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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 Sungwookim@kr.kpmg.com