ENERGY AT-RISK:

Web-Based Investment Calculator

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Energy PathFINDER

 

 

 

 

 

Output from the Energy At-Risk Calculator

 

Each metric is shown with its formula and a narrative explanation of its application:

 

GOOD...

· Conversion of all fuel and power inputs to MMBtu

· Simple payback

· Accounting rate of return on investment

BETTER...

· Net present value

· Internal rate of return

 

BETTER YET...

· Cost to save vs. the cost to buy a unit of energy

· The cost of “doing nothing”

· Cost-benefit measure

· Break-even threshold (maximum value of an improvement project)

 

 

The Energy At-Risk model demonstrates the economic and financial merit of energy improvement projects.  Based on commonly-used spreadsheet tools, the Energy At-Risk model provides both numerical and graphic representation of financial impacts.  Users simply input a volumetric description of energy use and waste reduction, per the results of separate engineering analysis.  The results integrate energy variables with business performance in a format that is compelling to non-technical business leaders.

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WHY A CALCULATOR?

· Low implementation rate of energy audit recommendations (30% is considered high)

· Energy projects are championed by technical people – not always comfortable with finance

· Modern capital project investment requires more sophistication

· We presume that energy audits yield poor implementation rates because they rely on stale performance metrics (e.g., simple payback— dates back to the 1920s).  In other words, investment proposals are defended by one inadequate measure:  “The project pays for itself in X years or less.”

 

THE CALCULATOR AND ITS RELATED PRESENTATION PHILOSOPHY 

The Energy Pathfinder calculator supports a more robust and compelling business proposition:

· You either accept or reject the proposed energy improvement

· In either case, you GET and GIVE UP some measures of value

· Your investment decision should reflect knowledge of those values.

 

The Energy Pathfinder model supports critical investment analysis questions, specifically:

· What will it cost to accept the project?

· What does will it cost to reject the project?

· How does the project’s profitability compare to returns on existing invested capital?

· How does the investment’s cash flow performance vary with project financing parameters?

· What are the pre- and post-tax investment cash flows?

CALCULATOR FEATURES AND FUNCTIONALITY

· The user supplies a handful of inputs; results are automatically generated.

· Results include a series of investment metrics, one per printout page.

· Each metric (page) shows a definition of the metric, a demonstration of its calculation, the results based on the user’s inputs, a cash flow summary, and (in many cases) a graphic representation.

NOTE:  this is not an engineering calculator.  Relcost, available for free from the Washington State University, is a good spreadsheet-based engineering model.  However, Relcost is data-hungry and more time intensive. The Energy Pathfinder model emphasizes investment outcomes.  It is designed for use AFTER the engineering analysis is complete—it’s ideal for analyzing projects that have already been profiled in an energy audit.   The output emphasizes economic and financial results.  (See comparison of metrics output below)

DATA INPUTS

· Units of energy used (multiple fuels per project allowed)

· Current delivered price per unit of energy

· Current annual energy consumption specific to the subject application

· Proposed (post-improvement) annual energy consumption

· Construction budget (can be itemized or total figure), includes initial and future-year investment requirements, if any

· Economic life of the project in years

· Long-term rate of return on the organization’s invested capital

· Escalation factor for energy costs (optional)

· Project finance parameters, if any, including cost of capital, term in years, standard and bonus depreciation to be applied, and marginal tax burden

 

VISION FOR USING THE ENERGY PATHFINDER CALCULATOR

Intensify the implementation of existing energy audit recommendations.  Use the calculator to demonstrate results to finance-minded decision-makers.  Emphasize provocative metrics such as the “cost of doing nothing” and the “two price tags” for each project.

This tool is ideal for energy managers, energy solution providers, and utility program coordinators.  As a web-based platform, the Energy At-Risk platform can be customized for each sponsor’s website.  Contact Energy Pathfinder for more info.