Xcel Energy Inc. · NASDAQ:XEL
Xcel Energy — Energy PathFINDER — Technical Presentation (November 2009)
41 slides from Xcel Energy's technical presentation, November 2009
Slide 1: Energy Cost Control: Show Me the Money! A Financial Calculator
Energy Cost Control: Show Me the Money! A Financial Calculator Christopher Russell Energy PathFINDER www.energypathfinder.com (443) 636-7746 crussell@energypathfinder.com
Slide 2: About Christopher Russell, C.E.M., C.R.M.
About Christopher Russell, C.E.M., C.R.M. Energy Manager, Howard County Maryland Independent consulting since 2006 Principal, Energy Pathfinder Director of Industrial Programs, Alliance to Save Energy, 1999-2006 MBA, M.A., University of MD; B.A., McGill University Published November 2009 2
Slide 3: Use the Top Manager's Language!
Use the Top Manager’s Language! 3
Slide 4: Outline for Today
OUTLINE FOR TODAY • PART 1: Economic Justification • PART 2: Economic Metrics • PART 3: “Making the Case” to Upper Management 4
Slide 5: U.S. Industry Average Energy Dollar Breakdown of Primary Energy Supply
U.S. INDUSTRY AVERAGE ENERGY DOLLAR BREAKDOWN OF PRIMARY ENERGY SUPPLY PLANT BOUNDARY $0.49 $0.12 $0.05 $0.05 $0.28 NET APPLIED TO WORK GENERATION, TRANSMISSION, CONVERSION LOSS DISTRIBUTION LOSSES ONSITE DISTRIBUTION LOSS PRIOR TO CENTRAL PLANT LOSS DELIVERY (c)2009 Energy Pathfinder Mangement Cons
Slide 6: Challenge for Facility Managers
CHALLENGE FOR FACILITY MANAGERS Facilities at the end of the budget “food chain” Limited staff, resources, analytical capability Evaluating 21st century energy improvements with 1920s investment analysis techniques! 6
Slide 7: About Energy Improvements: What do business leaders want to know?
ABOUT ENERGY IMPROVEMENTS: What do business leaders want to know? • What’s the benefit? – How many dollars? – How quickly do the dollars accrue? – What’s the risk of investing? – What’s the risk of NOT investing? • What’s the most that I should pay for it? …per current investment criteria • How does
Slide 8: Outline for Today
OUTLINE FOR TODAY • PART 1: Economic Justification • PART 2: Economic Metrics • PART 3: “Making the Case” to Upper Management 8
Slide 9: Energy At-Risk Model
ENERGY AT-RISK MODEL: •Excel Spreadsheet provided by Xcel Energy •You plug in project budget •Model produces economic metrics •Choose the best metric(s) for your audience •Print results with your label/logo 9
Slide 10: Example: Pump Optimization, City of Milford
• CONSTRUCTION BUDGET: Project Cost: $16,000 Economic life: 25 years Cost of Capital: 7% TARGET: 1-YEAR PAYBACK • ANNUAL CONSUMPTION: Before: 246,667 kWh After: 209,667 kWh EXAMPLE: Elec @ $0.08/kWh Pump Optimization • MAINTENANCE COSTS: City of Milford, CT Before: Annual overhaul costs @ $10,000 Af
Slide 11: Economic Metrics
Economic Metrics • Simple Payback • Return on Investment SIMPLE • Life Cycle Cost • Net Present Value SOPHISTICATED • Internal Rate of Return • Ratio: Conserve or Buy? • Cost of Doing Nothing INTEGRATIVE 11
Slide 12: Yellow Tabs Data
Home Insert Page Layout Formulas Data Review View Acrobat & cut a = ) ed || CO ant Arial v|10 - A a =} wrap Text |General , a ee om Past alco ¢ A 0.00) |! C I = = wn rt ae vaste ~ Sale: tog ~ > . 7 y =39 5! onditional ‘orma’ el inset eleti 7 J Format Painter | Bs retort [s 1 —_ | | sd Merge & Center
Slide 13: Yellow Tab Demo
YELLOW TAB DEMO 13
Slide 14: Green Tabs Simple
Home View Acrobat Paste ~ S Format Painter Clipboard & cut G3 Copy Alignment Al Q Xe ‘www.energypathfinder.com Project Title: Prepared for: Prepared by: Date: =} Wrap Text i Formatting ~ as Table ~ Styles ~ = Merge & Center ~ || -$-~ %»-9»|| TB 3°] Insert Delet. ENERGY AT-RISK Financial Calculator f
Slide 15: Simple Payback
Total cost to Simple Simple = install Payback Annual operating Payback savings PROS $16,000 1.7 Years= • Easy to understand $9,620 • Widely used FAILS TO MEET TARGET CONS • Measures TIME, does NOT measure profitability or full value created • Fails to account for benefits accruing after payback peri
Slide 16: Problems with Payback
PROBLEMS WITH “PAYBACK” • If a 12-month payback is better than 24 months… • Then a 6-month payback is better than 12 months… • So a zero-month payback must be best! • Because there’s no wait to get the money Ifback! getting the money back is a concern, hen there’s no reason to make the investment 16
Slide 17: Return on Investment
Nominal Return on ROI = Average Annual Return Total Nominal Investment Investment PROS $9,620 60.13%= • Easy to understand $16,000 • Good for comparing the attractiveness of two or more projects CONS • Indicates average rate of return only; note that ROI varies over individual years • Does not discr
Slide 18: Life-Cycle Cost
Life-Cycle Total cost of ownership, including capital, operating Cost costs and energy consumption. Maintenan Capita PROS ce l (2%) (1%) • Good for comparing the total ownership for two or more similar purpose projects. Energ y CONS (97%) • Difficult to implement as a practical management metric; no
Slide 19: Green Tab Demo
GREEN TAB DEMO 19
Slide 20: Red Tabs Sophisticated Metrics
RED TABS Sophisticated Metrics 20
Slide 21: Net Present Value (NPV)
T Net Present ∑ Annual Cash Flowtt (1+r) -Cash Flow In Year0 t-1 Value 25 (NPV) ∑ (1+.07)$9,620 t - $16,000 t-1 PROS • Captures full measure of value added by the project’s returns • Reflects risk by incorporating the time-value of money • Excellent tool for ranking two or more options by the value
Slide 22: Internal Rate of Return
Internal Rate IRR = r so that: T of Return Cash Flow + ∑ (1+r) = 0 Cash Flowt In Year0 t t-1 Where “T” = economic life of the project in years “t” represents each individual year in the project’s economic life ∑ indicates summation across all “t” years PROS • Measures rate of return for this project
Slide 23: Red Tab Demo
RED TAB DEMO 23
Slide 24: Blue Tabs Integrative Metrics
BLUE TABS Integrative Metrics 24
Slide 25: Energy At-Risk Consumption
Energy At-Risk A B VOLUME AT- Energy RISK: consumption Buy & waste or ANNUAL ENERGY CONSUMPTION avoided by investing in an Pay to avoid energy-efficient buying. alternative PAY FOR IT COMMITTED EITHER WAY. ENERGY VOLUME: Buy & use as intended. Annual energy Annual energy use, current use, efficient
Slide 26: Conserve or Buy?
CONSERVE or BUY? • Continue to BUY energy at-risk from the market? – Remain exposed to constant price volatility • CONSERVE energy by reducing the volume at-risk? – Do projects when cost to conserve a unit of energy is less than the price to buy it – Annualized cost stays fixed over the economic lif
Slide 27: Example: Pump Optimization in MMBtu
• CONSTRUCTION BUDGET: Project Cost: $16,000 Economic life: 25 years Cost of Capital: 7% TARGET: 1-YEAR PAYBACK • ANNUAL CONSUMPTION: Before: 842 MMBtu After: 715 MMBtu EXAMPLE: Elec @ $23.45/MMBtu Pump Optimization • MAINTENANCE COSTS: City of Milford, CT Before: Annual overhaul costs @ $10,000 Aft
Slide 28: Up-Front Capital vs Project Recovery
UP-FRONT CAPITAL vs PROJECT RECOVERY COST FACTOR A=B A=BxC C (i/12)*(1+i/12)n*12 CAPITAL RECOVERY FACTOR (CRF) = X 12 Where: [(1+i/12) ]-1 n*12 i = cost of capital or discount rate on future cash flows n = economic life (years) of remedy (energy improvement project) • Operating budgets are ANNUAL WH
Slide 29: Pump Optimization Example: Annualized Project Cost
PUMP OPTIMIZATION EXAMPLE: Annualized Project Cost Per kWhSaved UP-FRONT CAPITAL ANNUALIZED = PROJECT x RECOVERY PROJECT COST COST FACTOR $1,357 = $16,000 x .0848 ANNUALIZED PROJECT COST $1,357 = 126 = $10.75 PER ANNUAL MMBtu SAVINGS 29
Slide 30: Pump Optimization Example: Energy At-Risk
PUMP OPTIMIZATION EXAMPLE REJECT THE ACCEPT THE IMPROVEMENTIMPROVEMENT $23.45 $10.75 Energy At-Risk: ANNUAL ENERGY per MMBtu per MMBtu You will pay for it CONSUMPTION wasted avoided either way $23.45 $23.45 Committed per MMBtu per MMBtu consumed consumed Energy Energy put to work as intended Annual
Slide 31: Cost-Benefit Ratio
COST-BENEFIT RATIO COST TO CONSERVE PER MMBtu $10.75 PRICE TO BUY = $23.45 = 0.46 PER MMBtu This project allows the investor to pay $0.46 to avoid buying $1.00’s worth of energy 31
Slide 32: Interpreting Annualized Cost Analysis
INTERPRETING ANNUALIZED COST ANALYSIS Annualized net savings ANNUAL GROSS ? ENERGY ANNUALIZED Annualized penalty for SAVINGS PROJECT COST DOING NOTHING Free cash flow to: COMMITTED • Working capital EXPENDITURE (finance your operations) Or • Investment capital ANNUAL (finance your asset base) EXPEND
Slide 33: Cost of Doing Nothing
COST OF DOING NOTHING Price per Annualized Volume of Net annual Annualized - unit to cost to avoid buy purchasing a x avoidable energy + improvem ent in = Penalty for Doing Nothing energy unit of energy purchases O&M expenses USING THE PUMP OPTIMIZATION EXAMPLE: $23.45 per MMBtu - $10.75 x 126 + $6,
Slide 34: Break-Even Point
BREAK-EVEN POINT ANNUAL VALUE MAXIMUM SHOULD BE OF AVOIDED ANNUALIZED NO MORE THAN ENERGY PROJECT COST PURCHASES What’s the MAXIMUM ACCEPTABLE project cost, given certain investment criteria? 34
Slide 35: Break-Even Calculation: Pump Optimization Example
BREAK-EVEN CALCULATION: Pump Optimization Example DELIVERED UNITS OF MAXIMUM AVOIDED ACCEPTABLE UP-FRONT = PRICE PER UNIT OF x CONSUMPTION = PROJECT COST ENERGY BREAK-EVEN PROJECT COST ENERGY CRF MAXIMUM $23.45 x 126 ACCEPTABLE UP-FRONT = =$34,900 PROJECT COST 0.0848 NOTE: CRF = 0.0848 when n=25 and
Slide 36: One Project, Two Price Tags
ONE PROJECT, TWO PRICE TAGS Pump Optimization Project ACCEPT PROJECT REJECT PROJECT GROSS ANNUAL SAVINGS $9,620 $0 ANNUAL PAYOUT Annualized project cost Annual expenditure for FOR ENERGY (capital + interest) energy waste AT-RISK $1,357 $2,960 “PRICE TAG”: CAPITALIZED $16,000 $34,900 ANNUAL PAYOUT ($
Slide 37: Blue Tab Demo
BLUE TAB DEMO 37
Slide 38: Outline for Today
OUTLINE FOR TODAY • PART 1: Economic Justification • PART 2: Economic Metrics • PART 3: “Making the Case” to Upper Management 38
Slide 39: Still Need to Use Simple Payback?
Still Need to Use Simple Payback? • Pass up a good energy saving project? • Add the capitalized value of energy waste to the new core-business project • A “good” core-business project is one that pays for itself plus the energy waste 39
Slide 40: Improve Your Capital Budget Requests
IMPROVE YOUR CAPITAL BUDGET REQUESTS • “Package” your energy project with a core-business initiative • Facilities provides a free cash flow subsidy to the core- business project • At capital budget time, the core-business project manager becomes your ally, not your competitor • Same energy project,
Slide 41: Thank You!
THANK YOU! The discussion never ends. BLOG: http://energypathfinder.blogspot.com BOOK: “Managing Energy from the Top Down” WEB: www.energypathfinder.com From Shop Floor to Top Floor Best Practices in Corporate Energy Management Chicago, April 6-7 http://www.pewclimate.org/energy-efficiency/con feren
Energy PathFINDER — Technical Presentation (November 2009) on 6ix