Options for Financing Small CHP Systems

Barry Sanders, AmericanDG

Financing

Presentation will compare options— Active ownership to passive savings— Select the best option for your needs

Business decision

CHP acquisition options:— Purchase— Lease— Shared savings (Performance contract)— On-site utility

Assumptions

Economic Comparisons:

150 kw installed$0.11 per kwh electric rate$0.80 per therm natural gas8,000 annual operating hours$2,000 per kw installation price

PurchasePurchase equipment and services

— Own equipment and all operating responsibilities

— Keeps 100% of potential savings

Select, contract and pay for:— Equipment— Engineering & installation— Maintenance— Fuel

PurchaseUp-front investment: $300,000

Value of energy* supplied: $220,000Annual cogen costs**: $143,000Annual savings: $77,000

Payback: 3.9 years

*Electricity & hot water**Fuel & maintenance

PurchaseAdvantages

— Greater potential savings— Greatest independence

Disadvantages— Cash upfront

Payback required

— Owning & operating equipment responsibilities and costs Pay for maintenance & fuel Management requirements

LeaseFinance equipment and pay for services

— Portion of potential savings used to pay for financing

Select and contract for:— Equipment— Engineering & installation— Finance company

Pay for:— Finance fees— Maintenance— Fuel

LeaseUp-front investment: $0

Value of energy supplied: $220,000Annual cogen costs*: $217,000Annual savings: $3,000

Payback: 0Assumptions: 9% rate

5 year lease

*Fuel, maintenance & finance fees ($74,000)

LeaseAdvantages

— No upfront cash Savings used to finance equipment & installation

— Off balance sheet transaction

Disadvantages— Finance charges and terms

Financial history determines interest rate & acceptance

— Owning & operating equipment responsibilities and costs Pay for maintenance & fuel Management requirements

— Lowest net savings

Shared SavingsNo cost for equipment & installation

— Supplier owns and operates equipment— Customer keeps 20% of savings

(after operating costs)

Select and contract for:— Supplier

One-source installs, maintains & operates equipment

Pay for:— Maintenance, fuel & supplier share of

savings (80%)

Shared SavingsUp-front investment: $0

Value of energy supplied: $220,000Annual cogen costs*: $205,000Annual savings: $15,000

Payback: 0

Assumptions: 20% share

12 year agreement

* Fuel, maintenance & 80% of savings ($77,000)

Shared SavingsAdvantages

— No upfront cash required— Off balance sheet transaction

Disadvantages— Lower net savings— Long term agreement (10 to 15 years)— Pay operating costs

On-Site UtilityNo cost for equipment, installation,

maintenance & fuel— Only pay for energy used — Supplier owns and operates equipment— Energy discounted below local utility rates

Select and contract for— Supplier

One-source installs, maintains & operates equipment

Pay for:— Electricity & hot water produced

(discount range: 5% - 15%)

On-Site UtilityUp-Front Investment: $0

Value of Energy Supplied: $220,000Annual Cogen Costs*: $198,000Annual Savings: $22,000

Payback: 0

Assumptions: 10% Discount12 Year

Agreement*90% of the Energy Value

On-Site UtilityAdvantages

— No upfront cash— Greatest immediate cash flow benefit— No owning & operating responsibilities or

costs Cost of electricity, natural gas & maintenance

does not effect savings

Disadvantages— Lower net savings— Long term agreement (10 to 15 years)

Decision SummaryBusiness decisionEconomics

— Savings potential— Energy rates

Ownership responsibility & involvement— Technical capability— Technology options— Labor availability— Fuel purchase— Supplier credentials— Electric utility interconnect

Decision SummaryInvestment criteria for capital

equipment— Payback & return on investment (ROI)— Capital availability & needs— Cash flow requirements

Incentives improve savings for all options

Active or passive energy supply

SelectionEquipment

— Installed base— Parts availability— Service and serviceability

Supplier— Experienced with recent references— Local service— Knows your building, application and business

deal— National capability (if applicable)— Capital source— “Read the fine print”

Purchase— Customer pays for equipment, installation, service & fuel

Lease— Finance equipment and installation— Customer pays for service, fuel and finance fees

Shared savings— No cost for equipment and installation (supplier owns equip.)— Customer pays for service, fuel & shared savings fees— Customer keeps % of actual savings (10% - 25%)

On-site utility — No cost for equipment, installation, service & fuel (supplier

owns equip.)— Only pay for energy used— Price of energy discounted (5% - 15%)

Comparison

Purchase Lease Shared Savings On-Site

Utility

Up-Front Investment $300,000 $0 $0 $0

Value of Energy $220,000 $220,000 $220,000 $220,000

Annual Cost $143,000 $217,000 $205,000 $198,000

Annual Savings $77,000 $3,000 $15,000 $22,000

Payback (Years) 3.9 0 0 0

Comparison

STRENGTHS

Purchase Lease Shared Savings On-Site Utility

All of Savings No Upfront Costs No Upfront Cash No Upfront Cash

Best Cash Flow Improvement

Best Net Income

Improvement

No Owning Responsibilities

No Operating

Responsibilities

WEAKNESSES

Upfront Cash Lowest Net Savings Lower Net Savings Lower Net Savings

Payback Pay Operating Costs Agreement Length Agreement Length

Pay Operating Costs Oper. Responsibility Pay Operating Costs

Operating Responsibility Finance Terms

Comparison: Active to Passive

Barry J. Sanders

President & COO

AmericanDG Inc.

Waltham, Massachusetts

781.522.6010

bsanders@americandg.com

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