ESCO Capacity Building Seminar by NEDODusit Thani Hotel Bangkok

Outline of ESCO &How to found ESCO

December 17, 200８

Note: This Presentation is made based on public data during the author has been president of FESCO for 10 years. Therefore, please note that it does not show existing business condition in the company.

Note: This Presentation is made based on public data during the author has been president of FESCO for 10 years. Therefore, please note that it does not show existing business condition in the company.

Kenzo Tsutsumi, Founder

Social Change among Energy ConservationUltimate Object of ESCO Business is to Improve Social Inefficiency

Political Current in JapanGlobal Warming Issue → Strengthen to Reduce

ＣＯ2 EmissionsRegulation → Concerning the Promotion of Measures

to Cope with Global WarmingDeregulation → Energy DeregulationEnvironmental Ratings → ＩＳＯ１４０００

Public Works → To Promote Out-sourcing to Pivate-sector

Enterprise Management → Green Management・Carbon Management

Job Creation → Environmental Business Development

Political Current in JapanGlobal Warming Issue → Strengthen to Reduce

ＣＯ2 EmissionsRegulation → Concerning the Promotion of Measures

to Cope with Global WarmingDeregulation → Energy DeregulationEnvironmental Ratings → ＩＳＯ１４０００

Public Works → To Promote Out-sourcing to Pivate-sector

Enterprise Management → Green Management・Carbon Management

Job Creation → Environmental Business Development

1

What is the ESCO Business?Feature of ESCO Business: Energy Service Company

• １．Total Service：Integrated Facility Doctor

Preliminary audit → Detailed Energy Audit→ Management of retrofitting work → M&V

• ２．Performance Service：Guaranteed Energy ConservationGuaranteed by performance contract

• ３．Financial Service：No Initial InvestmentPropose business plan

“with three birds with one stone”

2

Financial Service of ESCOMechanism of three birds with one stone ：

To achieve energy conservation・Increase of customer profit・Business formation

Increase ofCustomer Profit

Guarantee

FESCO Service Fee

EnergyConservation

Energy

Cost

Before

ESCO

Energy

Cost

After

ESCO

Audit

Equipment

After Care

Engineering Management

From Reduced

Cost

Reduced Cost

FESCO Service

3

Contract Scheme of ESCO Business (1)Shared Savings Contract

Financial flow of shared savings contract

Performance contractReimbursement

Payment of service fee

Lease/ Loan Contract

Financial InstitutionClient

4

Contract Scheme of ESCO Business (2)Guaranteed Savings Contract

Financial flow of guaranteed savings contract

Financial InstitutionClient

Performance contract

Payment of service fee

Lease/ Loan Contract

Reimbursement

5

Points of ESCO Business and competitiveness

Enhance Engineering AbilityWhat is real engineering?

Deference between “Technology” and “Engineering”Realistic solution finding capability to solve the problem

Engineering ability for ESCOQuick audit ability to solve the problemSolution finding ability with cost performanceAbility to realize with reasonable cost

How to enhance engineering ability？Remove the concept of “Service is Free of charge”Train the engineers who understand ESCO business

What is real engineering?Deference between “Technology” and “Engineering”Realistic solution finding capability to solve the problem

Engineering ability for ESCOQuick audit ability to solve the problemSolution finding ability with cost performanceAbility to realize with reasonable cost

How to enhance engineering ability？Remove the concept of “Service is Free of charge”Train the engineers who understand ESCO business

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Change of existing paradigm is neededBusiness custom should be changed by ESCO business

Change the “Service Concept”“Is the service free？”Knowledge and know how should be charged

Change relationship with ESCO and clients

“Is the customer always right？”Consider the solution with clients

Change from process to result-oriented“Is matter of understanding equal to matter to perform？”Guaranteed energy conservation amount by ESCO

Change the “Service Concept”“Is the service free？”Knowledge and know how should be charged

Change relationship with ESCO and clients

“Is the customer always right？”Consider the solution with clients

Change from process to result-oriented“Is matter of understanding equal to matter to perform？”Guaranteed energy conservation amount by ESCO

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How to Found FESCO

8

Tool & methodto achieve the vision

Matters which are decidedby the exectives

Company philosophy／Vision／Basic strategy

Contribution to establish the society with good compatibility between the environment and economic activity

Challenge the integrated environment and energy service company

Basic strategy・business plan

Basic policy to establish mid-term business planIn the newly/differential theme,business field should be expanded

Basic philosophy・Willare basically not changedDNA which is inherited

CompanyPhilosophy

CompanyVision

Change ofBusiness

environment

Newlystrategies

Ideal corporate imageTo achieve vision & philosophy

Matters which are decidedby the leader

9

●Client oriented ESCO（Energy conservation

support business）・Energy Conservation・Kyoto Protocol target

achievement・Energy conservation in

global level

● EnvironmentalEnvironmentalRehabilitation ESCORehabilitation ESCO

（Green EnergyBusiness）・NEW energy・RPS

●Market Trading ESCO（Electric Business）

・Electricity deregulation・CO２Emission right

●Corporate philosophy:For good compatibility between the environment and economic activity！

Client orientedClient orientedESCOESCO

Utility conservationAct for privately-ownedgenerationEnergy management

EnvironmentalEnvironmentalRehabilitationRehabilitation

ESCOESCOGeneration by

renewable energyGeneration by

wasteMaterial recycle Market Market

TradingTradingESCOESCO

PPSElectric & Gas retail salesRPS・CDM

FESCO Company Vision (when listed to equity marketFESCO Company Vision (when listed to equity market））

Key Word

Integrated Energy Service

10

DeregulationEmphasizeenvironment

Outsourcing

Cutomer type ESCO・Energy Audit・Retrofiting Work

On-site ESCO

Biomass Generation environmental rehabilitation Business

Founded

97

Kyoto protocol was ratified

98 99 2000 01 02 03 04 05 10

Renewables PortfolioStandard in effect

Revision of Energy Conservation Law

Expand of retail sale market

（Growing needs）

CompetitiveNew EnergyGeneration

Strengthen of customer

foundation

OIL→GAS→Fuel CellBiogas

Retail sale of electric power

Emissions trade

Aichi Expo

＜Environmental Rehabilitation ESCO＞

＜Market trading ESCO＞

FESCO Success HistoryFESCO Success History

＜Client oriented ESCO＞

06

Entry into Force of the Kyoto Protocol

Get listed to Tosho mothers

Year 2006

Jan. Iwakuni Wood powerstarted in operationservice of electric retailsales started in Kansai

Feb. FESCO Power StationShigaMoriyama Power stationstarted in operation

Electric power Trading

Retail sale of electric powerRevision of Energy Conservation Law (Movement to decrease CO2 Emissions)

FESCO

11

FESCO Success HistoryFESCO Success HistoryMay, 1997 Established in 16 Ichiban-cho, Chiyodaku, Tokyo

Capital fund 50 million yen President Mr. Kenzo Tsutsumi assumed

June, 1998 Move to 5 Saniban-cho, Chiyodaku, Tokyo

1st capital expansion: Capital fund 126 million yen

Feb, 1999 New Business Award “Environmental Award”

April, 2000 Admitted by Prime Minister of METI based on new business

creation law

May, 2000 2nd capital expansion: Capital fund 260 million yen

July, 2000 Move to 22-7, Saniban-cho, Chiyodaku, Tokyo

March, 2001 3rd capital expansion: Capital fund 411.6million yen

June, 2003 4thcapital expansion: Capital fund 681.6million yen

August, 2003 Move to Nurihiko Bldg. 2-9-2, kyoubashi, Chiyodaku, Tokyo

March, 2005 Listed on the Mothers of the Tokyo Stock Exchange (stock code9514)

May, 2007 President Mr. Tsutsumi left his office

12

FESCO Success HistoryFESCO Success History（（Annual Income)Annual Income)

2,522

4,927

7,000

77

808

266420

1,053

7835 79

15

22

29

54

108

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

98年3月期 99年3月期 00年3月期 01年3月期 02年3月期 03年3月期 04年6月期 05年6月期 06年6月期

売上高：百万円

社員数：人

1998年 1999年 2000年 2001年 2002年 2003年 2004年 2005年 2006年

Number of Employee

Annual Income (million Yen)

13

Client Oriented ESCOOutline of Energy Conservation

Support Service

14

●Shared Savings ESCO Contract

Outline of Energy Conservation Support ServiceOutline of Energy Conservation Support Service①①

Manufacturer of energy conservation equipmentSub-contractor

Fuel Supply Company

Facility Owner

Financial Institution

Client Energy SupplyO＆M

Energy Service

Contract

Pay Service Fee

Applied Subsidy（applied with client）

Subsidization

Order Placement to factoryCommission the maintenanceOrder the Fuel

Delivery of equipmentMaintenance ServiceFuel Supply

Maintenance Contract

Fuel Supply Contract

Financial contract（nonrecourse loan）

NEDO・Petroleum

Association of Japan

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In the client facility, energy audit will be done. Based on the result of the audit, planning of retrofitting and retrofitting work will be done. Introducing high efficient large scale cogeneration system establish energy conservation and CO2 emissions reduction by supplying both electricity and heat to the system. FESCO pay the investment of equipment instead, and operate management after that consistently.

●On-site Business（ESCO for industrial sector）Outline of Energy Conservation Support ServiceOutline of Energy Conservation Support Service②②

Outline of：●Contract demand:5,000kW（daytime）facility ●Paper board factory

●Electricity Consumption:105,000MWh/yMeasure： ●High efficient gas cogeneration

●Electricity/New ConstructionGas engine

generation(11,500kW)+Existing Steam Turbine(33,900kW)+Purchased power（5,000kW）

●Steam/Boiler→steam turbine + gas engine co-

generationFinance：ＦＥＳＣＯ finance and subsidyContract type：Shared savings

Through energy audit in existing all generating power system, high efficient solutions are found

●IHI Shibaura Machinery CorporationMatsumoto Factory

Outline of：●Contract Demand／9,200kWFacility ●Small Scale Diesel Engine、Tractor Factory

●Electricity Consumption: 32,950MWh/yMeasures：●Co generation

●Electricity／captive power(6,200kW+)+ Purchased power3,000kW）

●Steam/Oil fired tubulous boiler + fire tube

boiler →exhaust heat recovery boiler

once-through boiler(2ｔ/ｈ×6)Integrated electricity-steam

supply control systemFinance：ＦＥＳＣＯ finance and subsidyContract type：Shared savings

Daily electric demand and seasonal steam demand are analyzed. With 3 type of boilers and high efficient diesel engine cogeneration, integrated control system established large amount of energy conservation and cost.

●Seiko EpsonIna Plant

（Fuel Cell）

●Rengo Co., Ltd. Yashio Factory

Case example

16

ESCO Service

●“Super Marugoto”(ESCO for commercial Sector)● Without requiring any initial investment, both energy conservation(CO2

emissions reduction）and reduction of energy cost were established● Comprehensive service from audit, design, retrofit work and M&V● After contract period, all profit by energy conservation attributes to the client.

Efficient show case

Efficient Chiller Efficient AC

water atomizationEfficient Lighting

DemandManagementSystem

Annual energy Conservation301,200kWh/year(▲12.0%）

100 100 100

240 240 240

450 450350

220

0

200

400

600

800

1000

1200

夏季（6.7.8.9月） 中間季（4.5.10.11月） 冬季（12.1.2.3月）

(kwh/日)

運用改善 照明冷凍機 空調機

負荷別削減%

25%

14% 20% 18%

合計削減量：1,000kwh/日122,000kwh/夏季

12.1％Decrease

790kwh/日96,400kwh/夏季

12.6％ Decrease

690kwh/日82,800kwh/夏季

10.9% Decrease

1F area 2F area Total

（Food）2,800 （Textile）2,400 5,200

Contract DemandBefore & After

Demand Reduction

Operation Hour Operation year

566→470kW 96kW 9:00～24:00 364日

（㎡including back yard）【Introduction example】

Outline of Energy Conservation Support ServiceOutline of Energy Conservation Support Service③③

Lighting

ACChiller

Management

(kWh/Day)

Summer WinterBetween period

17

Environmental Rehabilitation ESCO

Outline of Green Energy Business

18

●Woody Biomass Power Generation Business

Lumber producer

Gardening Company

Scrapper

Civil engineering

Forestry

Farmer

Waste from local

Intermediate Treatment Company

Fuel Supply Company

Biomass GenerationSubsidiary

Biomassgeneration

facility

Electricity

New Energy RPS Value

Finance

Power Company

PPS etc

Financial Procurement

Fuel Supply

Purchase Fuel

Contract

Capital subscription

Finance

Fuel Processing Facility

Pay fuel fee

Select MaterialChipping Operation Business

investment

Sell Electricity

Sell RPS value

Outline of Green Energy BusinessOutline of Green Energy Business①①

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●Biomass Generation SubsidiaryOutline of Green Energy BusinessOutline of Green Energy Business②②

Hokkaidou area

Touhoku area

Kantou area

Hokuriku area

Chubu area

Chyugoku area

Shikoku area

Kyushyu areaOkinawa area

関西地区Hida Wood Power Co., Ltd.

Hida-shi, Ooita

12,000KW

November, 06

4,447million\

Shirakawa Wood Power Co., Ltd.

Shirakawa-shi,

Fukushima

11,500KW

Octobet, 06

4,159million\

Iwakuni Wood Power Co., Ltd.

山口県岩国市大字長野字長野尻1805-7

10,000KW（Capacity）

January, 2006Commercial operation)

3,724millin yen(Total investment）

Iwakuni wood power mascot

Center control room

Steam turbine

20

Market trading ESCO

Outline of Retail Sale of Electric Power

21

Outline of Retail Sale of Electric Power BusinessOutline of Retail Sale of Electric Power Business①①

22

●Electric retail sale flow after the dereguration

Power Company

Low voltage power customer

FESCO（ＰＰＳ：Power Producer and Supplier）

Normal Time

Emergency

Situation

～Power Supply System by ＰＰＳ ～

Power Company

Use grid ofPower company

×FESCOStop supply

Power Company

supplementary power

FESCO use grid of power company. So when our plant stopped to operate, electricity from power company is supplied to our client with no electric outage.

FESCO（ＰＰＳ：Power Producer and Supplier）

Low voltage power customer

High voltage & specific high voltage power customer

High voltage & specific high voltage power customer

Outline of Retail Sale of Electric Power BusinessOutline of Retail Sale of Electric Power Business②②●Feature of Electric Retail Sales by FESCO

Base power Middle power Peak power (adjustment)

・Nakssode Green Power（Oct., 2007）・Procure power from

conterpart・Japan Electric Power Exchange(EPX)

・FESCO Power Station Shiga（Feb.,2006）・FESCO Power Station Gunma（Feb., 2006）

・Iwakuni Wood Power（Janu., 2006）・Shirakawa Wood Power（Oct., 2006）・Hida Wood Power（Nov., 2006）

★Varuious Power Source

FESCO line up various power source from

biomass to gas turbine,

★Kansai area started operation from Jan.,2006

★ Kantoui area started operation from Oct., 2006

Hokkaidouarea

Touhokuarea

Kyusyu

area Okinawa area

Shirakawa Wood Power

Hida Wood Power

Iwakuni Wood Power

Hokuriku area

Tyugoku

aera

Shikoku area

Kantouarea

Kansai area Tyubu

area FESCO Power Station Gunma

Nakasode Green Power

FESCO Power Station Shiga

～ FESCO Power Formation ～

１. Supply electricity cheaper than power company２. Without requiring any initial investment for the customer３. Supply integrated solution service with energy conservation and environmental measures.

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Company HP http://www.fesco.co.jp

Note: This presentation is made to support diffusion of ESCO business. It is made based on public data during the author has been president of FESCO for 10 years. Therefore, please note that it does not show existing business condition in the company.

Note: This presentation is made to support diffusion of ESCO business. It is made based on public data during the author has been president of FESCO for 10 years. Therefore, please note that it does not show existing business condition in the company.

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