Phone: 215-230-9871 Fax: 215-340-3972 Email: [email protected] E NERGY P ERFORMANCE S ERVICES EPS...

Phone: 215-230-9871 Fax: 215-340-3972 Email: [email protected]

ENERGY PERFORMANCE SERVICES

EPS

Fundamentals of Financing Fundamentals of Financing Performance Contracting Performance Contracting

ProjectsProjects

Thomas Dreessen

Chief Executive Officer,EPS Capital Corp.

October 31, 2001

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EPS

Energy Services Company (“ESCO”)

• A Performance Contracting Company that:– develops and implements energy efficiency

projects “EEPs” on a turn-key basis– risks its payments on the performance of

equipment and services implemented

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EPS

“ESCO” GUARANTEE

• Customer’s current operating costs will be reduced by an amount at least equal to the debt service required to repay the turnkey Construction Price for ESCO to implement and finance EEPs.

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EPS

ESCO Must Manage Risks

• Development

• Construction

• Technology

• Cost Overruns

• Operations & Maintenance

• Performance (Savings)

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EPS

Development Risk

• ESCO provides the working capital to develop a “paid from savings” project. If no such project exists, no cost to customer.

• ESCO must provide/arrange appropriate long term project financing.

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EPS

Development Barriers

• Identify “Qualified” Customers

- GOVERNMENT: Stable Financials; Significant Procurement Barriers and No Incentive

- INDUSTRY: Limited Procurement Barriers and Good Incentive; Less Stable Financials

• Obtain “VIABLE” Project Financing

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EPS

Project Financing Risk

• Identify Project Finance Strategy

• Create Viable Project Finance Strategy

• Obtain Commitment from Financing Sources

• Finance from Savings of EEPs

• Close Contracts with Financing Sources

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Implementation Risk

• Achieve Turnkey Price

• Adhere to Design Specifications

• Meet Completion Deadlines

• Meet Commissioning Requirements

• Comply With Regulatory and Legal Issues

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Operating Risk

• Savings Guarantee to Customer that the “turnkey” costs of implementing and financing the EEPs will be paid-from-savings.

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Two Primary Structures

• Guaranteed Savings - 90%

• Shared Savings - 10%

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CUSTOMER

ESCO Lender/Investor

Savings

Guarantee

Fixed Repayment Schedule

“Performance Risk” “Credit Risk”

“Market Risk”


EPSGuaranteed Savings

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EPS

Loss Covered by ESCO End of Contract with ESCO

Capital & Interest Revenues ESCO Revenues Customer

Guaranteed Savings Illustration

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EPS

Customer

“ESCO”Performance &

Credit Risk

Project ServicesSavings Guarantee

Lender/Investor100% Funding


Shared Savings

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EPS

Industrial Customer Case Study

• Paper Manufacturer in Asia

• Locally owned and operated

• Sells “Specialty Paper” products

• No significant exports

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EPS

Project Summary

• Seven (7) Energy Efficiency Projects (EEPs)

• Construction Price US$ 5,000,000Annual Benefits:

• Annual Savings US$ 1,765,000• Annual Debt Service US$ 1,145,000• Net Annual Cash Flow US$ 620,000

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EPS

Summary of EEPs

DESCRIPTION Construction Savings Simple Payback Price Years

#1 Pocket Ventilation Pre-Heat US$ 100,000 US$ 45,000 2.2#2 Vacuum Pumps Power Reduction 696,000 253,000 2.8#3 Refining Power Reduction 882,000 267,000 3.3#4 Wastewater Aeration Power Reduction 110,000 33,000 3.3#5 Pumping Power Reduction 196,000 65,000 3.0#6 PM Steam/Condensate Optimization 696,000 312,000 2.2#7 On-site Power Generation Upgrade 2,320,000 790,000 2.9

Total $ 5,000,000 $ 1,765,0002.8 Yrs.

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INDUSTRIAL CASE STUDY ENERGY PROJECT7 YEAR CASH FLOW

31-Oct-01(IN US$)

PROJECT FINANCING: INFLATION ASSUMPTIONSEnter "1" if no Depreciation/Taxes 1 Energy 3.0%Total Construction Price 5,000,000$ Operations & Maintenance 5.0%Construction Interest 14.0% 350,000 Finance Fees 1.0% 54,040 Total Funding Required 5,404,040$ Construction Period - Months 12Long Term Debt Terms:

Interest Rate: 12.0%Years: 7.0

CASH FLOW: YEAR > 0 1 2 3 4 5 6 7 Total

PROJECT SAVINGS:Energy -$ 1,500,000$ 1,545,000$ 1,591,350$ 1,639,091$ 1,688,263$ 1,738,911$ 1,791,078$ 11,493,693$ Operations & Maintenance - 265,000 278,250 292,163 306,771 322,109 338,215 355,125 2,157,632

TOTAL GROSS SAVINGS - 1,765,000 1,823,250 1,883,513 1,945,861 2,010,372 2,077,126 2,146,204 13,651,326

DEBT SERVICE (Principal+Interest) - (1,144,753) (1,144,753) (1,144,753) (1,144,753) (1,144,753) (1,144,753) (1,144,753) (8,013,271) -

ESCO Share of Savings at: 50% (310,124) (339,249) (369,380) (400,554) (432,810) (466,186) (500,725) (2,819,027)

OWNER CASH - ANNUAL - 310,124 339,249 369,380 400,554 432,810 466,186 500,725 2,819,027 -

OWNER CASH - CUMULATIVE - 310,124 649,372 1,018,752 1,419,306 1,852,116 2,318,302 2,819,027

ENERGY P ERFORMANCE SERVICES

EPS

Project 7 Year Cash Flow

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EPS

Financing is Key ESCO Ingredient

• ESCO is a Service Company not a Bank

• ESCO cannot invest its Working Capital to Develop & Implement EEPs unless “Reliable” and “Commercially Viable” Long-term Project Financing is Available

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EPS

Project Financing Barriers

• Traditional Local Bank Lending not applicable:– Corporate Lending– Rates too high – Repayment Term too Short

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EPS

Project Financing Barriers

• International “MDB” Lending not applicable:– Size of EEPs is Too Small– Due Diligence too Cumbersome– Require Hard Currency Repayment

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EPS

Major Causes of Financing Barriers

• Not Due to Lack of Available Funding

• Inability of EEPs to Access Funding

• “Disconnect” with Traditional Methods:– Traditional is Asset-Based Lending– EEP is Project Cashflow-Based Lending

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EPS

Major Causes of Financing Barriers

• No Lending Infrastructure for Complex EEPs

• No immediate Solution because Energy Efficiency Market is Not Developed Enough to Motivate Local Banks to Invest in Setting up EEP Lending Infrastructure.

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EPSInternational Energy Efficiency “Project” Financing Protocol

• “IEEPFP” is a Protocol that Becomes the Guideline used by Local Banks in International Markets to Finance Energy Efficiency Projects “EEPs”.

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EPS

“IEEPFP” Content

• Customer Lending Criteria & Analysis• Customer Credit Information Needed• Credit Review and Loan Approval

Procedures• Standard Loan and Security Agreements• Standard ESCO & Construction

Agreements

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EPS

“IEEPFP” Content

• Training Manuals for Loan Officers

• Training Workshops with EEP Case Studies

• Procedures for Evaluating EEPs

• Risk Assessment Guidelines for EEPs

• Investment Criteria for EEPs

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EPS

Investment Criteria for EEPs

• Creditworthy Customer

• Enforceable & “Balanced” Contracts

• Proper Licenses & Permits

• Experienced ESCO/Contractor

• Proven Commercial Technologies

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EPS

Investment Criteria for EEPs

• Acceptable Project Economics (Risk Profile)

• Adequate Return to Lender & ESCO• Compliance with Environmental

Regulations• Must follow International Measurement

and Verification Protocol “IEMVP”.

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EPS

Create an EEP Fund

• Funding from Ratepayer Fees:– U.S. “System Benefit Charge” – Brazil through 1% ANEEL Fund– Thailand through the ECF ($ 250 Million)– India through Energy Conservation Act

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EPS

EEP Fund Profile

• Utilize ESCO “Guaranteed Savings” Structure versus old “Shared Savings”– Creates a Growth Model for the ESCO and

Energy Efficiency Industry– Simplifies Requirements of Local Banks

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EPS

EEP Fund Profile

• Utilize Funds to “Buy-Down” Interest Rate to Below Market Rates

• Utilize Funds to Guarantee a Portion of the Loan Losses to the Local Banks

• Have 10-Year Repayment Terms from Local Banks Including One-Year Moratorium

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EPS

EEP Fund Profile

• Repay in Local Currency• Managed by individuals who have previous

private sector project financing experience• Provide Fast Loan Approval - “IEEPFP”• No Government intervention and

procedures• Require use of IEMVP

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EPS

Benefits of IEEPFP & Fund

• Establish Commercial Mechanism for the Financing of EEPs in International Markets

• Create Local In-Country Banking Staff Trained in Project Financing of EEPs

• Eliminate Currency Devaluation Risks

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EPS


• Provide Incentive to Implement EEPs

• Deliver Long Term Savings thru IEMVP

• Create Commercial Lending Sector for EEPs

• Provide a Conducive ESCO Environment

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EPS


• Provides a Method to Aggregate EEPs

• Provide a Reliable CO2 Reduction Progam

• Create a Fund that Will Sustain over Time

Phone: 215-230-9871 Fax: 215-340-3972 Email: [email protected] E NERGY P ERFORMANCE S ERVICES EPS...

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Transcript of Phone: 215-230-9871 Fax: 215-340-3972 Email: [email protected] E NERGY P ERFORMANCE S ERVICES EPS...