monetizing energy solutions
TRANSCRIPT
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
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“Well, gentlemen, there’s your problem.”
No ENERGY means… No PRODUCTION… and no REVENUE.
End of story.
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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
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HEAT
PRESSURE
CHEMICAL
REACTION ©2013 Energy PathFINDER.com
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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
RISK or OPPORTUNITY? Energy price volatility Smart grid technologies Evolving emissions & safety standards
Green & sustainable market bona fides
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• 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% -
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Pay for waste? Finance working capital Subsidize CAPEX
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HOW MUCH CASH?
(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
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REASONS FOR INACTION
SPLIT INCENTIVE ACROSS DEPARTMENTS FEAR OF CHANGE, EMBARRASSMENT, LOSS OF INFLUENCE
FAILURE TO ARTICULATE THE TRUE MONETARY IMPACT
How do you measure these investments?
Simple payback?
• Mortgages • Car loans • Bank accounts • Stocks & bonds • Mutual funds
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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
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$8 million ANNUAL
NET INCOME
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EXAMPLE: Return on Invested Capital
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Production Facility
POWER HOUSE
$100 million INVESTED CAPITAL
8% RoIC
0% -
20% -
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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%
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INVESTMENT DEAD BAND
MONETIZE Key Energy Assets
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• 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
Keep pushing the same buttons….
Keep getting the same results! 19 ©2013 Energy PathFINDER.com
Christopher Russell Energy PathFINDER www.energypathfinder.com (443) 636-‐7746 [email protected]
@ENERGYpathfndr