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Managing Energy Risk: Are You Ready for a Crisis?

Managing Energy Risk: Are You Ready for a Crisis?. December 8, 2005 Barry Swenson Builder MCM Diversified. A looming energy crisis. A looming energy crisis. California Energy Production. 1%. 1%. 12%. 21%. 47%. 17%. A looming energy crisis. ?. A looming energy crisis.

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Managing Energy Risk: Are You Ready for a Crisis?

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  1. Managing Energy Risk: Are You Ready for a Crisis? December 8, 2005 Barry Swenson Builder MCM Diversified

  2. A looming energy crisis

  3. A looming energy crisis

  4. California Energy Production 1% 1% 12% 21% 47% 17% A looming energy crisis

  5. ? A looming energy crisis Electricity Rates 2005 - 2015 15% 10% 6%

  6. Managing Energy Risk • Energy crisis: the big picture • Risks to building developers and owners • Strategies for managing energy risk • The ElectroRoof solution • Proposed projects

  7. Key drivers of rising electric rates • Growing demand • Tightening supply • Vulnerability to supply disruptions

  8. Growing demand DEMAND OWN SUPPLY

  9. Oil production is peaking Uzbekistan 2003 Norway 2003 Canada 1973 UK 1999 US 1971 Libya 1970 China 2003 India 2004 Mexico 2002 Venezuela 1970 Columbia 1999 Sudan 2005 Ecudador 2004 Congo 2001 Indonesia 1977 Australia 2000 Argentina 1998 Oil production has peaked Oil production can be increased Source: ASPO

  10. Oil production is peaking Azerbaijan Kazakhstan Russia Algeria Iran Chad Iraq Nigeria Saudi Arabia Brazil Angola Boliva Oil production has peaked Oil production can be increased Source: ASPO

  11. When will global production peak? Constant per-Capita Energy ? 100 World 80 60 40 20 0 1920 1960 2000 2040

  12. Human error? War? Natural disasters? Vulnerability to supply disruption

  13. Managing Energy Risk • Energy crisis: the big picture • Risks to building developers and owners • Strategies for managing energy risk • The ElectroRoof solution • Proposed projects

  14. Energy risks for developers and owners • Reduced income, resulting from: • Tenant turnover • Higher vacancy rates • Increased operating expenses • Lower property values

  15. Medium Risk Energy risk by type of building Warehouse: 2-5 watts per square foot Office Building: 5-10 watts per square foot Low Risk

  16. High Risk High Risk Energy risk by type of building Manufacturing: 10-50 watts per square foot Data Center: 50-100 watts per square foot

  17. Rising energy costs erode property values Source: BOMA

  18. Rising energy costs erode property values Source: BOMA

  19. Rising energy costs erode property values Property value based on income capitalization: Annual expected gross revenue $ 3,000,000Less operating expenses - 1,000,000 Net operating income (NOI) $ 2,000,000 Capitalization rate (Ro) 0.085VALUE (NOI/ Ro) $ 23,529,412

  20. Rising energy costs erode property values After 10 years, assuming a 10% annual increase in electric rates: Annual expected gross revenue $ 3,000,000Less operating expenses - 1,000,000 1,778,122Net operating income (NOI) $ 2,000,000 1,221,878Capitalization rate (Ro) 0.085VALUE (NOI/ Ro) $ 23,529,412 14,375,035 $9,154,377 (39%) net decrease in calculated building value

  21. Managing Energy Risk • Energy crisis: the big picture • Risks for building owners and developers • Strategies for managing energy risk • The ElectroRoof solution • Proposed projects

  22. Energy efficiency Photovoltaics Strategies for managing energy risk

  23. Managing energy risk: case study • 120,000 sq. ft. class A office building in Syracuse, NY • Bank REO commissioned an appraisal in preparation for a bankruptcy auction

  24. Managing energy risk: case study Results of initial REO appraisal: Total annual energy costs $ 517,000 Cost per sq. ft. 4.46 Property value $ 4,300,000 Value per sq. ft. 37.13

  25. Managing energy risk: case study Appraisal was revised to reflect the results of an energy analysis: Total annual energy costs $ 517,000 227,000Cost per sq. ft. 4.46 2.35Property value $ 4,300,000 5,500,000Value per sq. ft. 37.13 47.50 $1,200,000 (28%) net increase in appraised building value.

  26. Risk management ROI • Lower operating costs • Higher net operating income • Increase in building value • Better financing opportunities

  27. Managing Energy Risk • Energy crisis: the big picture • Risks for building owners and developers • Strategies for managing energy risk • The ElectroRoof solution • Proposed projects

  28. Integrated energy solution

  29. Who we are • Contractor • Insulated Roofing • Marketing and Project Development

  30. Who we are

  31. Waterproof insulated roofing

  32. Managing Energy Risk • Rising electric rates: the bigger picture • Risks for building owners and developers • Strategies for managing energy risk • The ElectroRoof solution • Proposed projects

  33. Potential solar development projects • GSA Building – Salinas • CIS Building – Monterey Avenue, San Jose • 7th and Alma, San Jose • 13000 Depot Street, San Martin • 696 E. Trimble Road, San Jose • 2930 Pacific Avenue, Livermore

  34. CIS Building, Monterey Avenue System Cost Total gross price $ 1,533,000Incentives - $ 1,297,000Installed cost after incentives $ 236,373 Cost Savings Year one cost savings $ 50,000Percent of electrical expenses 51% Economic Analysis Payback in years 6.7 Internal rate of return 11%

  35. CIS Building, Monterey Avenue

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