This document profiles Christopher Russell and his work helping organizations monetize energy solutions and investments. It discusses how energy projects can be viewed as investments that produce cash flows rather than just costs. It emphasizes the need to consider the total lifecycle costs and savings of projects, not just simple payback periods. It provides an example analysis of a boiler upgrade project using metrics like internal rate of return, cost of doing nothing, and annualized cost to help justify the investment.

1. MONETIZING
ENERGY SOLUTIONS
Christopher Russell,
Principal
Energy PathFINDER .com
(443) 636-7746

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
2©2013 Energy PathFINDER.com
About Christopher Russell

3. PROJECT or INVESTMENT?
• PROJECTS:
– Cost money
– Take up time
– Distract from operating goals & procedures
• INVESTMENTS:
– Produce a cash flow
– Earn a rate of return
– Grow the business, create wealth
3©2013 Energy PathFINDER.com

4. Payback Analysis
If the payback isn’t “good”….
Just WALK AWAY from the proposal.
4©2013 Energy PathFINDER.com
RIGHT?

5. 5
Can You Walk Away
from the Investment?
TYPE 1: NEW INITIATIVE
• Facility addition
• Expanded production process
• New product line
TYPE 2: EXISTING OBLIGATION
• Efficiency improvement
• Still bear the cost of waste
if no investment is made
©2013 Energy PathFINDER.com

6. Investment Outcomes
• Investors WILL PAY either way:
– For the energy solution, or
– For the energy waste
You can’t walk away.
• Goal for energy solutions: seek the least cost of
meeting an obligation.
6©2013 Energy PathFINDER.com

7. $8 million
ANNUAL
NET INCOME
7
EXAMPLE:
Return on Invested Capital
©2013 Energy PathFINDER .com
Production
Facility
POWER
HOUSE
$100 million
INVESTED CAPITAL
8%
RoIC

8. Investment “Dead Band”
YEARS TO
PAYBACK
RATE OF RETURN
(no compounding)
1 100%
2 50%
3 33%
4 25%
5 20%
10 10%
12.5 8%
20 5%
50% - 8% =
42% PREMIUM
….that investments must
return OVER AND ABOVE cost
of capital.
8©2013 Energy PathFINDER.com

9. Investor’s Rates of Return (Thru 25 Yrs)
PROJECT COST:
ECONOMIC LIFE:
$1,500,000
25 YRS
5% -
0% -
15% -
20% -
25% -
9©2013 Energy PathFINDER.com
EXAMPLE:
5-YR Payback
Operating Results
ENERGY PROPOSAL IRR = 8% AFTER TAXES & FINANCE
ENERGY PROPOSAL IRR = 22% BEFORE TAXES
MUTUAL FUNDS = 3%
COST TO BORROW = 4%
COST OF INTERNAL CAPITAL = 8%
IRR = -12.6% REJECT PROJECT, NEGATIVE CASH FLOW
BEST COMPETITOR’S CAPITAL RECOVERY= 10%
10% -
TWO-YEAR PAYBACK = 50%

10. Capital MUST be parked somewhere….
• 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% -
10©2013 Energy PathFINDER .com

11. • $1,500,000 cost
• $200,000 rebate (YR1)
• $200,000 downpayment
Cap. recovery:
25 YRS/8%
• $1,300,000 borrowed
20YRS/4%
• 25 YR economic life
• 1.5%/yr energy price escalation
• 39-YR Straight-line depreciation
• 35% marginal tax rate
• $0.50/therm natural gas
• $0.09/kWh electricity
• $30,000 O&M saving/yr
BOILER / STEAM UPGRADE
BEFORE AFTER
ELEC kWh 5,260,000 4,734,000
GAS therm 2,700,000 2,294,680
Annual O&M $72,000 $42,000
11©2013 Energy PathFINDER.com

12. FREE CASH FLOW?
RATE OF RETURN?
COST OF
DOING NOTHING?
12©2013 Energy PathFINDER .com
What do executives need to know?
Does “simple payback” answer these?

13. MONETIZING ENERGY OUTCOMES
ACCEPT REJECT
GET
Gross life-cycle
energy savings
$$$
Satisfaction of no
capital expenditure?
$0
GIVE UP
Total amortized
project cost
$$$
Life-cycle cost of
DOING NOTHING
$$$
NET
RESULT
GET – GIVE UP=
+FREE CASH FLOW
GET – GIVE UP=
-FORFEITED NET
CASH FLOW
PRICE
TAG
$Project Invoice $Capitalized Waste
Value
13©2013 Energy PathFINDER.com

14. “Bad” Project with 5-Year Payback
GROSS WASTE
COMMITTED EXPENSE
NET SAVINGS
TOTAL CAPITALIZED COST
14©2013 Energy PathFINDER.com
$47,611,847 $47,611,847
$5,930,527
$1,947,018
$3,983,509
REJECT ACCEPT
OR:
COST OF DOING
NOTHING
OR:
CAPEX SUBSIDY
OR:
WORKING
CAPITAL
SUBSIDY

15. INTERPRETING
ANNUALIZED COST ANALYSIS
ANNUAL
EXPENDITURE
COMMITTED
EXPENDITURE
ANNUALIZED
PROJECT COST
ANNUAL
GROSS
ENERGY
SAVINGS
Annualized net savings
Annualized penalty for
DOING NOTHING
Free cash flow to:
• Working capital
(finance your operations)
Or
• Investment capital
(finance your asset base)
?
15©2013 Energy PathFINDER .com

16. Pivotal Philosophy Change
MANAGE ENERGY LIKE MONEY
• Energy = wealth
• Fuel, power = forms of currency
• What if MONEY was managed like energy?
• Just shovel it in, hand it out
• No controls, protocols or accountabilities
• Occasional reconciliation projects, time
permitting
WHAT WOULD CASH BALANCES LOOK LIKE?
16©2013 Energy PathFINDER .com

17. Boiler Example: Save or Buy Choice
Annual energy use,
current application
in-place
Annual energy use,
efficient alternative
ANNUALENERGY
CONSUMPTION
REJECT THE
IMPROVEMENT
$5.9064
per MMBtu
consumed
$5.9064
per MMBtu
wasted
$2.8446
per MMBtu
avoided
Committed Energy
Energy put to
work as intended
Energy At-Risk:
You will pay for it
either way
$5.9064
per MMBtu
consumed
ACCEPT THE
IMPROVEMENT
17©2013 Energy PathFINDER.com

18. MONETIZE
Key Energy Assets
• 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
• Cash flow and rates of return
18©2013 Energy PathFINDER .com

19. EMOTIONAL IMPACT….
FEATURE PAYBACK
ANNUALIZED COST
ANALYSIS
Account for cash flows over the life of
the improvement?
NO YES
Incorporate the time-value of money? NO YES
Provide basis for break-even cost
evaluation?
SORT OF YES
Compare value of projects with
different economic lives?
NO YES
Describe value of free cash flow? NO YES
Provide the “price tag” for NOT taking
action?
NO YES
19©2013 Energy PathFINDER.com

20. “It’s what you learn after
you know it all that counts.”
Harry S. Truman
33rd President of the
United States of America
(1884 – 1972)
20©2013 Energy PathFINDER.com

21. YOU-TUBE: search “Energy Pathfinder Investment Calculator”
Energy PathFINDER .com
Christopher Russell
@ENERGYpathfndr
Feb 2008 June 2010
THANK
YOU!