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 Direct financing model Indirect financing model process Foreign investor directly finance a local ESCO project A domestic bank raises fund for potential carbon projects from foreign investors

6. International financing for local GHG mitigation projects [5] Comparison continue Direct financing model Indirect financing model Interest rate LIBOR + risk premium LIBOR + risk premium + interest rate of domestic bank

7. International financing for local GHG mitigation projects [6] Comparison continue Direct financing model Indirect financing model Size of project Relatively big ESCO projects (at least more than 10million US$/project) All kinds of ESCO projects (including small and medium sized ESCO projects)

8. International financing for local GHG mitigation projects [7] Comparison continue Direct financing model Indirect financing model Risk related to currency exchange For long-term loan, there are few measures to cover risk of hedge (short-term loan can cover this risk) A domestic bank deals the risks related to exchange rate (ESCOs exposes relatively low risk to this)

9. International financing for local GHG mitigation projects [8] Comparison continue Direct financing model Indirect financing model Time required At least 2months are required for fund negotiation between an ESCO and an foreign investor Within 2months (refer to next figure)

10. International financing for local GHG mitigation projects [9] Mechanism of indirect financing for ESCO projects SPC (local bank) ESCOs Energy end users International fund ex) ESCO fund, climate change fund etc CO 2 credit and/or profit money Prepare a package of ESCO projects for International investors CO 2 credit and/or profit

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 CO 2 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