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Chp financing in practice


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  • 1. CHP Financing in Practice Justin Rathke Capstone Turbine Corp
  • 2. 2 Safe Harbor Statement During the course of this presentation, we may make projections or other forward-looking statements regarding future events or financial performance of the Company within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including: • future financial performance and attaining profitability; • the ability to continue to reduce costs and improve inventory turns and contribution margins; • The ability to reduce cash usage; • higher average selling prices; • continued growth in current market conditions; • the availability of a line of credit; • the success of the C200 and C1000 products; • new products and technologies; • compliance with certain government regulations and increased government awareness and funding of our products; • growing market share and market adoption of our products; • new applications for our products; • growth in the oil and gas and hybrid electric vehicle markets; • Increased opportunities in Japan; • revenue growth and increased sales volume; • our success in key market segments; • our ability to enter into new relationships with channel partners and distributors and other third parties; • the energy efficiency, reliability and low cost of ownership of our products; and • the expansion of production capacity, manufacturing efficiency and improved relationships with suppliers. These forward-looking statements are subject to numerous assumptions, risks, and uncertainties, including the following: • our expectations about expansion into key markets may not be realized; • certain strategic business initiatives and relationships may not be sustained and may not lead to increased sales; • we may not be able to continue to reduce our manufacturing costs; • the growth in our backlog has significantly exceeded our internal forecast. In order to meet this increased demand, we may need to raise additional funds to meet our anticipated cash needs for working capital and capital expenditures; • the current economy could make it difficult or impossible for us to raise necessary funds and for our customers to buy our products; • we may not be able to utilize our line of credit – for example, as a result of a failure to meet a financial covenant; • we may not be able to expand production capacity to meet demand for our products; • we may not be able to obtain sufficient materials on a timely basis or at reasonable prices; • if we fail to meet all applicable Nasdaq Global Market requirements and Nasdaq determines to delist our common stock, the delisting could adversely affect the market liquidity of our common stock, impair the value of your investment and adversely affect our ability to raise needed funds; • we have substantial accounts receivable, and increased bad debt expense or delays in collecting accounts receivable could have a material adverse effect on our cash flows and results of operations; • our release of new products may be delayed or new products may not perform as we expect; • we may be unable to increase our sales and sustain or increase our profitability in the future; • we may not be able to obtain or maintain customer, distributor and other relationships that are expected to result in an increase in volume and revenue; • we may not be able to comply with all applicable government regulations; • we may not be able to retain or develop distributors in our targeted markets, in which case our sales would not increase as expected; • we may not be able to successfully integrate the acquired Calnetix assets and achieve productive relationships with its distributors; and • if we do not effectively implement our sales, marketing, service and product enhancement plans, our sales will not grow and therefore we may not generate the net revenue we anticipate. We refer you to the Company's Form 10-Q, Form 10-K and other recent filings with the Securities and Exchange Commission for a description of these and other risk factors. Because of the risks and uncertainties, Capstone cautions you not to place undue reliance on these statements, which speak only as of today. We undertake no obligation and specifically disclaim any obligation to release any update or revise any forward- looking statements to reflect events or circumstances after the date of this presentation or to reflect the occurrence of unanticipated events.
  • 3. • Founded 1988  −  Commercial  launch  in  1998 • Public Corporation 2000 (NASDAQ “CPST”); market cap $300MM • World Leader in Microturbines • Headquarters and manufacturing plants in California • Sales and/or service centers in China, Mexico, Singapore, South America, the United Kingdom, and the United States • Over 95 Distribution Partners • Over 6,500 units shipped worldwide Our Perspective 3
  • 4. Why CHP? • FDS Manufacturing: – Corrugated paper and plastic packaging manufacturer with 240,000 sq. ft. facility – Needed to add machinery to remain competitive – CCHP system provided economical power, hot water and chilled water – Efficiency of system is 80% – FDS will double the CCHP plant in the next year “Ultimately,  our  microturbines make us more competitive and conscious of the environment. They’ve  been  a  great sales tool and resource that supports our intent to be a green manufacturer.” — Kevin Stevenson, Manufacturing VP, Engineering F-D-S Manufacturing
  • 5. Natural Gas Prices Sources: US EIA, American Gas Association PROPRIETARY AND CONFIDENTIAL Capstone Turbine Corporation 5
  • 6. Average Electricity Prices • Source US EIA, 2012 data PROPRIETARY AND CONFIDENTIAL Capstone Turbine Corporation 6 Prices in US cents/kWh Commercial Industrial New England 13.98 12.08 Middle Atlantic 12.56 7.53 East North Central 9.51 6.49 West North Central 7.89 5.92 South Atlantic 9.48 6.41 East South Central 9.67 5.79 Mountain 8.4 5.66 Pacific Contiguous 10.83 7.3 Pacific Non- Contiguous 24.68 26.61
  • 7. Cost to Generate Energy with CHP System Natural Gas Price ($/MMBTU) Price per kWh (power only) With thermal credit (CHP) 3.00 $0.031 $0.014 4.00 $0.041 $0.020 5.00 $0.052 $0.024 6.00 $0.062 $0.029 7.00 $0.072 $0.034 PROPRIETARY AND CONFIDENTIAL Capstone Turbine Corporation 7 *Assuming C200 model; CHP efficiency 70%
  • 8. Conditions for CHP Good for CHP • Favorable  “spark  spread” • No utility barriers – Exit fees – Demand charges – Standby charges • Useful incentives Bad for CHP • Projects > 4yr payback • Utility barriers
  • 9. According to DOE…
  • 10. Why is Financing Useful? • Many clients want to install to install clean energy projects but either do not have capital available or would prefer to spend their capital on their core business. • Project finance allows clients to install clean energy projects with no upfront capital and immediately begin saving money on energy costs and reducing GHG emissions. • Non-profit organizations are not able to utilize tax incentives available to encourage adoption of clean energy technology. Project finance allows them to monetize those benefits through a 3rd party.
  • 11. Common Types of Financing 1. Cash Purchase: – Client purchases microturbines and takes advantage of associated tax credits 2. Operating Lease: – Financier funds turnkey project and owns equipment for duration of the lease (off balance sheet). – Takes advantage of tax incentives associated with project – Client makes fixed monthly payments for use of equipment (very low interest rate since Lessor is taking tax benefits) 3. Power Purchase Agreement: – Financier pays for turnkey project and owns equipment for duration of the contract – Client pays only for kWh produced each month
  • 12. Sample Operating Lease Project 4 MW Project at industrial facility in Orange County • Total capital cost - $8.8 MM • 10 year savings ~ $12.3 MM • 120 month operating lease • Lessor monetizes tax benefits – factory benefits from low (effectively negative) interest rate • End of lease option to purchase system at FMV – capped at 15% of initial amount funded
  • 13. Year 1 Savings
  • 14. Savings from 4 MW CHP Project
  • 15. Lessons Learned • Just because a project makes economic sense does not mean it will happen • Cash is still king • Incentives are useful but should not themselves determine project viability • States can play a role by eliminating all possible barriers, including those imposed by the utility • If states want to incent CHP in areas with unfavorable spark spreads they need to implement either utility mandates or incentives that get paybacks to < 4yrs