finding hidden value in your energy efficiency...

Finding Hidden Value in Your Energy Efficiency Project

Christopher RussellEnergy PathFINDER.com(443) [email protected]

Outline for Today

2©2011 Energy PathFINDER.com

1:30 pm INTRODUCTION: Energy, Money, Business, and a New Facility Management Philosophy

2:15 pm REVIEW:Financial Metrics and Rates of Return

3:00 pm BREAK

3:15 pm ALTERNATIVE EVALUATION METHODSFrom “Projects” to “Investments”

4:30 pm INTERACTIVE CALULATOR DEMO

Q&A

5:00 pm ADJOURN

About Christopher Russell, C.E.M., C.R.M.

Independent consulting since 2006Principal, Energy Pathfinder

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 Maryland; B.A., McGill University

Published November 2009

Published June 2010

The Industrial Energy Harvest N.A. Energy Audit Program Best Practices


Energy Manager, Author, Speaker, Coach,

Analyst, Consultant

Why This Workshop?

Markets, technologies, and practices… Organizational philosophies… Internal competition for capital budget resources 21st century opportunities… 1920s investment metrics

Keep pushing the same buttons?Expect the same results


Energy Investment Calculator w w w .energypathfinder.com

Subject Activity: Prepared for: Prepared by:

Date:

ENERGY AT-RISK: CURRENTLY WASTED: 54,242 MMBtu @ $5.1860 per MMBtu POTENTIALLY AVOIDED: 54,242 MMBtu @ $2.3051 per MMBtu

MMBtu USED AS INTENDED:18,970,698 MMBt @ $5.1860 per MMBtu

OPERATING ECONOMIC FINANCIALPERFORMANCE PERFORMANCE PERFORMANCE

Before depreciation After depr. & taxes; Free cash f lowand taxes before f inance after f inance TARGET

SIMPLE PAYBACK (YEARS): 4.8 7.8 -- n.a.RETURN ON INVESTMENT: 27.3% 17.8% -- n.a.

PROFITABILITY INDEX: -- -- 1.8 --INTERNAL RATE OF RETURN THRU YR 25: 23.8% -- 98.8% --

LIFE-CYCLE COST (25 YEARS): $2,781,037,733 undiscounted value; includes costs of finance

PAGE 14ENERGY AT-RISK: WASTED OR AVOIDED?

YOU WILL PAY FOR IT EITHER WAY: CHOOSE YOUR PRICE.

Heavy Manufacturing Ltd.C. Russell10/19/2011

INVESTMENT METRICS

$5.1860 $5.1860

$5.1860 $2.3051

REJECT ACCEPT


INVESTMENT CALCULATOR

Facility Manager?

Value of energy efficiency CAN be proven…

Project Engineer?

Machine Operator?

Corporate Officer?

But to Whom?

Each has a different definition of value.

©2011 Energy PathFINDER.com 6

Facilities Management 1.01999 and before

Fuels and power are plentiful and cheap Fuel bills: just pay them on time Equipment operators never see the bills Accountants don’t know how energy is used Energy costs are treated as overhead

…allocate energy per labor hour or square foot Stoke it up and leave it running

Energy is an uncontrollable cost of doing business.Let the pipefitters and electricians handle it.That’s the way we’ve always done it.If it ain’t broke, don’t fix it.


Rethinking Energy’s Place in Business

Energy touches every square foot in the facility

Energy reflects choices by every employee

Current utility bill reflects choices made days, weeks, months, years ago


Rethinking Energy’s Place in Business

Energy is wealth: it can be invested, preserved, and used to grow a business

If energy is wealth, fuels and electricity are like currency – the same financial management techniques apply

Energy choices will shape cash flow for years to come


Who “owns” responsibility for these decisions?

The Energy Consuming Business’Misplaced PrioritiesTypical thinking: Energy is a small portion of costs Small portion = low importance Smaller value, lower delegation of

responsibility

Energy decisions wind up in the hands of low-level staff…Empowerment? Motivation? Business skills?


Missing the Point…It’s more than utility bills!

Energy CHOICES impact: capital investment asset management maintenance protocol & agendas


You cannot FUTUREPROOF an organizationwithout considering energy risks.


http://www1.eere.energy.gov/industry/pdfs/mfg_footprint.pdf

(c)2009 Energy Pathfinder Mangement Consulting, LLC www.energypathfinder.com 13

PLANT BOUNDARY

U.S. INDUSTRY AVERAGE ENERGY DOLLARBREAKDOWN OF PRIMARY ENERGY SUPPLY

SOURCE: http://www1.eere.energy.gov/industry/pdfs/mfg_footprint.pdf

NET APPLIED TO WORK

$0.40 – Process$0.03 – Non-Process$0.43 – Total

$0.17

CONVERSION LOSS

$0.04

ONSITE DISTRIBUTION LOSSCENTRAL PLANT LOSS

$0.07

$0.29GENERATION,

TRANSMISSION,DISTRIBUTION

LOSSESPRIOR TO DELIVERY

13

PRICE is not a total solution!

What’s negotiable? The supplier’s profit margin.What’s controllable? The VOLUME you purchase.

Hedges? Only reduce price volatility, not price level

75%

15%5% 5%

0%10%20%30%40%50%60%70%80%90%

100%Breakdown of natural gas cost:

COMMODITY TRANSPORT. EMBEDDED FEES

SUPPLIER’SPROFIT


Waste Raises the “Price” of Fuel

SEQUENCE OF ACTIVITYQUANTITY

(MMBtu)INCREMENTAL

VALUE

EXPENDITUREPER MMBtu

“AVAILABLE”

Fuel delivered “to the fence”Losses from combustion = 10 percent*

100,000-10,000

$500,000-$50,000

$5.00

Example:Purchase 100,000 MMBtu@ $5.00 per MMBtu

Heat available for distributionLosses from distribution = 6 percent*

90,000-6,000

$450,000-$30,000

$5.56

Energy available to perform process workTotal energy losses = 39 percent*

61,000-39,000

$300,000-$200,000

$8.20

Heat available for conversion to workLosses from heat-to-work conversion = 24

percent*

84,000-24,000

$420,000-$120,000

$5.95

When natural gas costs $5.00/MMBTU, the average U.S. industrial facility experiences

waste that leads to an expenditure of $8.20 per “available” MMBtu!*SOURCE: http://www1.eere.energy.gov/industry/pdfs/mfg_footprint.pdf



Total Cost of Operation:

The Relative Magnitude of Energy Costs

Capital (2%)

Energy (97%)

$25,000 capital cost15 miles per gallon20,000 miles per year10 year life

Capital (47%)

Energy (22%)

$165,000 capital cost$3.5/MMBtu7,000 hours per year20 year life

Delivery Van Prime Mover & Related Fittings

Maintenance(31%)

Maintenance(1%)

SOURCE: Lawrence Berkeley National Lab, 2000

One Asset, Two Price Tags

Capital (2%)

Energy (97%)

$165,000 capital cost$3.5/MMBtu7,000 hours per year20 year life

Prime Mover & Related Fittings*example*

Maintenance (1%)

FIRST PRICE TAG: $165,000Result of instantaneous decisions: - Capital budget process- Vendor negotiation- Decision makers:procurement director, finance director

SECOND PRICE TAG: $8,085,000Energy: $8,002,500 over 20 yrs.Maintenance: $82,500 over 20 yrsReflects many decisions over 20 yrs:- Maintenance personnel practices- Dozens of machine operators’ choices- Asset management choices- Generations of management changes



MONEYMONEY FUEL &ELECTRICITY

HEAT, PRESSURE& MOTIVE POWER

PRODUCTS TO SELL

ACCOUNTS

PURCHASE ORDERS

INVOICES

BUDGETS

EXPENSE REPORTS

RECEIVABLES

RECEIPTS

DEPOSITS

DIVIDENDS

PAYABLES

KILOWATT-HRS.

THERMS

STEAM- LBS./HR

HORSEPOWER

CUBIC FEET/MIN.

DEGREES FARENHEIT

WE USE MONEY TOBUY ENERGY TO MAKE MONEY.

WE TRACK MONEY.WHY NOT ENERGY?

LABOR HRS & RATES

EPS

PSIG/PSIA

18

ENERGY IS ALWAYS WORKING.Energy that doesn’t create wealth destroys it.

WEALTHDESTROYED

HEAT, FRICTION, &CHEMICAL REACTIONS

DESTROY PLANT & EQUIPMENT,CREATE LIABILITIES

WEALTHCREATED

TRANSFORMATIONOF INPUTS INTO

FINAL PRODUCTSHEAT, PRESSURE,& MOTIVEPOWER

FUGITIVE ENERGY

COMMITTED ENERGY

FUEL &ELECTRICITY

Your Energy at Work: Create or Destroy?


Facilities Management 2.0

Facilities = a profit center Monetize your energy position A compelling business case Success = show value created Contribution to cash flow and

growth


FUTURE-PROOFYour facility AND your job

22

Business Proposition for Energy Projects

ACCEPT REJECT

GET Gross annual energy savings

Satisfaction of no capital expenditure?

GIVE UP Annualized project cost Annual cost of doing nothing

+FREE CASH FLOW

-ANNUAL PENALTY

©2011 Energy PathFINDER

“Well, gentlemen, there’s your problem.”

23

GRANVILLE STREET, VANCOUVER 1967

QUESTIONS?

finding hidden value in your energy efficiency...

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