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Financing Mechanism for Strong ESCO Industry in Korea

Financing Mechanism for Strong ESCO Industry in Korea. KDB Capital Republic of Korea Hyungchul Shin. International financing for local GHG mitigation projects [1]. Characteristics No legal and administrative barrier of foreign investment to finance ESCO projects in Korea

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Financing Mechanism for Strong ESCO Industry in Korea

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  1. Financing Mechanism for Strong ESCO Industry in Korea KDB Capital Republic of Korea Hyungchul Shin

  2. International financing for local GHG mitigation projects [1] • Characteristics • No legal and administrative barrier of foreign investment to finance ESCO projects in Korea • Interest rate depends on company risk • Costs incur in getting the investment done • Costs include legal fees and other due diligence costs

  3. International financing for local GHG mitigation projects [2] • Interest rate of foreign fund • Calculation equation Interest rate = LIBOR + risk premium + α risk premium = country risk + business risk + company risk • In Korea, only few ESCOs would be satisfied with company risk

  4. International financing for local GHG mitigation projects [3] • Indirect financing • Korean ESCOs prefer indirect financing to direct financing • Most Korean ESCOs cannot directly introduce foreign fund due to their high company risk (high debt ratio) • Small and medium sized ESCOs can use indirect financing scheme to finance their project

  5. International financing for local GHG mitigation projects [4] • Direct financing model vs. indirect financing model

  6. International financing for local GHG mitigation projects [5] • Comparison continue

  7. International financing for local GHG mitigation projects [6] • Comparison continue

  8. International financing for local GHG mitigation projects [7] • Comparison continue

  9. International financing for local GHG mitigation projects [8] • Comparison continue

  10. International financing for local GHG mitigation projects [9] • Mechanism of indirect financing for ESCO projects SPC (local bank) CO2 credit and/or profit CO2 credit and/or profit Prepare a package of ESCO projects for International investors money ESCOs International fund ex) ESCO fund, climate change fund etc Energy end users

  11. International financing for local GHG mitigation projects [10] • Summaries of indirect financing mechanism • ESCOs sell the payment stream to a SPC • A SPC raises fund for local ESCO projects or potential carbon offset projects from foreign investor - This SPC is designated as a special bank of international carbon offset projects (ex : Foreign investors get the CO2 credit and/or profit of projects prior to SPC)

  12. International financing for local GHG mitigation projects [11] • Summaries continue • After the SPC secures a certain amount of money, it provides fund to ESCO projects that create CO2 credits instead of international investors

  13. International financing for local GHG mitigation projects [12] • Next step for the development • A potential project for this proposed mechanism will be developed through the circulation among ESCOs in Korea • CTP Korea will partner a Korean ESCO with large international ESCOs • After the application, CTP Korea improve the mechanism based on the result of the project

  14. Thank you

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