Christopher	
  Russell	
  
Energy PathFINDER	
  
www.energypathfinder.com	
  
(443)	
  636-­‐7746	
  
info@energypathfinder....
About	
  Christopher	
  Russell,	
  C.E.M.,	
  C.R.M.	
  
  Independent consulting since 2006
Principal, Energy Pathfinde...
“Well, gentlemen, there’s your
problem.”
No	
  ENERGY	
  means…	
  
No	
  PRODUCTION…	
  
and	
  no	
  REVENUE.	
  
End	
  of	
  story.	
  
4
©2013 Energy PathFIND...
5
WEALTH
DESTROYED
HEAT, FRICTION, &
CHEMICAL REACTIONS
DESTROY PLANT & EQUIPMENT,
CREATE LIABILITIES
WEALTH
CREATED
TRANS...
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 i...
RISK	
  or	
  OPPORTUNITY?	
  
  Energy	
  price	
  volatility	
  
  Smart	
  grid	
  technologies	
  
  Evolving	
  em...
9
•  Core	
  business:	
  	
  RoR	
  on	
  invested	
  capital	
  
•  Energy	
  project:	
  After-­‐tax	
  rate	
  of	
  r...
  Pay	
  for	
  waste?	
  
  Finance	
  working	
  capital	
  
  Subsidize	
  CAPEX	
  
10
©2013 Energy PathFINDER.com
...
(c)2009 Energy Pathfinder Mangement Consulting, LLC
www.energypathfinder.com 11
PLANT BOUNDARY
U.S. INDUSTRY AVERAGE ENERG...
12
REASONS	
  FOR	
  INACTION	
  
SPLIT INCENTIVE ACROSS DEPARTMENTS
FEAR OF CHANGE, EMBARRASSMENT, LOSS OF INFLUENCE
FAIL...
How	
  do	
  you	
  measure	
  these	
  investments?	
  
Simple payback?
• Mortgages
• Car loans
• Bank accounts
• Stocks ...
14
The naïve measure:
PROJECT COST: $1,000,000
AMT FINANCED: $500,000/8%/25YRS
MARGINAL INCOME TAX: 35%
ECONOMIC LIFE: 25 ...
$8	
  million	
  
ANNUAL	
  
NET	
  INCOME	
  
15
EXAMPLE:	
  	
  
Return	
  on	
  Invested	
  Capital	
  
©2013 Energy Pa...
0% -
20% -
16
ENERGY PROPOSAL IRR = 12% AFTER TAXES & FINANCE
ENERGY PROPOSAL IRR = 25% BEFORE TAXES
MUTUAL FUNDS = 3%
COS...
17©2012 Energy PathFINDER.com
INVESTMENT	
  
DEAD	
  BAND	
  
MONETIZE	
  	
  
Key	
  Energy	
  Assets	
  
18
•  Payback,	
  ROI	
  
•  Costs,	
  Incentives	
  
•  Savings	
  
•  Unit	...
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....
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Monetizing Energy Solutions

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Monetizing Energy Solutions

  1. 1. Christopher  Russell   Energy PathFINDER   www.energypathfinder.com   (443)  636-­‐7746   info@energypathfinder.com  
  2. 2. 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
  3. 3. “Well, gentlemen, there’s your problem.”
  4. 4. No  ENERGY  means…   No  PRODUCTION…   and  no  REVENUE.   End  of  story.   4 ©2013 Energy PathFINDER.com
  5. 5. 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. 6. 6 HEAT PRESSURE CHEMICAL REACTION ©2013 Energy PathFINDER.com
  7. 7. 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. ANNUALENERGY CONSUMPTION A B VOLUME AT-RISK: Buy & waste or Pay to avoid buying. PAY FOR IT EITHER WAY. ©2013 Energy PathFINDER.com
  8. 8. RISK  or  OPPORTUNITY?     Energy  price  volatility     Smart  grid  technologies     Evolving  emissions  &   safety  standards     Green  &  sustainable   market  bona  fides   8 ©2013 Energy PathFINDER.com
  9. 9. 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
  10. 10.   Pay  for  waste?     Finance  working  capital     Subsidize  CAPEX   10 ©2013 Energy PathFINDER.com HOW MUCH CASH?
  11. 11. (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. 12. 12 REASONS  FOR  INACTION   SPLIT INCENTIVE ACROSS DEPARTMENTS FEAR OF CHANGE, EMBARRASSMENT, LOSS OF INFLUENCE FAILURE TO ARTICULATE THE TRUE MONETARY IMPACT
  13. 13. How  do  you  measure  these  investments?   Simple payback? • Mortgages • Car loans • Bank accounts • Stocks & bonds • Mutual funds 13 ©2013 Energy PathFINDER .com
  14. 14. 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
  15. 15. $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
  16. 16. 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. 17. 17©2012 Energy PathFINDER.com INVESTMENT   DEAD  BAND  
  18. 18. 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
  19. 19. Keep pushing the same buttons…. Keep getting the same results! 19©2013 Energy PathFINDER.com
  20. 20. Christopher  Russell   Energy PathFINDER   www.energypathfinder.com   (443)  636-­‐7746   info@energypathfinder.com   @ENERGYpathfndr
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