monetizing energy solutions

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Christopher Russell Energy PathFINDER www.energypathfinder.com (443) 6367746 info@energypathfinder.com

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Page 1: Monetizing Energy Solutions

Christopher  Russell  Energy PathFINDER  

www.energypathfinder.com  (443)  636-­‐7746  

[email protected]  

Page 2: Monetizing Energy Solutions

About  Christopher  Russell,  C.E.M.,  C.R.M.  

  Independent consulting since 2006 Principal, Energy Pathfinder

  Visiting Fellow, American Council for an Energy Efficient Economy, 2012+

  Energy Manager, Howard County, MD, 2010-2012

  Director of Industrial Programs, Alliance to Save Energy, 1999-2006

  Comm. & Indus. Program Manager, American Gas Association, 1995-1999

  MBA, M.A., University of MD; B.A., McGill University

Published Feb 2008

Published June 2010

2 ©2013 Energy PathFINDER.com

Page 3: Monetizing Energy Solutions

“Well, gentlemen, there’s your problem.”

Page 4: Monetizing Energy Solutions

No  ENERGY  means…  No  PRODUCTION…  and  no  REVENUE.  

End  of  story.  

4 ©2013 Energy PathFINDER.com

Page 5: Monetizing Energy Solutions

5

WEALTH DESTROYED

HEAT, FRICTION, & CHEMICAL REACTIONS

DESTROY PLANT & EQUIPMENT, CREATE LIABILITIES

WEALTH CREATED

TRANSFORMATION OF INPUTS INTO

FINAL PRODUCTS HEAT, PRESSURE, & MOTIVE

POWER

FUGITIVE ENERGY

COMMITTED ENERGY

FUEL & ELECTRICITY

ENERGY IS ALWAYS WORKING. Energy that doesn’t create wealth destroys it.

©2013 Energy PathFINDER.com

Page 6: Monetizing Energy Solutions

6

HEAT

PRESSURE

CHEMICAL

REACTION ©2013 Energy PathFINDER.com

Page 7: Monetizing Energy Solutions

7

Annual energy use, current application

in-place

Annual energy use, efficient alternative

Energy consumption avoided by investing in an energy-efficient

alternative

COMMITTED ENERGY VOLUME: Buy & use as intended. A

NN

UA

L E

NE

RG

Y

CO

NS

UM

PTI

ON

A B VOLUME AT-RISK: Buy & waste or Pay to avoid buying. PAY FOR IT EITHER WAY.

©2013 Energy PathFINDER.com

Page 8: Monetizing Energy Solutions

RISK  or  OPPORTUNITY?    Energy  price  volatility    Smart  grid  technologies    Evolving  emissions  &  safety  standards  

  Green  &  sustainable  market  bona  fides  

8 ©2013 Energy PathFINDER.com

Page 9: Monetizing Energy Solutions

9

•  Core  business:    RoR  on  invested  capital  •  Energy  project:  After-­‐tax  rate  of  return  •  Stocks/mutual  funds  

compare  to  •  Cost  to  borrow  •  Rate  of  capital  destruction  

%? 25% -

0% -

50% -

75% -

100% -

-25% -

©2013 Energy PathFINDER.com

Page 10: Monetizing Energy Solutions

  Pay  for  waste?    Finance  working  capital    Subsidize  CAPEX  

10 ©2013 Energy PathFINDER.com

HOW MUCH CASH?

Page 11: Monetizing Energy Solutions

(c)2009 Energy Pathfinder Mangement Consulting, LLC www.energypathfinder.com 11

PLANT BOUNDARY

U.S. INDUSTRY AVERAGE ENERGY DOLLAR BREAKDOWN OF PRIMARY ENERGY SUPPLY

SOURCE: http://www1.eere.energy.gov/industry/pdfs/mfg_footprint.pdf

NET APPLIED TO WORK

$0.3960 – Process $0.0339 – Non-Process $0.0030 – Exported Offsite $0.4300 – Total

$0.17

CONVERSION LOSS

$0.04

ONSITE DISTRIBUTION LOSS CENTRAL PLANT LOSS

$0.07

$0.29 GENERATION,

TRANSMISSION, DISTRIBUTION

LOSSES PRIOR TO DELIVERY

Page 12: Monetizing Energy Solutions

12

REASONS  FOR  INACTION  

SPLIT INCENTIVE ACROSS DEPARTMENTS FEAR OF CHANGE, EMBARRASSMENT, LOSS OF INFLUENCE

FAILURE TO ARTICULATE THE TRUE MONETARY IMPACT

Page 13: Monetizing Energy Solutions

How  do  you  measure  these  investments?  

Simple payback?

•  Mortgages •  Car loans •  Bank accounts •  Stocks & bonds •  Mutual funds

13 ©2013 Energy PathFINDER .com

Page 14: Monetizing Energy Solutions

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The naïve measure: PROJECT COST: $1,000,000

AMT FINANCED: $500,000/8%/25YRS MARGINAL INCOME TAX: 35%

ECONOMIC LIFE: 25 YRS

SIMPLE PAYBACK: 4 YRS pre tax 8 YRS post tax

©2013 Energy PathFINDER.com

Page 15: Monetizing Energy Solutions

$8  million  ANNUAL  

NET  INCOME  

15

EXAMPLE:    Return  on  Invested  Capital  

©2013 Energy PathFINDER .com

Production Facility

POWER HOUSE

$100 million INVESTED CAPITAL

8% RoIC

Page 16: Monetizing Energy Solutions

0% -

20% -

16

ENERGY PROPOSAL IRR = 12% AFTER TAXES & FINANCE

ENERGY PROPOSAL IRR = 25% BEFORE TAXES

MUTUAL FUNDS = 3% COST TO BORROW = 4%

IRR = -12.6% REJECT PROJECT, NEGATIVE CASH FLOW

10% -

TWO-YEAR PAYBACK = 50%

©2013 Energy PathFINDER .com

30% -

40% -

-10% -

50% -

CURRENT RATE OF RETURN ON INVESTED CAPITAL = 8%

Page 17: Monetizing Energy Solutions

17 ©2012 Energy PathFINDER.com

INVESTMENT  DEAD  BAND  

Page 18: Monetizing Energy Solutions

MONETIZE    Key  Energy  Assets  

18

•  Payback,  ROI  •  Costs,  Incentives  •  Savings  

•  Unit  price  to  save  vs.  price  to  buy  energy  •  Second  price  tag  –  capital  equivalent  of  waste  •  Cost  of  doing  nothing:    capital  destruction  •  Cash  flow  and  rates  of  return  

©2013 Energy PathFINDER.com

Page 19: Monetizing Energy Solutions

Keep pushing the same buttons….

Keep getting the same results! 19 ©2013 Energy PathFINDER.com

Page 20: Monetizing Energy Solutions

Christopher  Russell  Energy PathFINDER  www.energypathfinder.com  (443)  636-­‐7746  [email protected]  

@ENERGYpathfndr