options for financing small chp systems barry sanders, americandg
TRANSCRIPT
Financing
Presentation will compare options— Active ownership to passive savings— Select the best option for your needs
Business decision
CHP acquisition options:— Purchase— Lease— Shared savings (Performance contract)— On-site utility
Assumptions
Economic Comparisons:
150 kw installed$0.11 per kwh electric rate$0.80 per therm natural gas8,000 annual operating hours$2,000 per kw installation price
PurchasePurchase equipment and services
— Own equipment and all operating responsibilities
— Keeps 100% of potential savings
Select, contract and pay for:— Equipment— Engineering & installation— Maintenance— Fuel
PurchaseUp-front investment: $300,000
Value of energy* supplied: $220,000Annual cogen costs**: $143,000Annual savings: $77,000
Payback: 3.9 years
*Electricity & hot water**Fuel & maintenance
PurchaseAdvantages
— Greater potential savings— Greatest independence
Disadvantages— Cash upfront
Payback required
— Owning & operating equipment responsibilities and costs Pay for maintenance & fuel Management requirements
LeaseFinance equipment and pay for services
— Portion of potential savings used to pay for financing
Select and contract for:— Equipment— Engineering & installation— Finance company
Pay for:— Finance fees— Maintenance— Fuel
LeaseUp-front investment: $0
Value of energy supplied: $220,000Annual cogen costs*: $217,000Annual savings: $3,000
Payback: 0Assumptions: 9% rate
5 year lease
*Fuel, maintenance & finance fees ($74,000)
LeaseAdvantages
— No upfront cash Savings used to finance equipment & installation
— Off balance sheet transaction
Disadvantages— Finance charges and terms
Financial history determines interest rate & acceptance
— Owning & operating equipment responsibilities and costs Pay for maintenance & fuel Management requirements
— Lowest net savings
Shared SavingsNo cost for equipment & installation
— Supplier owns and operates equipment— Customer keeps 20% of savings
(after operating costs)
Select and contract for:— Supplier
One-source installs, maintains & operates equipment
Pay for:— Maintenance, fuel & supplier share of
savings (80%)
Shared SavingsUp-front investment: $0
Value of energy supplied: $220,000Annual cogen costs*: $205,000Annual savings: $15,000
Payback: 0
Assumptions: 20% share
12 year agreement
* Fuel, maintenance & 80% of savings ($77,000)
Shared SavingsAdvantages
— No upfront cash required— Off balance sheet transaction
Disadvantages— Lower net savings— Long term agreement (10 to 15 years)— Pay operating costs
On-Site UtilityNo cost for equipment, installation,
maintenance & fuel— Only pay for energy used — Supplier owns and operates equipment— Energy discounted below local utility rates
Select and contract for— Supplier
One-source installs, maintains & operates equipment
Pay for:— Electricity & hot water produced
(discount range: 5% - 15%)
On-Site UtilityUp-Front Investment: $0
Value of Energy Supplied: $220,000Annual Cogen Costs*: $198,000Annual Savings: $22,000
Payback: 0
Assumptions: 10% Discount12 Year
Agreement*90% of the Energy Value
On-Site UtilityAdvantages
— No upfront cash— Greatest immediate cash flow benefit— No owning & operating responsibilities or
costs Cost of electricity, natural gas & maintenance
does not effect savings
Disadvantages— Lower net savings— Long term agreement (10 to 15 years)
Decision SummaryBusiness decisionEconomics
— Savings potential— Energy rates
Ownership responsibility & involvement— Technical capability— Technology options— Labor availability— Fuel purchase— Supplier credentials— Electric utility interconnect
Decision SummaryInvestment criteria for capital
equipment— Payback & return on investment (ROI)— Capital availability & needs— Cash flow requirements
Incentives improve savings for all options
Active or passive energy supply
SelectionEquipment
— Installed base— Parts availability— Service and serviceability
Supplier— Experienced with recent references— Local service— Knows your building, application and business
deal— National capability (if applicable)— Capital source— “Read the fine print”
Purchase— Customer pays for equipment, installation, service & fuel
Lease— Finance equipment and installation— Customer pays for service, fuel and finance fees
Shared savings— No cost for equipment and installation (supplier owns equip.)— Customer pays for service, fuel & shared savings fees— Customer keeps % of actual savings (10% - 25%)
On-site utility — No cost for equipment, installation, service & fuel (supplier
owns equip.)— Only pay for energy used— Price of energy discounted (5% - 15%)
Comparison
Purchase Lease Shared Savings On-Site
Utility
Up-Front Investment $300,000 $0 $0 $0
Value of Energy $220,000 $220,000 $220,000 $220,000
Annual Cost $143,000 $217,000 $205,000 $198,000
Annual Savings $77,000 $3,000 $15,000 $22,000
Payback (Years) 3.9 0 0 0
Comparison
STRENGTHS
Purchase Lease Shared Savings On-Site Utility
All of Savings No Upfront Costs No Upfront Cash No Upfront Cash
Best Cash Flow Improvement
Best Net Income
Improvement
No Owning Responsibilities
No Operating
Responsibilities
WEAKNESSES
Upfront Cash Lowest Net Savings Lower Net Savings Lower Net Savings
Payback Pay Operating Costs Agreement Length Agreement Length
Pay Operating Costs Oper. Responsibility Pay Operating Costs
Operating Responsibility Finance Terms
Comparison: Active to Passive
Barry J. Sanders
President & COO
AmericanDG Inc.
Waltham, Massachusetts
781.522.6010
Contact