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Japanese ESCOs Provide Own Capital for Energy Investment

	Many Japanese companies have been working hard to control their energy consumption since the 1970s, just as Sumitomo Light Metal has. This means that there are no easy ways left for them to increase efficiency, and new gains are possible only through investment in new equipment. This requires a significant capital outlay, however, and energy efficiency is usually far behind production in terms of corporate priorities. It is here that the ESCOs provide an ingenious solution. Once they form initial partnerships with a company, ESCOs will often provide the initial capital outlays for energy-saving equipment. In Sumitomo Light Metal’s case, the costs for the steam turbine-assisted compressor and other equipment was ¥438 million, but Sumitomo Light Metal had to shoulder none of this. Instead, FESCO provided the capital in return for a set amount out of the projected ¥78 million the company would enjoy in yearly energy savings. This form of energy investment outsourcing is an innovation devised by FESCO in partnership with SMBC Leasing Company, Limited. Founded in 1997, FESCO was born from a consortium founded by The Japan Research Institute, Limited, which is itself a member of the Sumitomo Group. SMBC Leasing invested in FESCO with the aim of providing it with financing services for energy saving equipment. SMBC Leasing’s participation is what allows companies interested in energy savings to obtain new equipment through FESCO without being inhibited by initial costs.	This waste-heat recovery boiler is situated next to the foundry. Before it was installed, exhaust heat was not recovered and reutilized, but now the pressure of steam emerging from the smelter, where temperatures reach 1,000°C, is utilized to turn a steam pressure turbine which in turn drives compressors.
	Providing Financial Support for Environmental Measures
	SMBC Leasing is the entity that came up with the idea of providing financing for energy-related capital expenditures, a measure that lightens the burden ESCOs must assume going into a project. Kazuaki Kawakatsu, managing director and chief of business development department of SMBC Leasing, states that “At first, FESCO concentrated on lighting systems in offices. We realized, though, that this would only offer modest energy benefits, so we started proposing cogeneration in plants and factories, which is where we see the greatest needs for energy savings. Cogeneration involves generating your own electricity with generators, then using the steam from the generators as an additional energy source. The Ministry of Economy, Trade and Industry recognized the CO2 reduction benefits, and has since begun subsidizing them. Since both ESCOs and financing companies now benefit from these subsidies, FESCO has been able to expand its operations.” One energy-lease client invested some ¥800 million for a cogeneration system of generators and recovered waste-heat boilers. This system now produces 60–70% of the total energy consumed by the plant, resulting in annual energy savings of 55,000 joules (a unit of measurement of heat), or about ¥92 million. The plant uses these savings to pay FESCO and its lease. “More and more companies are interested in bringing in cogeneration systems to reduce energy costs and help the environment at the same time. Our ESCO-related leasing business is definitely on the rise,” reports Kawakatsu. SMBC Leasing has plans to propose similar cogeneration schemes to department stores, hotels, hospitals, and other large-scale building complexes. Eventually it wants to expand its business plan to offering leasing options to small businesses and even homes that will enable them to acquire microgeneration equipment—fuel cells, wind generators, or solar cells—at low cost. “America’s ESCO market is said to be worth about ¥500 billion a year. Japan’s is currently only a tenth of that, but this is certain to increase rapidly,” says Kawakatsu. By providing financial solutions for environmental solutions, SMBC Leasing has found another way to help fight global warming.