carbon finance: business perspective

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Sustainability Solution Provider, Eco-Frontier

Carbon Finance: Business Perspective

Jung-Man Chung, Eco-Frontier

http://www.ecofrontier.com

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Contents

I. Carbon Market Overview

II. CDM Business Development

III. Insights for Carbon Network

I. Carbon Market Overview

II. CDM Business Development

III. Insights for Carbon Network

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I. Carbon Market Overview I. Carbon Market Overview I. Carbon Market Overview I. Carbon Market Overview

1. Introduction of Eco-Frontier

2. Growth of CDM Market

3. CDM Business Opportunity

4. Dispersion of CDM Project

5. Who has CERs?

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1. Introduction of Eco-Frontier

Research

Service

Advisory

Service

Consulting

Service

Strategic

Business

For Corporate Sustainability

• Energy & Environmental Industry

• Manufacturing Industry

• Engineering & Construction, etc.

For Sustainable Finance

• Sustainability Rating (AAA~CCC)

• Global Initiatives: UNEP FI, PRI, CDP, GRI, etc.

• Project Finance:Feasibility Study, Advisory

For Climate Change

• Climate Change Strategy

• Knowledge-based Business Development

• Existing Business Innovation

• CER transaction

For Environmental Policy

• Government Sector ofEnvironmental & Welfare

Eco-Frontier

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2. Growth of CDM Market

Annual Volumes and Values (2006-2007) for Project-based Transactions

• CDM projects are majority in Project-based Transact ion

• Volume of secondary CDM is highly increasing

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3. CDM Business Opportunity

1 2 3

4 5 6

71. Palm residue Biomass CHP Project

2. Plywood residue Biomass CHP Project

3. Wastewater CH4 digestion Project

4. Steam optimization project

5. Waste heat utilization project

6. Landfill gas power project

7. Coal Mine Methane Capture

New opportunities in

Biomass, LFG +waste, Hydro …

CER Potential Supply

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4. Distribution of CDM ProjectsUNFCCC Abroad CDM Status :Total Registered Project :1,056 (2008.05.14)

South Africa(13)

Morocco(4)

Armenia(4)

Pakistan(1) China(214)

Sri Lanka(4)

Bangladesh(2)

Malaysia (28)

Vietnam(2)

India(337)

Korea(18)

Mexico(105)

Chile(22)

Colombia(10)

Nicaragua(3)

Panama(5)

Honduras(14)

Peru(11)

Costa Rica(5)

Ecuador(10)

Argentina(13)

Brazil(133)

Guatemala(6)

Israel(12)

Jamaica(1)

Moldova(3)

Fiji(1)

Nepal(2)

El Salvador(5)

Bolivia(2)

Bhutan(1)

Papua New Guinea(1)

Indonesia(14)

Mongolia(3)

Philippines(17)Egypt(3)

Tunisia(2)

Dominican Republic(1)

Cyprus(2)

Nigeria(1)

Uganda(1)

Cuba(1)

Georgia(1)

Laos(1)

Qatar(1)

Thailand(10)

Tanzania(1)

Uruguay(3)

Combodia(1)

Ecuador(10)

Guyana(1)

CDM Development Country Ranking

India (337)China (214)Brazil (133)Maxico (105)Malaysia (28)

12345

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5. Who has CERs?

Buyers NationalityTotal Number

of Projects

EcoSecurities UK 247

Carbon Asset Management Sweden

Sweden 111

EDF Trading UK 83

IBRD World Bank 78

Cargill International Switzerland 64

RWE Germany 59

ENEL Italy 58

Trading Emissions UK 57

Agrinergy UK 55

AgCert Ireland 51

Mitsubishi Japan 51

Noble Carbon Ireland 46

MGM Carbon Portfolio Luxembourg 42

Carbon Resource Management

UK 39

Marubeni Japan 39

CAMCO UK 38

Climate Change Capital UK 37

Kommunalkredit Austria 36

Danish Ministry of Climate & Energy Denmark 35

Mitsubishi UFJ Securities Japan 33

5%

67%

9%

6%

9%4%

AgricultureCarbon marketFinancePublicUtilityGeneral trading firm

CD4CDM,2008

Major buyers of Primary CERs:

Carbon Market & Financial Institutions

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II. CDM Business DevelopmentII. CDM Business DevelopmentII. CDM Business DevelopmentII. CDM Business Development

1. CDM Business Process & Risks

2. CDM Risks and CER Price

3. Types of CER Price Contract

4. POIC CHP CDM Case

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Feasibility Feasibility Feasibility Feasibility studies studies studies studies ––––project project project project design, design, design, design,

technical, technical, technical, technical, financialfinancialfinancialfinancial

Prepare Prepare Prepare Prepare business business business business

plan, plan, plan, plan, identify identify identify identify

partners & partners & partners & partners & vehiclevehiclevehiclevehicle

Negotiate Negotiate Negotiate Negotiate contractscontractscontractscontracts

Apply for Apply for Apply for Apply for permitspermitspermitspermits

Arrange Arrange Arrange Arrange financefinancefinancefinance

Construction Construction Construction Construction infrastructureinfrastructureinfrastructureinfrastructure

Install and Install and Install and Install and test plant & test plant & test plant & test plant & equipmentequipmentequipmentequipment

Ongoing operation Ongoing operation Ongoing operation Ongoing operation and maintenanceand maintenanceand maintenanceand maintenance

CDM feasibility CDM feasibility CDM feasibility CDM feasibility assessmentassessmentassessmentassessment

CDM project CDM project CDM project CDM project developmentdevelopmentdevelopmentdevelopment

(PDD)(PDD)(PDD)(PDD)

Host Country Host Country Host Country Host Country ApprovalApprovalApprovalApproval

Project Project Project Project validationvalidationvalidationvalidation

Project Project Project Project registrationregistrationregistrationregistration

Sale of Carbon Sale of Carbon Sale of Carbon Sale of Carbon CreditsCreditsCreditsCredits

Install and Install and Install and Install and test test test test

monitoring monitoring monitoring monitoring equipmentequipmentequipmentequipment

Project Project Project Project verificationverificationverificationverification

CER issuanceCER issuanceCER issuanceCER issuanceCD

M P

roje

ct C

ycle

CD

M P

roje

ct C

ycle

CD

M P

roje

ct C

ycle

CD

M P

roje

ct C

ycle

Planning PhasePlanning PhasePlanning PhasePlanning Phase Construction PhaseConstruction PhaseConstruction PhaseConstruction Phase Operation PhaseOperation PhaseOperation PhaseOperation Phase

High risk capitalHigh risk capitalHigh risk capitalHigh risk capital High to moderate capitalHigh to moderate capitalHigh to moderate capitalHigh to moderate capital revenuerevenuerevenuerevenue

Con

vent

iona

l Pro

ject

Cyc

leC

onve

ntio

nal P

roje

ct C

ycle

Con

vent

iona

l Pro

ject

Cyc

leC

onve

ntio

nal P

roje

ct C

ycle

1. CDM Business Process & Risks

Feasibility Feasibility Feasibility Feasibility studies studies studies studies ????project project project project design, design, design, design,

technical, technical, technical, technical, f inancialf inancialf inancialf inancial

Prepare Prepare Prepare Prepare business business business business

plan, plan, plan, plan, ident ify ident ify ident ify ident ify partners partners partners partners & vehicle& vehicle& vehicle& vehicle

Negot iate Negot iate Negot iate Negot iate contractscontractscontractscontracts

Apply for Apply for Apply for Apply for permitspermitspermitspermits

Arrange Arrange Arrange Arrange f inancefinancefinancefinance

Construct ion Construct ion Construct ion Construct ion inf rastructureinfrastructureinfrastructureinfrastructure

Install and Install and Install and Install and test plant test plant test plant test plant

& & & & equipmentequipmentequipmentequipment

Ongoing operat ion Ongoing operat ion Ongoing operat ion Ongoing operat ion and maintenanceand maintenanceand maintenanceand maintenance

CDM CDM CDM CDM feasibility feasibility feasibility feasibility

assessmentassessmentassessmentassessment

CDM project CDM project CDM project CDM project developmentdevelopmentdevelopmentdevelopment

(PDD)(PDD)(PDD)(PDD)

Host Count ry Host Count ry Host Count ry Host Count ry ApprovalApprovalApprovalApproval

Project Project Project Project validat ionvalidat ionvalidat ionvalidat ion

Project Project Project Project regist rat ionregist rat ionregist rat ionregist rat ion

Sale of Sale of Sale of Sale of Carbon Carbon Carbon Carbon CreditsCreditsCreditsCredits

Install and Install and Install and Install and test test test test

monitoring monitoring monitoring monitoring equipmentequipmentequipmentequipment

Project Project Project Project verif icat ionverif icat ionverif icat ionverif icat ion

CER issuanceCER issuanceCER issuanceCER issuanceCDM

Pro

ject

Cyc

leCD

M P

roje

ct C

ycle

CDM

Pro

ject

Cyc

leCD

M P

roje

ct C

ycle

Planning PhasePlanning PhasePlanning PhasePlanning Phase Construct ion PhaseConstruct ion PhaseConstruct ion PhaseConstruct ion Phase Operat ion PhaseOperat ion PhaseOperat ion PhaseOperat ion Phase

Conv

entio

nal P

roje

ct C

ycle

Conv

entio

nal P

roje

ct C

ycle

Conv

entio

nal P

roje

ct C

ycle

Conv

entio

nal P

roje

ct C

ycle

Feasibility Risk

Permit Risk

Financing Risk

CDM

Registration Risk

Time & Cost

Over-run Risk

CER Issuance Risk

Post-Kyoto Risk

Operating Risk

Supply & Market Risk

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2. CDM Risks and CER Price

CER Price

DNA risk

Validation risk

Monitoring risk

Verification risk

Registration Risk

EU ETS market price

EURO 5 15 Ecosecurities, 2006

CDM

Process

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3. Types of CER Price Contract

Pay on Delivery

FixedPrice

Floating

Price

•Payment on CER Delivery

•High Price/Low Risk

Link to EUA Price

or CER Index•Buyer takes all Risks

•Low Price

Combination: Complex Contract Structure

Four types of CER Price

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4. Case: POIC CDM Project

POIC CHP Project in Malaysia

� Business Characteristics: Biomass cogeneration and CDM business

� Capacity: Steam 110 ton/hr, Electricity 24 MW, CER 337,000 ton/y

� Business Site: POIC, Lahad Datu, Sabah, Malaysia

� Total Investment : approximately 119.0 million USD

CHPBiomass

(Palm Oil Residue)

Fuel Power Plant

Steam

Electricity

CER

Electric PowerGrid

Residents ofPOIC

Carbon Market

Production Sales

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4. Case: CDM Supply Chain

Palm Oil Mills

Biomass Brokers & Logistics

Port Handlers / Operators

Educational Institutions

Government & Related Agencies

Real Estate Companies

Engineering, Prodcurement, Construction

Technology Providers

Consulting Firms

Business Developer

Operations & Maintenance

Biomass Suppliers

Infrastructure

Developer Network

Investors

Customers

•Buy or Make Decision

•Path to CDM Business

Steam Buyer•Fertilizer company

•Refinery

•Biodiesel company

•Oleochemical company

Electricity Buyer

• National Grid

CER Buyer &

Trading

POIC Biomass CHP Case

Lenders

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4. Case: Role of the developer

Developer

EquityFinancing

DebtFinancingFeasibility Study

EPC Contract

O&M Contract

Fuel Supply Contract

Steam Contract

CER Contract(ERPA)

Power Contract(PPA)

Authorization EIA Incentive Policy

Planning

Structuring

OfftakeContracting

Financing

CDM Cycle Work

Application & Registration

SPC Establishment


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4. Case: Investor’s Benefits

EPC & Technology

ProviderO&M Company CDM Developer

Financial Investor

Strategic Investor

EPC BusinessSupply Chain-related

Business

CDM Advisory Business

CER Transaction

Business

O&M Business

Post 2012

Counter-plan

ROE +


Investor’s Benefits

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Case: Contribution of CER

Debt

Equity Operating Revenues (Steam & Electricity)

+ CER Revenues

Construction

0 1 2 3 4 5 6 …... 20Years

Operating Expense

Cash In

Cash Out

Incremental IRR of CER Revenues : 3~5%

with Strategic Opportunities


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III. Insights for Carbon NetworkIII. Insights for Carbon NetworkIII. Insights for Carbon NetworkIII. Insights for Carbon Network

1. Insights for Developing CDM Business

2. Insights for Support System

3. Insights for Carbon Financing

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1. Insights for Developing CDM Business

� Speed The slower business development means the less CER to sell

� Creativity Innovative business model development

� Reputation Strong trust and relationship with partners

� Global Perspective Development of global business opportunities and partnership

� Professionalism Expertise in the climate change policies and CDM businesses

� Entrepreneurship Trials and challenges to resolve complex problems

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2. Insights for Support System

Guaranteed CER purchase for businesses which can acquire CERGuaranteed CER purchase for businesses which can acquire CERGuaranteed CER purchase for businesses which can acquire CERGuaranteed CER purchase for businesses which can acquire CER

Specialized export finance services for overseas CDM businessSpecialized export finance services for overseas CDM businessSpecialized export finance services for overseas CDM businessSpecialized export finance services for overseas CDM business

Support for the liquidation of scheduled or issued CERSupport for the liquidation of scheduled or issued CERSupport for the liquidation of scheduled or issued CERSupport for the liquidation of scheduled or issued CER

GovernmentGovernmentGovernmentGovernment’’’’s supports throughout the CDM project life cycles supports throughout the CDM project life cycles supports throughout the CDM project life cycles supports throughout the CDM project life cycle

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Carbon

Finance

3. Insights for CDM Financing

Carbon

Asset

Mgt.

Project

Finance

Equity

Investment

•Risk-taking Attitude with Strategic objective

•Professional on Climate Change &Clean Technology

•Carbon-related Product andBusiness Development

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End of document

Thank you very much.

Jung-Man Chung, President, R&D and Global Operations, Eco-Frontie r10th Floor, DMC R&D Center, Sangam-dong, Mapo-gu, Seoul, Republic of Korea (121-720)Tel +82 2 380 3512, Mobile +82 10 5233 2537, [email protected], http://www.ecofrontier.com

carbon finance: business perspective

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