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

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 Financing Projects Primary Barrier Still Facing ESCOs Financing Projects Primary Barrier Still Facing ESCOs

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 Actions Taken in Korea to Overcome Financing Barriers Actions Taken in Korea to Overcome Financing Barriers

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

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 U.S. Federal Program

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 Current ESCO Financing in U.S.

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 Possible Financing Alternatives for Future Korean ESCOs Possible Financing Alternatives for Future Korean ESCOs

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

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

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

Dave Howard NREL 901 D Street, SW, Suite 930 Washington, DC Phone: Fax: Contact