sungwoo kim - using offsets to scale up green investment

8/6/2019 Sungwoo Kim - Using Offsets to Scale Up Green Investment

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Using offsets to Scale up of GreenInvestment in the Developing Countries

Seongwoo Kim,

Regional Head of Climate Change & Sustainability in Asia Pacific of KPMG

23th June 2011


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Copyright KPMG 2011. All rights reserved

KPMG

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KPMG : 146 location with 140,000 experts

KPMG Korea

Audit/Advisory/Tax with 2,400 experts

Climate Change & Sustainability Division

Financing Advisory connecting projects to

potential investors

Corporate strategy

Assurance


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Driving forces of Green investment

Offset Investment : for Emission Trading Scheme

Most of ETS accept some offset credits But, additionality, slow procedure, geographical distortion

Internal Investment : for Cost Reduction Rare chance due to information asymmetry

Project Investment : by Renewable Policy Feed in Tariff & Renewable Portfolio Standard

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Emission Trading SchemesStatus &Outlook

EU US New Zealand Australia

EU ETS RGGI NZ ETS CPRS

In 2010 Mandatory ETS

- Phase 2 in operation

First control period Forest forced January 2008 A delay in the start date of one year

After 2011 Phase 2 & 3

- Phase 2 (08~12)

- Phase 3 (13~20)

Start Second control period on2012

Phase 1 CPRS will be phased in from July2011

Startingdate

Since 2005 January 2009 July 2010 July 2012

Target 20%(of 1990) till 2020 10%(of 1990)till 2018 10-20% (of 1990)till 2020 25%(of 2005) by 2020

60% (of 2000/ by 2050

Coverage 46% of EU emissions

Operates in 30 countries

Power & heat, refineries, metals,pulp and paper

Airlines will join in 2012,petrochemicals and aluminumindustries in 2013

CO2 emission from Powerplant in Connecticut 9 otherstates

Forestry (2008)

Liquid fossil fuel (2009)

Stationary energy (2010) Agriculture (2015)

80% of total emissions (1,000 sites)

Stationary energy (52%)

Transport (14%) Industrial processes (5%)

Waste (2%)

Coal, oil, gas extraction (7%)

Allocation Free allocation, auctioning All CO2 allowances byauction

60% free allocationHighly emission-intensive industriesreceive 90% allocationAllocation per unit of output willdecrease by 1.3%/yr in 2013

Majority auctioned with pricecap

Price of

permit

12~14/t-CO2 (spot) 1.88$/t-CO2

(June 2010)

12.5$/t-CO2(Fixed July 2010- Dec 12)

Market price (from 2013)

10A$/t-CO2 (fixed 2011-12)

Market price(from 2012)

Offset EU-27 average13.40%(CDM/JI) limit

(Phase 2)

3.3 % (initial) for CO2,CH4, SF6 projects

5% (US $7/t-CO2)

10% (US$10/t-CO2)

Allow Kyoto unit(AAU, ERU, RMU, CER, lCER, tCER)Allow NZU, but only within NewZealand

Allow Kyoto unit

(AAU, ERU, RMU, CER, lCER,tCER)


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Renewable Portfolio Standard

Status & Outlook England Italy Australia USA (Texas)

Obligatory Quota 3% in 2002, 10.4% in2010-26 of gross salesof electricity of retailcompany (% after 2011under discussion)

2% in 2002, 3.05% in 2006 ofelectricity yield/importedelectricity of the last year (%after 2007 is pending)

Renewable energygeneration is targeted at9,500GWh until 2010 (2% of2010 assumed electricityyield) to be continued till2020.

Increasing renewable energygeneration facilities by2,000MW till 2009

Obligatory Person or

Entity

Electricity retailcompany

Generator company andelectricity importing company

(over 100GWh every year)

Consumer directly buyingelectricity from electricity

retail company or generator

Electricity retail company (ofliberalization targeted area only)

Obligatory Energies Hydro of (under 20MWof existing utility), solar,wind power, geo-thermal,tide, wave, biomass(excluding mixedburning)

Hydro excluding pumping,solar, wind power,geothermal, tide, wave,biomass (including mixedburning), waste (includingnon-biomass)

Hydro, solar panel heater,solar, wind power,geothermal, wave, tide,oceanic energy, fuel cell,biomass (including mixedburning)

Hydro (all grade of generationsize), solar (including solarpanel heating), wind power,geothermal, wave, tide,biomass (excluding mixedburning)


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ETS and Renewable Policy of Korea

Emission Trading Scheme

Korean government announced plans to launch ETS in 2015

To achieve national mid-term GHG reduction Goal: 30% of BAU by 2020

Link to the GHG & Energy Target Management Scheme Mandatory participants

Phase 1 (15~17): 90%+ free allocation / Phase 2 (18~22)/ Phase 3 (23~): 100% auctioning

International offset & Domestic offset

Renewable Energy Policy

- Feed in Tariff -> Renewable Portfolio Standard from 2012

- Renewable ratio must be 2% in 2012 and 10% in 2022 under RPS

- Focusing on the management of big power companies who need REC


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But, Investors should

Classify Offset by technology

Wind / Bio mass / Bio gas

Different valuation in investors mind needed for each technology

Mostly investment decision making without offset consideration

Understand gap between Clean Tech. and Financing

Long term return vs. Short term expectation

Need subsidy vs. Need guarantee & exit

Developers confidence vs. Investors anxiety

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Case study #1 (Wind)

Korean turbine maker invested $33.7 Mil for track record in US market

In the US market, RPS is the main incentive for renewable energy. REC from RPS can be

trade in Restructured Markets and Regulated Market

65,174MWh/yr of RECs expected from 20 MW wind power plant

Power Utilities in Texas must install 10,000MW of renewables or buy RECs until 2020.

20MW wind power plant in Texas, US

Revenue from

Electricity(96%) +REC(4%)

2. CASES in KOREA

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2,2803,272 4,264

5,256 5,880

10,000

9,410

2007 2009 2011 2013 2015 2020

target installed Wind power capa.

RPS Target in Texas


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Case study #2 (Biomass)

Biomass Electricity Generation Project in the Philippines

Biomass power plant utilizing wood chip as fuel to generate 30MW of electricity Supply 402,960T/yr of wood chips from a circumstance forest to power plant

Expected CO2 reduction of 80,000 T-CO2/yr but difficult to register CDM because of

additional risk(Baseline and Logging)

In progress (2011)

Revenue from

Electricity (98~100%) +

CER(0~2%)

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Expected CO2 reductions(tCO2e/yr) Annual Total

Project Activity Emissions 2,662~7,532 105,339

Baseline Emissions 87,579 1,839,150

Leakage 0 0

Emission Reductions 80,908~84,916 1,733,811


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Case study #3 (Bio gas)

Palm Waste Bio Gas Electricity Generation Project in Thailand

Biogas power plant utilizing oil palm waste as fuel to generate 3MW of electricity

Reduce COD and BOD in solid wastes from Palm Oil Mill

Expected CO2 reduction of 30,000 T-CO2/yr

In progress (2011)

Revenue from

Electricity (82%) +

CER(18%)

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Crude Palm Oil ProductionCapacity and EFB Capacity

FFB: 60tph and Max 960tpdEFB : 230tpd

Production Hours 16Hours per day,300days peryear

Qty of Wastewater 636cubic meters per day. TaotalPOME(POME + EFB Effluent)

CODt 85,000mgs per liter

BODt 50,000-60,000mgs per liter

Decanter Cake 29tpd(3% of FFB)

POM Waste Information


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Conclusions

Money allocation for international negotiation

More Regulations coming with more offset

Credit helps, but not a main factor of decision

Carbon Pricing is a main factor of decision

Widened gap between developer and investor

Investors & developers must share for scale up

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To get funded for your project

Political RiskPPA & Permits

Feasibility

Specialty

Credibility

Incentives

Political violence, Contract impediment/change, Currency issues..

PPA/FSA deficiency or nonbinding PPA, failure of publichearings, and completed licenses/permits..

Not enough tariff, unstable purchase, Uncertain credit..

Developer &Off-takerTurbine Maker

Low credit rating and lack of reliable track record Availability of Wind & feasibility study report by 3 rd party

Operational track record, Reliability, Availability..

NetworkExperience

Qualified deal pipelines and credible partners

Lack of knowledge in market, policy, regulation, licenses, andtechnology

Infrastructure Grid connection(Distance & Stability), Mobility..


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Examples of Korean investors

Who?

KOMIPO

(US 80MW, $.5B, Sam.)

KOSPO/KOSEP

POSCO/SK/GS

CABONPOLICY

New entranceTurbine Maker

CompliancePower/Oil/Steel Comply with carbon regulations (ETS, RPS..)

O&M with 30+ years of experience

Get out of limited domestic market

Investors will

Need track record for its turbines(2~2.5MW)

Sacrifice investment criteria

Co invest with other strategic investors

DSME(US 20MW)

Doosan HeavyInd.(3MW)

Samsung HI(US 7.5MW)

STX

Korea Exim Bank

(Dewind, DSME $100M)

Korea DevelopmentBank

Trend & ExportMDB1) & ECA2) Require thorough due diligence and Slow process

Perceptive to the turbines performance(Need P90 wind model with 10% more discount)

Prefer partnership like PPP


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If you need more,

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Seongwoo Kim

Samjong KPMG (KPMG Korea)Regional Head of Climate Change &

Sustainability in Asia Pacific

Office +82 (2) 2112 3200

fax +82 (2) 2112 3150email [email protected]

sungwoo kim - using offsets to scale up green investment

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