workshop on climate change issues jointly organized by kemco, nrel and conae 1 st december, 2003,...
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Workshop on Climate Change Issuesjointly organized by KEMCO, NREL and CONAE
1st December, 2003, Milan, Italy
Role of ESCOs in reducing GHG emission
in Korea
Gyung-Ae Ha
Center for Climate Change Mitigation Projects
Korea Energy Management Corporation (KEMCO)
Korea Energy Management Corporation
< Contents >
1. Why ESCO for GHG reduction?
2. Background information - Korea
3. ESCO activities in Korea
4. Barriers
Korea Energy Management Corporation
Why ESCO for GHG reduction?
Korea Energy Management Corporation
ESCO
Energy Service Company Market-oriented mechanism to improve energy effici
ency Important measure for mitigation of global climate ch
ange and implementation of the Kyoto mechanism In Japan, reduce final energy consumption 1million kL-oi
l equivalent by ESCO activities (2010) In Finland, reduce GHG emission about 8-13% of total e
mission reduction potential by ESCO In Korea, have reduced 325,125 tons of oil equivalent (t
oe) per year since 1993
Korea Energy Management Corporation
Potential role of ESCO under UNFCCC
Window of technology transfer
Credit producer from its energy saving projects
Potential key player in emission trading market
Specialized company for reducing GHG emission
Korea Energy Management Corporation
Background Information - Korea
Non-Annex I country and rapidly developing economy, highly dependent on imported energy 97.1%(in 2002), 31.2billion USD
more than 80% of GHG is CO2 from fossil
fuel combustion Industry energy use is the main factor
Background Information - Korea
Korea Energy Management Corporation
148,037(100)
123,540(83.5)
16
4
4
- 50 100 150
Total
Energy Sector
Industrial Process
Agriculture
Waste
(million TC)
Background Information - Korea
CO2 emission (2001) - Energy sector : 83.5%
CO2 emission from energy combustion
Transmissionsector31%
public sector1%
Commercial/residental
sector14%
Industrialsector34%
Transporationsector20%
Korea Energy Management Corporation
Primary Energy Demand in Korea(Mtoe)
Background Information - Korea
1971 2000 2010 2030
Coal 8 42 58 79Oil 11 104 126 165Gas - 17 33 61Nuclear - 28 45 65Hydro 0 0 0 1Other renewables - 2 3 7Total primary energy demand 17 194 264 378
Reference: IEA, 2002, World Energy Outlook 2002:Korea Energy Outlook
Korea Energy Management Corporation
Governmental effort to encourage energy conservation and higher energy efficiency
Rational Energy Utilization Act, 1979
KEMCO, 1980
New & Renewable Energy Development Act, 1987
Integrated Energy Supply Act, 1991
Background Information - Korea
Korea Energy Management Corporation
ESCO activities in Korea
Korea Energy Management Corporation
ESCO in Korea
ESCO business were formed based on the 1991 “Rational Energy Utilization Act” in Korea
Korean government provides low interest loans for ESCO since 1993 and tax credits for energy users
After 3 companies started in 1992, the number of registered companies grew to 163 companies in 2003
Korea Energy Management Corporation
Tax recycling to fund ESCO projects
Return profits
Tax revenues according to price adjustment
Energy End User
Energy SavingProject
Special Account
Korea Energy Management Corporation
ESCO in Korea
57.8
107.7
65.8
5.5 4.2 4.4
22.8
49.8
9 24 25
139
519
244
548
491
0
20
40
60
80
100
120
140
93-95 96 97 98 99 2000 2001 2002
Year
Ca
se
0
100
200
300
400
500
600
mil
US
$
investment(mil US$)
case
Korea Energy Management Corporation
Energy savings by ESCO activities
80
20
41
16 125
106
23
171
31
14 11
97
199
3
0
20
40
60
80
100
120
140
160
180
Lighting Cogeneration Boiler ProcessImprovement
Waste HeatRecovery
HVAC powergeneration
etc
Energy Savings(1000 toe)Energy Savings(million US$)
Korea Energy Management Corporation
Financing Mechanism
KEMCO
Bank
User
ESCORepay the loan
Repay the loan for a maximum
of 10 years
Furnish the loan
Pay energy savings
Install the project
Provide the loan
Korea Energy Management Corporation
Repayment period for ESCO loans
Repayment period: Pay interest &
principle
1st year 5th year 10th year
Grace period:
Pay interest
Korea Energy Management Corporation
Barriers
Korea Energy Management Corporation
Barriers
High debt ratio of Korean ESCOs
Average debt ratio in manufacturing industry and ESCOs in Korea
1999 2000 2001
Average debt ratio in manufacturing industry
214.7% 210.6% 182.2%
Average debt ratio of ESCOs
368.5% 277.4% 368.6%
Source: J. S. Kim, October 2002, “Research on ESCO guaranteed performance contacting,” Kyoungwon University.
Korea Energy Management Corporation
Financing Mechanism - Factoring
KEMCO
Bank
User
ESCOSell payment stream
Pay energy savings
Repay the loan for a maximum
of 10 years
Furnish the loan
Install the project
Provide the loan
Korea Energy Management Corporation
ESCO factoring trends, 1999 to 2002
1999 2000 2001 2002 Total
Amount used for ESCO
projects (A)49.85 65.85 57.77 107.69 281.04
Factoring (B)
15.96 8.99 18.61 59.30 102.86
Ratio (B/A) 32.0 13.6 32.2 55.1 36.6
(unit: million US$)
Korea Energy Management Corporation
Factoring by financial institution, 1999 to 2002
1999 2000 2001 2002 Total
Non-bank financial institution
KDB Capital
0.56 5.37 11.44 41.65 59.02(57.4%
) Samsung Card
12.41 - - - 12.41(12.1%
) Yonhap Capital
2.99 3.61 7.17 0.23 14.00(13.6%
) Subtotal 15.96 8.98 18.61 41.88 85.43
(83.1%)
Bank Shinhan Bank
- - - 17.42 17.42(16.9%
) Total 15.96 8.98 18.61 59.30 102.85
(100%)
Korea Energy Management Corporation
Barriers of factoring
The average duration of a typical ESCO project
Risks related to guaranteed energy savings by ESCOs
The size of the projects
Korea Energy Management Corporation
Need for compiling the projects
Need for establishing a financial institution specialized in ESCO Project
Understand nature of ESCO projects
Has an ability to manage risk and CO2 credits
SOULTION
Korea Energy Management Corporation
Thank you
FOR MORE INFO...
Visit KEMCO exhibition/ COP9, Fiera Milano
send e-mail to [email protected]