sütçüler, Dinar revenues calculated pursuant to natural gas to be used in electricity 2, Çine, Tohma and Tortum) the said Communiqué will be taken generation by 94% in the July- with a total installed capacity into consideration in the income REPORT ANNUAL ENERJİ ZORLU October period but reduced it by of 100.3 MW were completed. difference calculations of the 8.8% on November 1 due to fall Three of these plants have been distribution companies as a non- in exchange rates. Thus, with the transferred to private ownership. controllable operating cost for the 15% increase implemented in the Preparations for the tender of 12 years 2017-2020, to ensure that the first quarter of the year, the price other hydroelectric power plants fight against non-technical losses of natural gas used in electricity (Kepez 1-2, Kesikköprü, Derbent, and the improvements achieved are generation increased by 103% in Çamlıgöze, Seyhan 1-2, Yüreğir, sustained. These amendments will total during the year. The increase Çamlıca 1, Topçam, Akköprü, positively affect the revenues of the in the production costs of natural and Demirköprü) with a total electricity distribution companies. gas power plants was also reflected installed capacity of 598.4 MW are in the spot electricity price, but the underway. Implementation of Quality rate of increase in the electricity Factor price lagged behind the rise in ELECTRICITY DISTRIBUTION natural gas prices. Therefore, the The principles and procedures for the implementation of the “Quality profit margins of natural gas power Increase in the Real Allowed Factor” were published by EMRA’s plants declined significantly during Return on Regulatory Asset resolution dated December 21, the year. Base 2017 and numbered 7531, and the implementation was started in 2018. The average spot price increased to The real allowed return on The quality factor calculations will 4.8 USc/kWh, up by only 7% in USD regulatory asset base (pre- take into account various criteria terms due to the rapid increase in tax WACC) for the third tariff such as the improvements made exchange rates in 2018. Therefore, implementation period (2016- by the distribution company for YEKDEM (Renewable Energy 2020) was increased from 11.91% ensuring supply continuity, increase

55 Eligibility Limit Eligibility of In line with the objective of the rate increasing gradually and enabling openness market eligible, become to all consumers was 2018 the eligibility limit for kWh per year, 2,000 to reduced 2017. to 17% compared by down of limit, the rate the new With to increased openness market because electricity However, 93%. increased costs procurement significantly while the national Reflection of Real Costs in Tariff Tariff Costs in Real of Reflection Calculations the amendmentPursuant to on the the “Communiqué made to of the CommuniquéAmendment Electricity the Retail on Regulating resolution no. with EMRA’s Tariffs” 22, 2018, February dated 7704-3 electricity supplierthe assigned account into will take companies YEKDEM months’ three the last 5 months’ of the past instead cost in their monthly YEKDEM cost tariff and balance income/expense used for calculations equalization portfolios. customer their regulated resolution EMRA’s Pursuant to 31, 2018, August dated 8038 no. which is three YEKDEM cost, months behind, and other market months five which are costs, account into behind, will be taken periods. With in their relevant cost YEKDEM this arrangement, and in addition, other market not included which were costs, previously, in tariff calculations as an estimate will be calculated revenue to the and reflected of electricity supply requirements period, in the current companies the difference reducing thereby incurred the actual costs between through recovered and the costs in thereduction This tariffs. flows the cash will affect difference of electricity supply companies enabling them to by positively, the in meet their actual costs period. current 56 not buy their electricity through through their electricity not buy became agreements, bilateral supply resort last the subject to Consumers April 1, 2018. tariff as of group, in the low-consumption of their right exercise who do not on the other hand, will eligibility, buy their electricity at to continue to tariffs applicable the national consumers. regulated which tariff, supply resort last The the market reflect is designed to applying by is calculated costs, profit reasonable (a a coefficient EMRA by be determined to margin) in price the sum of the electricity to and the YEKDEM the spot market this coefficient 2018, For unit cost. is set as 1.128. which is an regulation, The in the liberalization important step aims to market, of the energy in the high- consumers encourage procure to group consumption competitive their electricity at of instead the market from prices tariffs. regulated buying at supply resort Because the last tariff is higher than the market April 1, from starting price, in the high- consumers 2018, began to group consumption their electricity through procure to in order contracts bilateral avoid and to their costs reduce risk. market annual electricity consumption The supply tariff resort the last limit for 10 million kWh to has been reduced to be the coefficient Also, 2019. for has been reduced applied in 2019 in the reduction Due to 1.0938. to eligible and more the limit, more and in the industrial consumers segments will be commercial These in 2019. included in the LRST procure to expected are consumers bilateral their electricity through thus contributing agreements, market of free the restoration to slumped which have volumes, seriously recently. Last Resort Supply Tariff (LRST) Tariff Supply Last Resort on the “Communiqué With Resort of Last the Regulation published Electricity Supply Tariff” dated in the Official Gazette and numbered 2018 January 20, electricity consumers 30307, eligible considered who are groups: two divided into were and “high- “low-consumption” with and consumers consumption”, an annual electricity consumption 50 million kWh were least of at defined as high-consumption the Pursuant 2018. to users for in the consumers Communiqué, who do group, high-consumption With the “Communiqué on the on the “Communiqué With the Communiqué Amendment to of Retail the Regulation regarding published in the Electricity Tariffs” December dated Official Gazette the 30271, and numbered 15, 2017, YEKDEM will be arising from cost costs included in the procurement companies, supplier of assigned them the right to thus granting of margin profit obtain a gross well. as 2.38% on YEKDEM cost Assigned supplier companies are are supplier companies Assigned margin profit gross a fixed given tariff the third (which is 2.38% for period covering implementation on of 2016-2020) the years costs, procurement their energy carrying incur for which they regulated out electricity sales to the years, In recent customers. the arising from of cost share Resources Energy Renewable energy Support Mechanism in total has increased costs procurement significantly. Inclusion of of Inclusion Cost in YEKDEM Profit Calculation Gross RETAIL SALES OF SALES RETAIL ELECTRICITY in consumer satisfaction in the in satisfaction in consumer the and region, distribution related quality andtechnical of fulfillment obligations. investment-related

THE ENERGY SECTOR AND ZORLU ENERJİ IN 2018 tariffs used as a benchmark for end of 2018, the total number of and related taxes and a distribution pricing in bilateral agreements did natural gas subscribers increased to tariff calculated to meet the not increase as much in 2018, there 15.4 million, up by approximately 1.3 revenue requirements of the natural was a significant drop in the free million compared to 2017. Thanks gas distribution companies to cover market volumes, with the number to the investments made by the their investment and operating of consumers using their elibility natural gas distribution companies, costs. right plummeting from 4.7 million approximately 66 million people to 139,000 during the year. have access to natural gas today, In 2018, natural gas consumption and 53 million people (65% of in Turkey decreased by 8% to EMRA has set the eligibility limit the population) actively use it. 48.9 billion m3. The natural gas for 2019 at 1,600 kWh/year. Thus, There are approximately 3 million consumption at natural gas power consumers with a monthly average potential subscribers who do plants, homes and in the industry electricity bill of 72 Turkish lira not use natural gas yet. The total were 15.6 billion m3, 12 billion m3 and above are entitled to choose amount of investments made and 12.7 billion m3, respectively. their electricity supplier, effectively by the natural gas distribution increasing the openness rate in the companies has reached 25 billion market to 95%. Turkish lira, and the total length of AS OF THE END OF the natural gas distribution network 2018, THE TOTAL NATURAL GAS in Turkey exceeds 140,000 km. NUMBER OF NATURAL DISTRIBUTION Unlike the electricity distribution GAS SUBSCRIBERS In the natural gas distribution sector, there is no loss or theft INCREASED TO sector in Turkey, a total of 69 problem in the natural gas 15.4 MILLION. 65% OF THE distribution companies who have distribution sector, and therefore, a been authorized by EMRA through different distribution tariff is applied POPULATION ACTIVELY the tenders concluded, operate in in each distribution region instead USES NATURAL GAS. 81 cities and 510 settlements (490 of a national tariff. A natural gas districts and 20 counties). As of the bill includes the natural gas cost ZORLU ENERJİ ANNUAL REPORT ANNUAL ENERJİ ZORLU

57 3% 0% -3% -3% -5% -6% 37% 25% 25% 23% YoY Change YoY Change YoY 2018 2018 40,219 83,090 527,294 527,294 1,797,184,030 9,591,169,596 3,094,823,171 1,002,178,644 2,834,475,504 6,330,630,535 Company’s profitability while also profitability Company’s hedge against a natural providing losses. currency foreign gross Enerji’s Zorlu In 2018, remained electricity generation of target the Company’s below utilization due reduced 3,600 GWh plants gas power natural at costs. because of rising generation however, electricity sales, Total of target the Company’s exceeded 11%. by 11,200 GWh Electricity Distribution Dağıtım AŞ Osmangazi Elektrik net 6.3 billion kWh of distributed 1.79 approximately electricity to The million subscribers in 2018. amount of electricity distributed to 3.4% compared by increased 2017. 2017 2017 60,591 40,282 543,999 543,999 2,267,131,050 6,123,018,255 1,054,032,972 1,908,472,345 7,809,284,743 2,466,266,279 58 IN 2018 IN 2018 ) 3 23% to 9,591 GWh, driven by the by driven GWh, 9,591 23% to the shift from eligible consumers’ market regulated to market free sales of increasing in the face contracts under bilateral prices growth strong and the resulting electricity sales to in OEPSAŞ’s portfolio. customer regulated electricity sales total As a result, up by in 2018, 12,426 GWh reached 23% yoy. the inclusion of Kızıldere With Plant in III Geothermal Power theYEKDEM mechanism in 2018, plants with 6 power Company’s capacity, installed 505 MW of total YEKDEM from benefited have Accordingly, during the year. for YEKDEM accounted sales to electricity sales from 77% of total Because of in 2018. generation in YEKDEM, the USD based prices the market above well which are YEKDEM sales increasing price, impact on the had a positive ) 3 ) ) ACTIVITIES OF ZORLU ENERJİ ENERJİ ZORLU OF ACTIVITIES 3 3 Utility and Cooling Water (m Water Utility and Cooling Steam (tonnes) Steam SALES GENERATION Electricity (kWh) * (kWh) Electricity (Generation) (kWh) Electricity (Trading) Steam (tonnes) Steam Natural Gas (Distributed Including Transport Services) (sm Services) Including Transport Gas (Distributed Natural Net Distributed Electricity (kWh) Net Distributed (sm Gas (Sales) Natural Carbon Dioxide Gas (m Carbon Dioxide Electricity Generation and Sales and Generation Electricity gross Enerji’s Zorlu In 2018, increased electricity generation 25% yoy. up by GWh, 3,095 to the by driven was increase The of the first operation full-year III Geothermal unit of Kızıldere Plant, which came Power and 2017 in August onstream of the plant’s the commissioning In 2018. unit in March second Hydroelectric addition, İkizdere not Plant, which was Power the due to in 2017 operational investment, ongoing rehabilitation electricity generation has resumed upon completion 2018 March from of the investment. In line with the electricity production, in growth generation electricity sales from up 2,834 GWh, to by 25%increased Sales of electricity procured yoy. by increased other sources from ACTIVITIES IN 2018 ACTIVITIES *290,929,755 kWh of electricity was used for internal consumption in 2018 (2017: 200,321,333 kWh). 200,321,333 (2017: in 2018 consumption internal used for kWh of electricity was *290,929,755

THE ENERGY SECTOR AND ZORLU ENERJİ IN 2018 Natural Gas Distribution and be summarized as follows: –– Increase in electricity prices Sales during the year and the –– Strong growth in YEKDEM restructuring of the customer In 2018, total natural gas sales revenues in TL terms due portfolio having a positive by Trakya Doğal Gaz and to inclusion of Kızıldere III impact on the profitability of Gaziantep Doğal Gaz reached Geothermal Power Plant in Zorlu Elektrik. 1,002 million sm3 while the YEKDEM for the first time in amount of natural gas distributed 2018 in addition to the existing Despite the volatility in financial amounted to 1,797 million sm3. five plants and the 32% increase markets during the year, Zorlu While gas sales to residential users in the average USD/TRY Enerji recorded a TL 35 million net increased in line with the growth exchange rate during the year, profit in 2018 driven by the strong REPORT ANNUAL ENERJİ ZORLU in the subscriber base, sales to growth in operating profitability. eligible consumers (industrial –– The commissioning of the customers, electricity producers, second unit of Kızıldere III GPP Capital Expenditures etc.) declined along with the in March, and the full-year slowdown in the economy. contribution to operations from Zorlu Enerji’s capital expenditures the plant’s first unit in 2018, amounted to TL 812 million in 2018 Financial Results 2018. The bulk of the investments –– The regulatory changes for the made during the year owed to the Consolidated revenues grew by assigned supplier companies Kızıldere III GPP Project, and to the 35% to TL 6.73 billion yoy, driven introduced during the year investments made to improve and by the full operation of Kızıldere (inclusion of YEKDEM cost expand the existing electricity and III GPP with two units from March, in the calculation of gross natural gas distribution networks increasing YEKDEM revenues and profit, recognition of YEKDEM as well as to improve the quality of strong growth in retail electricity cost and other market costs services to customers sales. EBITDA reached an all-time in their respective periods in high TL 1.85 billion with a growth tariff equalization calculations) TL 174 million of distribution of 82%. leading to a significant increase network related investments in OEPSAŞ’s regulated gross were booked under financial Thanks to strong growth in EBITDA, profit, assets pursuant to the accounting net debt/EBITDA declined from of investments under service 8.2x to 5.8x in 2018. –– Growth in OEDAŞ’s revenues concession arrangements. due to higher inflation and the The reasons for the strong growth increase in the real WACC from in revenues and EBITDA in 2018 can 11.91% to 13.61%,

59 Both being eco-friendly and being eco-friendly Both plants, Kızıldere power sustainable not III GPPs invest II and Kızıldere but technology latest only in the and the social region also in the structure. II Geothermal Power Kızıldere in example Plant is the first use of the integrated Turkey Besides of geothermal energy. II Kızıldere electricity, generating 2,500 for heating GPP provides district, homes in the Sarayköy no natural is currently there where plant also The gas connection. greenhouses, to heating provides thermal to geothermal water gas to and carbon dioxide hotels serve that gas plants industrial sector. beverage the carbonated greenhouses II GPP heats Kızıldere of 500,000 area with a total meters. square Plant Alaşehir I Geothermal Power 45 MW Alaşehir I Geothermal The built in the Plant was Power geothermal field Manisa-Alaşehir Enerji Elektrik Jeotermal Zorlu by a Jeotermal”), (“Zorlu AŞ Üretim subsidiary of Zorlu wholly-owned Enerji. Alaşehir I of the construction The with an realized which was GPP, million, of US$178 investment and the began in June 2014, in completed was plant power steam The time. record-breaking plant, with turbine of the power capacity, MW of installed 33.73 on September commissioned was with while the binary unit 12, 2015, capacity MW of installed 11.27 as of January became operational 15, 2016. finance A US$148 million project Kredi Yapı obtained from loan was and about the Alaşehir I GPP, for US$28 million of this loan was Bank for the Japan funded by (JBIC). Cooperation International III GPP Kızıldere II GPP, Kızıldere and Alaşehir I GPP sell their 60 and the additional price support support price additional and the years are five for content local for investing for incentives the key Enerji aims to Zorlu in this area. energy its geothermal realize an installed and reach projects MW. 400 least capacity of at Kızıldere I-II-III Geothermal Kızıldere Plants Power I Geothermal 15 MW Kızıldere The Plant (“GPP”), the Power rights of which were operating Enerji for Zorlu by acquired the ADÜAŞ through 30 years in 2008, is the tender privatization plant in power geothermal first Turkey. the existing In addition to I GPP in the Kızıldere Kızıldere Turkey’s geothermal field, which is geothermal field discovered first electricity be suitable for to found and which possesses generation of in terms potential the highest II Kızıldere geothermal energy, in 2013 commissioned GPP was of US$250 with an investment of subsequent million. As a result and exploration survey reservoir started was activities, construction III GPP project, the Kızıldere for installed a total which will have unit first The capacity of 165 MW. MW with 99.5 of the project was capacity of installed 2017 in August commissioned of US$320 with an investment unit, with second million. The capacity, 65.5 MW of installed 2018 in March commissioned was of US$260 with an investment total Enerji’s Zorlu million. Thus, capacity in the Kızıldere installed reached geothermal field has 260 MW. largest III GPP is Turkey’s Kızıldere plant in a geothermal power and is also one of single facility with its in the world the largest capacity of 165 MW. installed Turkey’s Biggest Investment in in Investment Biggest Turkey’s Geothermal Energy The high capacity factor in high capacity factor The the 10-year geothermal energy, of USc10.5/kWh guarantee price geothermal power to granted 18, May from plants commissioned Energy 2005 under the Renewable Support Mechanism Resources As of the end of 2018, Zorlu Enerji Zorlu As of the end of 2018, of Turkey’s 24% for accounts energy geothermal installed total leading As Turkey’s capacity. in geothermal energy, player Enerji is one of the most Zorlu and experienced knowledgeable, in this equipped investors best field. Building its future growth on the growth Building its future abundant of Turkey’s utilization Zorlu geothermal resources, its operations Enerji continues in potentially and investments of the Aegean sites the richest of the 87% which contains Region, geothermal resources. country’s region, the Aegean In addition to its Enerji also continues Zorlu activities by development project in other the potential exploring its through of Turkey regions licenses geothermal exploration Eastern and the Central for regions. Anatolia WITH ITS 305 MW OF WITH ITS CAPACITY INSTALLED IN GEOTHERMAL ENERJİ ZORLU ENERGY, IS TURKEY’S LARGEST IN THIS FIELD, PLAYER SINGLEHANDEDLY 24% REPRESENTING OF TURKEY’S TOTAL IN CAPACITY INSTALLED ENERGY. GEOTHERMAL INVESTMENTS IN TURKEY INVESTMENTS Energy Geothermal ELECTRICITY GENERATION ELECTRICITY

THE ENERGY SECTOR AND ZORLU ENERJİ IN 2018 entire output at guaranteed feed-in tariffs under YEKDEM mechanism. Because Zorlu Enerji used domestically manufactured ejectors in these power plants, it was the first energy company in Turkey to apply to the General Directorate of Renewable Energy to receive additional price support for local content in geothermal energy.

Kızıldere II and Alaşehir I GPPs have been selling their production through YEKDEM since 2014 and 2016, respectively. The newly commissioned Kızıldere III GPP was also included in YEKDEM in 2018. All of the three power plants benefited from an additional price support of USc 0.7/kWh for Alaşehir III Geothermal Power Zorlu Doğal applied to EMRA local content in addition to the Plant Project to raise the installed capacity USc 10.5/kWh feed-in tariff In addition to the Alaşehir II GPP specified in the project’s pre- provided to geothermal power project, a 30-month pre-license license to 60 MW. The application plants and thus, sold their output was obtained from EMRA in was approved and the project at a total feed-in tariff of April 2016 for the Alaşehir III was given a 36-month pre-license USc 11.2/kWh in 2018. Kızıldere III GPP project, which is planned to in July 2017. The term of the and Alaşehir I GPPs will continue be developed with an installed pre-license was extended to 54 to sell their output through capacity of 50 MW as the third months in December 2018. YEKDEM at USc11.2/kWh in 2019. phase in the Alaşehir geothermal Kızıldere II GPP, on the other hand, field in Manisa. However, the Exploration and Operation will sell its output at USc10.5/ findings from resource exploration Permits for Geothermal Energy kWh because the five-year price activities indicated that the Sources REPORT ANNUAL ENERJİ ZORLU support for the use of domestic temperature of the geothermal In addition to its ongoing component has expired in 2018. fluid was lower than the projected investments and existing pre- levels and in consideration of licenses in geothermal energy, Planned Geothermal Power Plant the likely decline in geothermal Zorlu Enerji also won the tenders Investments resource in terms of pressure for two more geothermal fields in and flow rate due to existing and Denizli and Kütahya in 2016. Alaşehir II Geothermal Power planned power plant projects Plant Project in neighboring license sites, an The Alaşehir II GPP project is application was made to the planned to be developed with an EMRA in March 2018 to reduce the installed capacity of 24.9 MW to installed capacity specified in the exploit the additional geothermal pre-license of the project from energy potential in the Alaşehir 50 MW to 30 MW. geothermal field in Manisa. The pre-license for the project was Kızıldere IV Geothermal Power obtained in September 2014 and Plant Project a letter waiving the requirement Kızıldere IV GPP project is planned for an environmental impact to be developed by Zorlu Doğal assessment process was secured with an installed capacity of on January 19, 2015. Exploration 24.9 MW in the Kızıldere and well drilling activities for geothermal field as the fourth the project have started in 2015 phase of the Kızıldere GPP project. while financing negotiations After further exploration, however, are currently underway. The investment is expected to be completed in 2020. 61 emissions by nearly by emissions 2 wholly-owned subsidiary of Zorlu subsidiary of Zorlu wholly-owned Enerji, built the Sarıtepe (23.3 MW) MW) and Demirciler (57 a plants, which have wind power in MW, capacity of 80.3 combined of investment a total for Osmaniye of €108 construction million. The in 2015, plants started the power in commissioned were and they June 2016. from phases, starting operate plants began to power The 2016. 27, full capacity on August at WPPs sold and Demirciler Sarıtepe of USc8.7/kWh a price their output at an benefiting from in 2018, support ofadditional price the use of for USc1.4/kWh in addition component domestic 7.3/kWh tariff of USc the feed-in to plants wind power to provided theunder YEKDEM. As in 2018, will sell their output at plants power in 2019. of USc8.7/kWh price a total licenses of the generation term The WPPs and Demirciler of Sarıtepe 25 from in 2018, extended was from effective years, 49 to years 8, 2008. May Zorlu WPP, the Gökçedağ After the Gold Standard Enerji received and for the Sarıtepe Certificate Sarıtepe WPPs as well. Demirciler expected WPPs are and Demirciler CO reduce to 180,000 tons per year, ensuring per year, tons 180,000 by high-quality carbon credits 62 Zorlu Rüzgar Enerjisi Elektrik Rüzgar Zorlu Rüzgar”), a (“Zorlu AŞ Üretimi Sarıtepe and Demirciler Wind Wind Sarıtepe and Demirciler Plants Power Gökçedağ Wind Power Plant Plant Power Wind Gökçedağ Biggest Five the One of (Rotor): in Turkey Plants Power Wind Plant Power Wind Gökçedağ wind first Enerji’s (“WPP”), Zorlu the among ranks in Turkey, farm plants in wind power largest five capacity of with an installed Turkey MW. 135 Earning the Gold Standard result of its as a Certificate of the reduction to contributions gases and sustainable greenhouse WPP Gökçedağ development, Award the Sustainability received and Social in the “Environmental category Impact Performance” Bank for the European by and Development Reconstruction and its environmental for in 2013 social performance. 2016, Included in YEKDEM since WPP sold its output Gökçedağ a at YEKDEM in 2018 through which is the of USc7.3/kWh, price for wind tariff feed-in guaranteed plant will power plants. The power sell its output through to continue in 2019. USc7.3/kWh YEKDEM at WPP’s of Gökçedağ term The extended was license generation years, 49 to 30 years from in 2018 2003. 19, December from effective Wind Power ENERJİ ZORLU THE OPERATES DEMİRCİLER GÖKÇEDAĞ, WINDAND SARITEPE IN PLANTS POWER WHICH HAVE TURKEY, INSTALLED A TOTAL OF 215.3 MW. CAPACITY Well locations were determined in determined were locations Well and geophysical both fields after to and work geological studies permissions the necessary receive continues. drill these fields to Zorlu Jeotermal, a wholly-owned a wholly-owned Jeotermal, Zorlu the won Enerji, subsidiary of Zorlu exploration a geothermal for tender the Kütahya permit held by Special Administration Provincial offering by 2016, 27, on October plus lira Turkish 450,000 pay to Zorlu As part of the tender, VAT. obtained the right to Jeotermal in geothermal resources explore geothermal field of the Yeniköy located kilometers square 49.5 of the Simav area in the Yeniköy in Kütahya. district On September 21, 2016, Zorlu Zorlu 21, 2016, On September leasing for tender the Enerji won fields held energy geothermal Municipality the Metropolitan by a fixed offering by of Denizli rental lira Turkish 3,000,000 annual plus an per year payment of 19% of its annual turnover, fee the tender, the of part As VAT. plus Sarayköy kilometer square 34.7 in the geothermal field located of the neighborhood Tekke in Denizli was district Sarayköy June 2, Enerji until Zorlu leased by electricity from generate to 2041, geothermal sources.

THE ENERGY SECTOR AND ZORLU ENERJİ IN 2018 guaranteeing transparency and expansion of its transmission increased from 160 tons/hour to credibility in the voluntary carbon tunnels within the scope of this 240 tons/hour in 2018. market. investment, the plant will be able to generate more energy from the Fluidized Bed Steam Boiler Hydroelectric Power current source. Zorlu Enerji has Investment at Lüleburgaz Natural continued to act as a responsible Gas Power Plant Zorlu Enerji owns seven corporate citizen in this investment hydroelectric power plants in Turkey. as well. Given the high electricity The Lüleburgaz Natural Gas generation potential of the source, Its total installed capacity in this area Cogeneration Power Plant, which the Company could have increased has increased to 119 MW after the is located in Lüleburgaz, Kırklareli, the capacity of the plant further. completion of the rehabilitation has an electricity generation However, Zorlu Enerji has not work at İkizdere Hydroelectric capacity of 49.53 MW and steam compromised on its principle of Power Plant (“HPP”). production capacity of 129.5 tons/ respecting people and the nature hour. A fluidized bed steam boiler and chose to move forward with İkizdere Regulator and HEPP with a steam production capacity a lower capacity. In addition, fish of 2x40 tons/hour was built at passes have been added to the the plant to increase the steam Located in the İkizdere district power plant for the first time, with generation capacity. Construction of Rize, İkizdere Regulator and an environmentally conscious and engineering works for the Hydroelectric Power Plant was approach. project started in April 2016, and one of the first milestones in the boiler was commissioned in hydroelectric energy in Turkey. Natural Gas Power Plants March 2018. The rehabilitation work to increase the installed capacity of İkizdere Zorlu Enerji owns three natural gas After commissioning of the new Regulator and HPP from 18.6 MW power plants in Turkey with a total steam boiler, electricity and steam to 24.94 MW was initiated in installed capacity of about 100 MW production were separated to July 2016 and the HPP was of electricity and 240 tons/hour enable more flexible operation of recommissioned in March 2018. of steam. After the completion the Lüleburgaz Natural Gas Power Plant. Retrofitted with new turbines of the steam boiler investment and generators, İkizdere HPP has at Lüleburgaz Natural Gas been upgraded technologically, Power Plant, Zorlu Enerji’s steam and thanks to the renewal and production capacity in Turkey ZORLU ENERJİ ANNUAL REPORT ANNUAL ENERJİ ZORLU

63 One of the first private sector sector private One of the first the enter to companies energy Enerji has Zorlu market, Israeli one of the leading players become with electricity sector in the Israeli plants. gas power its natural in three Enerji has shares Zorlu plants operating gas power natural Natural Gas Power Plants and and Plants Natural Gas Power in Israel Projects IS A ENERJİ ZORLU IN THE KEY PLAYER ELECTRIC POWER IN ISRAEL. SECTOR SHARES INIT HAS GAS THREE NATURAL IN PLANTS POWER WITH THIS COUNTRY, INSTALLED A TOTAL MW. OF 1,031 CAPACITY First Hybrid Power Plant Project Project Plant Power Hybrid First in Pakistan a develop to Enerji plans Zorlu with an installed plant solar power 30 MW on the up to capacity of of the 56.4 MW site project existing which Plant, Power Jhimpir Wind Pakistan. farm in wind is the first plant will power hybrid The solar and wind power generate up to simultaneously and supply grid the to 56.4 MW of electricity supporting the by uninterruptedly with solar in generation shortfall when the wind speed is energy the transmission In this way lower. a major constraint line capacity, in Pakistan, sector of the energy efficiently, will be used more of the mitigation to contributing in the supply problem the energy country. a pre-license 2017, In November the project, obtained for was hybrid which will be one of the first and the in Pakistan, plants power development project for process has been initiated. 64 Zorlu Enerji’s first venture in solar venture first Enerji’s Zorlu will be realized in Pakistan energy Solar the Quaid-e-Azam as part of which is (“QASP”) project, Park the by be developed planned to in the Punjab government Pakistani MW with 1,000 of Pakistan province Zorlu capacity. installed of total Solar in Zorlu Enerji participated as a Limited (Private) Pakistan partner with a 99.7% founding in established which was share, to in Pakistan 2016 November I Solar the Bahawalpur undertake which Plant (“SPP”) project, Power in this region will be constructed capacity of 100 with an installed MW. application Solar Pakistan’s Zorlu I Solar the 100 MW Bahawalpur for approved was Plant project Power Development the Punjab Power by was This 2016. in December Board for application pre-license the first the by approved energy renewable in the last government Pakistani Zorlu 2017, In August years. three obtained a 25-year Solar Pakistan the project for license generation Electric National the Pakistan from The Authority. Regulatory Power the for work development project in 2017, I SPP started Bahawalpur for is planned and commissioning 2019. Enerji signed a Letter Zorlu with the Pakistani of Intent 2017 in February Government plant solar power more two for each with an installed projects, be to capacity of 100 MW, region. in the QASP developed will be projects two These Renewable Zorlu by developed and Limited (Private) Pakistan (Private) Sun Power Zorlu which were respectively, Limited, Enerji in 2017 Zorlu by established In July ownership. with 99.7% granted were both projects 2017, the for Studies a pre-license. are of the projects development ongoing. Ongoing and Planned Projects Projects Planned and Ongoing in Pakistan In 2016, Zorlu Enerji became the Zorlu In 2016, to obtain Pakistan in company first Certificate the “Gold Standard” by Farm Wind its Pakistan for of the requirements fulfilling all the certificate. The power plant won the “Best plant won power The theof Financing Energy Renewable the by given Middle East” Award, Magazine in 2011. Finance Project In accordance with the agreement with the agreement In accordance authorities, made with the relevant a plant benefits from the power for guarantee purchase power is a In addition, there 20 years. by given guarantee production against government the Pakistani an impact have may risk that any such as generation, on power in wind speed andfluctuations changes. legislative Pakistan is considered to be one to is considered Pakistan in the wind corridors of the best winds year steady With world. Bandar- the Gharo-Kheti round, the where corridor, Hyderabad Plant is Power Jhimpir Wind one of the is arguably located, show Studies in the region. best MW of wind is 50,000 there that in the region. potential energy The 56.4 MW wind farm, farm, 56.4 MW wind The Enerji Zorlu by constructed wholly-owned a Ltd., Pakistan the at Enerji, subsidiary of Zorlu region of Jhimpir field in the Sindh in July commissioned was Pakistan, 2013. ZORLU ENERJİ HAS ENERJİ ZORLU 56.4 MW OF INSTALLED IN PAKISTAN, CAPACITY ONE AS CONSIDERED WIND OF THE BEST THE IN CORRIDORS WORLD. INVESTMENTS ABROAD INVESTMENTS Plant Power Wind Pakistan

THE ENERGY SECTOR AND ZORLU ENERJİ IN 2018 The Ashdod and Ramat Negev The feasibility studies continue Natural Gas Cogeneration Power for the Solad Natural Gas Plants, commissioned in December Cogeneration Power Plant, the 2015 by Ezotech Electric Limited, fourth project to be developed in in which Zorlu Enerji has a 42.15% Israel. stake, have a total installed capacity of 191 MW. Planned Projects in Palestine

The Ashdod Natural Gas In line with its goal of diversifying Cogeneration Power Plant, and expanding its investments in located in the north of Ashdod, clean solar energy, Zorlu Enerji and realized with a US$110 million signed a Letter of Intent in 2017 investment, has an electricity with the Jerusalem District and steam generation capacity Electricity Company (“JDECO”), of 64.54 MW and 40 tons/hour, which distributes electricity to respectively. The construction Jerusalem and its surroundings works for the power plant started and provides 25% of Palestine’s in September 2012, and the plant electricity, for the construction and was commissioned on December operation of solar power plants. 21, 2015. A “Joint Venture Agreement” The Ramat Negev Natural Gas was signed in 2018 to take more in Israel, which have a total installed Cogeneration Power Plant, the concrete steps in this regard. capacity of 1,031 MW. (Zorlu Enerji’s third project of Zorlu Enerji in Under the agreement, solar power share in the total installed capacity Israel, was built in Neot Hovav plants (with 30 MW of installed of these plants is 290 MW). with a US$230 million investment. capacity in the initial stage, later The plant was commissioned on to be expanded up to 100 MW) The Dorad Natural Gas Combined December 31, 2015, with 126.4 MW are planned to be built in different Cycle Power Plant, which was of electricity generation capacity regions of Palestine to meet the commissioned in Ashkelon in 2014 and 70 tons/hour of steam electricity demand of the country. with a US$1.2 billion investment by generation capacity. Zorlu Enerji and its local partners, Work is already underway to is the largest of these power plants, Both power plants are located develop solar energy projects with with 840 MW of installed capacity. in industrial zones and sell JDECO in the Jericho region, which ZORLU ENERJİ ANNUAL REPORT ANNUAL ENERJİ ZORLU both electricity and steam to has on average 10 hours of sunlight The Dorad Natural Gas Power surrounding industrial plants. per day. An electricity sales Plant, in which Zorlu Enerji has a agreement to provide electricity to 25% stake, is the largest privately- Natural gas supply agreements the region for 25 years is planned owned power plant in Israel, have been signed with Delek Group to be signed after the completion meeting nearly 6% of the total and Noble Energy for the Dorad, of the projects for which field electricity need in the country. Ashdod and Ramat Negev power development works are currently The power plant is also supported plants. Additionally, a “Natural Gas underway. by the Ministry of National Purchase” agreement was signed Infrastructure, Energy and Water in 2017 with Energean Israel Ltd. Other International Project Resources of Israel by virtue of its (“Energean”) to procure natural gas Development Activities low generation costs and eco- from the Karish and Tanin fields, to friendly structure. be developed by Energean in Israeli In 2018, Zorlu Enerji participated territorial waters. in a number of renewable energy The electricity generated by tenders in the Middle East and Dorad NGPP is sold to public and The agreements with Energean Gulf countries. Most of the private entities in Israel. The Israel will help diversify gas supply afore-mentioned tenders have Ministry of Defense, Mekorot, Israel and reduce the average gas not yet been finalized, and new Aerospace Industries, Fattal Hotels, procurement cost for the power business development activities Keter Plastic, Isrotel, Strauss, Osem, plants while increasing the supply will continue in 2019. Zorlu Enerji Tamares Hotels, the Cargal Group, security. Energean is expected will continue to follow potential Seven Stars Mall, Bank Leumi to commence gas production in business opportunities in the and Tnuva are among the key Karish and Tanin gas fields by the Middle East and Gulf countries. customers of the plant. end of 2020.

65 6.3 1.79 2018 2018 6.1 1.72 2017 2017 6.0 1.66 2016 2016 5.7 1.61 2015 2015 5.6 1.57 2014 2014 Number of Subscribes (million) Subscribes of Number consumption in the region based in the region consumption of subscribers was on the number kWh in 2018. 3,786 completely OEDAŞ During 2018, be mobile to website its redesigned user-friendly. and compatible importance great attaches OEDAŞ and the satisfaction customer to be fully to continued company in 2018. in this regard committed the independent to According survey satisfaction customer ELTEMTEK by conducted on behalf of TEDAŞ, Consulting number one ranked was OEDAŞ based on the survey Turkey across October September, for results that demonstrating and December, has begun reaping the company on customer the fruits of its focus satisfaction. (TWh) Distributed Electricity Net 66 Conducting tariff studies. tariff Conducting Carrying out general lighting Carrying out general operations, quality, of commercial Tracking up and coordination Follow connection of distribution and interior agreements applications,installment of legal changes track Keeping and Performing transactions related related transactions Performing Exchange Energy Turkish to (EPIAŞ-EXIST), of annual profiles Preparation settlement be used in the to accounts, of and operation Installment Reading Meter the Automatic System, of and finalization Tracking subscriber complaints, – – – – – – – – – Osmangazi is a region with Osmangazi is a region growth, rapid for high potential population, especially in university and urbanization. industrialization the number of Accordingly, by increases users in the region In 3%-4% annually on average. the number of subscribers2018, increased in Osmangazi region the 3.9%, which is above by and reached average, Turkish million. The 1.79 approximately in the number of increase biggest was subscribers during the year with a in Uşak province realized of 4.4%. growth the amount of electricityIn 2018, increased in the region distributed 6.33 TWh, while the 3.4% to by realized was ratio loss/theft the below remaining as 6.41%, set of 7.55% target regulatory Because the 2018. EMRA for by in consumers high-consumption system transmission are the region users, the per capita electricity – – – – – – – – – Tracking of energy exchange in exchange of energy Tracking the region, Carrying out transactions and eligible consumers for electricity suppliers, Calculation of extra of extra Calculation consumption, of and collection Accrual for fees connection distribution subscriptions, new Meter reading and circuit and circuit reading Meter operation