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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
4. No
ENERGY
means…
No
PRODUCTION…
and
no
REVENUE.
End
of
story.
4
©2013 Energy PathFINDER.com
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
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. 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
• 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. Pay
for
waste?
Finance
working
capital
Subsidize
CAPEX
10
©2013 Energy PathFINDER.com
HOW MUCH
CASH?
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
REASONS
FOR
INACTION
SPLIT INCENTIVE ACROSS DEPARTMENTS
FEAR OF CHANGE, EMBARRASSMENT, LOSS OF INFLUENCE
FAILURE TO ARTICULATE THE TRUE MONETARY IMPACT
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
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. $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. 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%
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. Keep pushing the same buttons….
Keep getting the same results!
19©2013 Energy PathFINDER.com
