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Republic of Korea - Reduction of Financing Barriers for Energy Savings Performance Contracts

Republic of Korea - Reduction of Financing Barriers for Energy Savings Performance Contracts. Conference of the Parties 9 Milan, Italy 1 December 2003. David L. Howard. Financing Projects Primary Barrier Still Facing ESCOs. Interest paid decreases funds for hardware

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Republic of Korea - Reduction of Financing Barriers for Energy Savings Performance Contracts

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  1. Republic of Korea - Reduction of Financing Barriers for Energy Savings Performance Contracts Conference of the Parties 9 Milan, Italy 1 December 2003 David L. Howard

  2. Financing Projects Primary Barrier Still Facing ESCOs • Interest paid decreases funds for hardware • ESPC projects are front loaded with expense • and have a slow payback. • Financiers in Korea require company equity • ESCOs quickly use available company equity • This system quickly stops ESCOs from pursuing • other projects

  3. Actions Taken in Korea to Overcome Financing Barriers • Establishment of low interest revolving fund • Coordination with major financiers • CTP working to interest foreign ESCOs in • projects with Korean ESCOs • Transfer of expertise • Bring relationship with foreign financiers

  4. U.S. Experience • Early projects encouraged by utility rebates • Financing required equity from the ESCOs • Institutional acceptance, schools and hospitals • Federal government program for Federal • facilities

  5. U.S. Federal Program • Laws and Executive Orders • Establish Federal Energy Management Program • Set energy efficiency goals for Federal agencies • Made procurement changes to allow ESPC • Procured indefinite delivery contracts • Partnered with ESCOs and agencies

  6. Current ESCO Financing in U.S. • Both guaranteed savings and shared savings used • When shared energy savings model used ESCOs • assign payments to financier • Financier carries debt – controls payments to • ESCO

  7. Possible Financing Alternatives for Future Korean ESCOs • 1. Further CTP joint partnerships between U.S. and • Korean ESCOs • Advantages • Private sector technology transfer • Private sector financing • Disadvantage • Barriers to joint work • Slow

  8. Possible Financing Alternatives (continued) • 2. Use of international financing sources • Advantages • May help lower interest rate • Disadvantages • Most loans made based on ESCO equity

  9. Possible Financing Alternatives (continued) • 3. Increase of assignment of payments • Advantages • Solves ESCO equity issue • Disadvantage • May require accounting rule changes • May be slow

  10. Possible Financing Alternatives (continued) • 4. Increase ESCO equity • Advantages • Allows ESCOs to invest in more projects • Disadvantage • Selling shares likely to marginally help • Carbon credits will require very bundles of • projects

  11. Recommendations • Continue pairings of Korean and U.S. ESCOs • Continue improvement of factoring/assignment • of payments • Explore means of increasing ESCO equity • Particularly carbon credits

  12. Contact Dave Howard NREL 901 D Street, SW, Suite 930 Washington, DC 20024 Phone: 202-646-5221 Fax: 202-646-7780 dave.howard@nrel.gov

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