Post on 10-May-2015
Christopher Russell Energy PathFINDER
www.energypathfinder.com (443) 636-‐7746
info@energypathfinder.com
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
“Well, gentlemen, there’s your problem.”
No ENERGY means… No PRODUCTION… and no REVENUE.
End of story.
4 ©2013 Energy PathFINDER.com
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
6
HEAT
PRESSURE
CHEMICAL
REACTION ©2013 Energy PathFINDER.com
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
RISK or OPPORTUNITY? Energy price volatility Smart grid technologies Evolving emissions & safety standards
Green & sustainable market bona fides
8 ©2013 Energy PathFINDER.com
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
Pay for waste? Finance working capital Subsidize CAPEX
10 ©2013 Energy PathFINDER.com
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
12
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
13 ©2013 Energy PathFINDER .com
14
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
$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
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%
17 ©2012 Energy PathFINDER.com
INVESTMENT DEAD BAND
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
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 info@energypathfinder.com
@ENERGYpathfndr