Environment ministry cuts energy efficiency loan rate by 0.5 point

The environment ministry said Monday it will cut the interest rate on its energy-efficiency policy loans by an additional 0.5 percentage point, effective Oct. 1, to ease companies' financing costs and encourage investment in energy saving.

The variable rate applied to energy-saving facility projects by small and midsized companies and nonprofit corporations, and to investment projects by energy service companies, will fall to 2 percent a year from 2.5 percent, saving borrowers about 5 billion won ($3.68 million) a year. The ministry said it pushed the cut through ahead of formal revisions to its regulations so that companies could feel the relief quickly, citing a recent rise in interest rates as the reason for the move.

The energy-efficiency fund provides long-term, low-interest financing for companies installing energy-saving facilities and for energy service companies, which invest in efficiency projects on their clients' behalf. The ministry is running 276 billion won ($203 million) through the program this year, with 95 billion won ($69.9 million) of that for energy service company investment and 176 billion won ($130 million) for energy-saving facility installation.

Loans are capped at 30 billion won ($22.1 million) per business site. Energy service company investment loans carry a three-year grace period and seven years of repayment, extended to five years of grace and 10 years of repayment for insulation work; facility installation loans carry a three-year grace period and five years of repayment. The program's funding guidelines were also revised so that social economy enterprises and small and midsized companies with strong environmental, social and governance practices can receive evaluation points when they apply.

"I hope this rate cut will ease the financial burden on small and midsized companies and serve as an opportunity to expand energy efficiency investment," said Oh Il-young, head of the ministry's climate and energy policy office. "We will continue to strengthen policy financing that reflects demand from the field so that corporate investment in energy efficiency improvements and greenhouse gas reduction can continue."