Open Collections

UBC Undergraduate Research

Business Plan: Funding the Installation of Geothermal Heating on UBC Residential Developments Mitchell, Mark; Wong, Pearl; Woodson, David; Zhang, Ming 2005

You don't seem to have a PDF reader installed, try download the pdf

Item Metadata

Download

Media
Business Plan_Funding Geothermal Heating.pdf [ 482.84kB ]
Metadata
JSON: 1.0108126.json
JSON-LD: 1.0108126+ld.json
RDF/XML (Pretty): 1.0108126.xml
RDF/JSON: 1.0108126+rdf.json
Turtle: 1.0108126+rdf-turtle.txt
N-Triples: 1.0108126+rdf-ntriples.txt
Original Record: 1.0108126 +original-record.json
Full Text
1.0108126.txt
Citation
1.0108126.ris

Full Text

The Alternative Energy Trust   Business Plan FUNDING THE INSTALLATION OF GEOTHERMAL HEATING ON UBC RESIDENTIAL DEVELOPMENTS    With special thanks to Helen Goodland of GVRD, who helped us when we were struggling with the concept, and the UBC SEEDS office for the opportunity and much support.   MARK MITCHELL · PEARL WONG · DAVID WOODSON · MING ZHANG  c:\documents and settings\gmm.dcoz\my documents\ver7.doc  The Alternative Energy Trust  Index Executive Summary ....................................................................................................................................1 Introduction.................................................................................................................................................3 The Opportunity .........................................................................................................................................3 Role of the Energy Trust ............................................................................................................................5 Marketing ....................................................................................................................................................6 Geothermal Energy.....................................................................................................................................7 The Energy Trust........................................................................................................................................8 Economics of the Business........................................................................................................................11 The Financial Plan ....................................................................................................................................12 Risk Analysis and Evaluation ..................................................................................................................14 Key Tasks And Timeline ..........................................................................................................................15 Appendix 1: How Geothermal Works.....................................................................................................16 Appendix 2: Geothermal, Natural Gas & Electricity Comparison ......................................................17 Appendix 3: Fixed Cost Estimation.........................................................................................................19 Appendix 4: Net Present Value Calculation Per Residential Unit........................................................19 Appendix 5: Assumptions Used To Create Pro-forma Financial Statements .....................................20 Appendix 6: Supporting Data For Financial Statements ......................................................................22 Appendix 7: Income Statement................................................................................................................23 Appendix 8: Balance Sheet.......................................................................................................................24 Appendix 9: Cash Flow ............................................................................................................................24 Appendix 10: Breakeven Analysis...........................................................................................................25 Appendix 11: Financial Summary...........................................................................................................25 Notes...........................................................................................................................................................25  The Alternative Energy Trust  Executive Summary There is ample evidence of the need to incorporate sustainable technologies into new housing developments, and of the consumer’s willingness to pay for this technology.  From the point of view of developers, however, the increased risks and up-front costs to them of incorporating such technologies means that little progress has been made on this front. The University of British Columbia (“UBC”) is currently considering plans for further development of residential units.  This development provides an excellent opportunity to incorporate sustainable technologies, provided that the concerns of the developer can be addressed.  This business plan sets out a methodology for converting the up-front cost to developers into an asset that is attractive to investors.  We propose to implement one sustainable technology, geothermal energy, for heating the residential units.   The basis of this business plan is an Alternative Energy Trust (the “Energy Trust”), which will bring together the developer, householders, and investors to demonstrate a viable business model for incorporating sustainable technology in new housing developments. The Energy Trust will issue units (“energy investment certificates” or “EICs”) to appeal to socially responsible investors.  Fubnds from that issuance will be used to construct a geothermal system to serve householders, with additional investment being sought to install additional infrastructure as the development increases in size.  The revenue to fund operations and returns to investors will be generated from fees, for the supply of heat, paid by householders. The target development will be an initial 1,000 residential units to be constructed through 2010 as part of the UBC Development.  Use of geothermal energy for heating is expected to reduce total energy consumption from 20.8 GWHi per year to a 15.4 GWH per year, resulting in an annual reduction in electricity consumption equivalent to $282,000. - 1 - The Alternative Energy Trust  A secondary role of the Energy Trust will be to evaluate new technologies and to determine if opportunities exist for utilizing such technologies to supply electricity (in addition to heat) to the householders, using a model similar to that used for the supply of geothermal-generated heat.  If the Energy Trust is not successful in identifying such opportunities, it will continue in existence to maintain and renew the geothermal system in the long term. A trust structure has been identified as the optimal method of pursuing this opportunity to balance the interests of the various stakeholders, to ensure that the aims of the project continue to be carried forward in the long term independently of the interests of any one stakeholder, and to manage the exposure of the project in the long term to income tax.  The Energy Trust will be established with three trustees – one elected by the investor group, one elected by UBC and one elected by the householders – to further emphasize the balance between the different interest groups.  The trustees will oversee management of the operations of the Energy Trust, but day-to-day operations will be undertaken by employees of the Energy Trust or by contractors. In the short term, the Energy Trust will raise significant cash for use in constructing the geothermal system. It is not expected to generate positive cash-flow in the short term.   The Energy Trust will, however, begin to accumulate significant cash balances once the UBC development is completed, since it will no longer be funding significant capital expenditures.  Within the constraints of meeting the required returns to investors, the trustees will be empowered to reduce the cost of heat to householders, or to fund additional sustainable technology development. - 2 - The Alternative Energy Trust  This is not a business plan for a for-profit business, and, as such, does not address in detail issues such as developing a sustainable competitive advantage or earning a return in excess of a normal return (rents).  Instead, it is written to show that the Energy Trust is a viable financial entity that can be marketed to developers, investors, and to householders, who each have an interest in encouraging the development of renewable energy opportunities while also aiming to minimize their own financial risks. Introduction The Energy Trust is in a single line of business, being the provider of an alternative energy system, namely geothermal energy, to consumers.  Although geothermal systems are commercial available, these units are not commonly installed in residential developments due to various barriers in the existing marketplace.  The Energy Trust endeavours to overcome these barriers by providing a service that aligns the needs of the developers, investors, and householders.  Marketing strategy for the energy trust will be tailored to the three parties: encouraging participation by developers and investors, while leveraging householders’ willingness to adopt the new technology.   It is our intention to showcase the Energy Trust as part of UBC’s residential developments, with the initial phase being the mid-campus development.  By highlighting a business approach towards sustainable residential development, the Energy Trust will validate a model that can be imitated on a global scale.  The Energy Trust at UBC will itself serve as a marketing tool for the University as it aspires to be a world leader in global sustainability.  The Opportunity Huge fluctuations in the price of oilii, international dependency on fossil fuels, the Kyoto protocoliii, and ongoing urban growth have all contributed to the wide recognition of the need to develop sustainable technologies.iv However, the role of the construction sector is often ignored or underestimated when - 3 - The Alternative Energy Trust  considering how to develop and promote these technologies.v The sizable up-front capital cost of installing sustainable technologies in residential developments is viewed by developers as a sunk cost since they do not realise any of the long term benefits and do not believe that they can monetise that capital cost.  Those up-front capital costs are, therefore, often a major deterrent to the adoption of these technologies, in spite of their overall lower life-cycle cost.  Concerned with maximizing profits, developers, to date, have been unwilling to alter their traditional approach towards residential developments. This reluctance has resulted, for example in a housing market awash with electric baseboard heaters, despite their relative energy inefficiency.  Investors The traditional barriers presented by the developers can be overcome by having the Energy Trust seek out investors who are interested in socially responsible investments.  There is a significant pool of investors in the market who are more interested in socially responsible investments than in earning maximum returnsvi.   It appears that the demand for socially responsible investments greatly exceeds supply.  The Social Investment Forum estimates that over $2 trillion of invested U.S. assets are invested through some type of environmental or social screen.vii   Finding investors who are interested in a stable, socially responsible investment should not be difficult. The Energy Trust allows investors an opportunity to invest in an entity that will promote sustainable energy use while earning a normal return and minimizing risk.  The investors’ capital allows the Energy Trust to create an asset, the geothermal system, providing householders with a sustainable energy source and generating returns for the investors. - 4 - The Alternative Energy Trust  Householders The market failure results in a lack of sustainable housing developments, despite indications of market demand and an increase in willingness to pay by consumers. For example, surveys in the United States have shown that the average consumer would be willing to pay up to 10% more for energy efficient or green housing.viii Locally, GVRD householders are willing to pay between 3-7% more for green housing.ix  This business plan does not require householders to incur additional costs for sustainable energy which should make it even more attractive to them.  Instead, they will pay the same purchase price for each unit as for a comparable conventional unit.  They will also pay a fee to the Energy Trust equivalent to the conventional units energy cost – so their costs will be no higher than for a conventional unit. Householders will enjoy the advantages of clean, quiet, heating and cooling, from a low maintenance system. They will also benefit in the long term from the enhanced property value of such high-performance buildingsx.   UBC UBC is currently considering plans for development – it expects to construct 1,112 housing units by 2012, with a total estimated energy consumption of 71,000 GJ/yearxi with further expansion to 3,900 by 2021. This development therefore affords a significant opportunity to demonstrate that both the needs of the consumer and the developer can be met.   Role of the Energy Trust The Energy Trust will serve as a vehicle to bring together the developer and the future householders of the UBC’s residential development. It will provide value to householders by allowing their heating needs to be met through the use of geothermal energy (rather than conventional sources). The costs and - 5 - The Alternative Energy Trust  risks of installing and operating the geothermal system will be borne by the Energy Trust. It will also provide value to the householders by providing a mechanism for the future evaluation and implementation of other sustainable technologies.  Successful implementation will provide UBC with a global showcase development, which can provide the expertise and knowledge to promote similar projects in Greater Vancouver and around the world.  This concept is also aligned with Canada’s commitment to the Kyoto Protocol, as well as UBC’s desire to be a global leader in green technology.   Marketing The marketing strategy must promote the Energy Trust to all three stakeholders; the consumer, the developer, and the investors. The positive environmental impact of the project will be leveraged as the primary marketing tool, supported by the robust financial model set out in this business plan. Marketing to the developer A developer would be normally required to install in-unit heating system, such as baseboard or under-floor heating, powered by electricity or a boiler and radiators powered by gas. In this case, the developer will instead be required to install the in-unit infrastructure that connects with the geothermal system.  Marketing efforts can therefore concentrate on the provision of a cost analysis to the developer that demonstrates that installation of the in-unit infrastructure will be no more complex or costly than for the regular heating systems.  The intangible benefit of being identified as a green builder, together with the tangible benefit of having units with more marketing potential, should be promoted to the developer. Finally, emphasis should be placed on the competitive advantage gained from undertaking such a project: the developer will learn new skills that can be utilized in any subsequent projects.  - 6 - The Alternative Energy Trust  Marketing to the consumer The consumer for the UBC development will be householders in the area who want to live in a new development and who can afford a home which costs up to $1.4mxii.  New developments will generally be marketed to such consumers through a combination of realtors and direct salesxiii. In the case of direct sales, a third party will often be employed to market the development.   Marketing efforts for this development will use the same channels as a regular development, but with additional emphasis on the intangible benefits of living green. It will therefore be necessary to develop additional marketing and training materials to explain these benefits to those responsible for marketing to consumers. In particular, promotional material must clearly set out all the benefits of the geothermal system, the impact of the Energy Trust on the environment, the cost structure for the consumer and an explanation of the low risks that will be borne by the consumer. Consumers should also be made aware of the enhanced property value of these high performance buildingsxiv.  Marketing to the investor The project offers a value proposition to investors that is based on a combination of a robust long-term revenue stream and the promotion of building and living green.  Investors may include venture capital and ethical fundsxv that are interested in environmentally friendly projects and see the long-term potential of such housing developments.  Research is ongoing, supported by the UBC SEEDS office, to identify specific investors for the project.  Geothermal Energy  Geothermal energy has been increasingly used around the world to provide residential heating and hot water because of its availability, environmental friendliness, high performance and low total cost of ownership.  The technologies to provide the Earth Loop and Heat Pump, two of the major components in a geothermal system, are mature and available from multiple suppliers (see appendix 1 for a description - 7 - The Alternative Energy Trust  of how a geothermal heating system works).  There are several steps that are required in order to confirm that a geothermal system is feasible in the UBC development.  Preliminary engineering studies performed by UBC indicate high potential for geothermal systemsxvi.  The first task is to confirm the geographic conditions through on-site drilling. Parameters such as soil composition and temperature will be collected to provide a basis for selecting geothermal suppliers. This will be a one-time cost; the parameters collected will also be used to determine installation cost. The second task is to provide developers with the recommended processes and technologies to integrate geothermal systems into the new buildings. These processes will be monitored and refined continuously to ensure that developers can build their geothermal-integrated buildings cost-effectively. The third task is to develop an effective way to measure household energy consumption so the fee paid to the Energy Trust can be established. Homeowners will pay the Energy Trust the cost of heating, which is calculated as if the equivalent energy were provided by conventional electricity or natural gas (see appendix 2).   The Energy Trust The Energy Trust will be established to provide geothermal energy to householders in the UBC residential development.   Energy TrustInvestorDeveloper HouseholderEnergy Trust: key relationshipsIt will issue trust units (“energy investment certificates” or “EICs”) to an investor or investors, which will bear a stated rate of return (6.5%) and will be redeemable on a stated date.  The funds from issuance of the units will be used to construct the geothermal system, with - 8 - The Alternative Energy Trust  additional funds being raised to install additional infrastructure as the development increases in size. The Energy Trust will buy power from BC Hydro to operate the geothermal system, it will maintain the system, and it will pay returns to investors, including the eventual return of their capital.  The revenue to fund operations and the returns to investors will be generated from householders. Specifically, householders will receive a monthly bill from the Energy Trust for the provision of heat.  This will replace the bill that a householder would otherwise receive in a “regular” strata for electricity or gas used for heating.  The initial level of bill received by householders connected to each geothermal loop will be related to the electricity cost that they would have incurred in heating their units.  Price increases will be linked to the cost of domestic power acquired from BC Hydro. Legal form and management of the Energy Trust Generally, business trustsxvii are structured with between three and five independent trustees, together with one or more employees who are responsible for conduct of the business.  Given the comparatively small size of this business, it would appear appropriate to have three trustees. One trustee will be elected by the investor group, one by UBC and the other elected by the householders as a group.  This will ensure that the Energy Trust is operated in a manner that does not prejudice the interests of any of the developer, the investors, the householders or UBC. There will be two classes of beneficiary in the Energy Trust; the investors, who will have the right to a preferred return on their EICs and to the eventual redemption of the EIC, and the householders, who will have an initial minimal interest in the Energy Trust but who will have a residual interest in the trust.  The EICs will resemble preferred equity interests, rather than debt.  We have assumed that the EICs will be issued with a twenty-year maturity, with additional EICs issued as the Energy Trust requires more funds, and that they will bear an annual return of 6.5%, based on comparison with current mortgage rates - 9 - The Alternative Energy Trust  and the overall nature and risk profile of the investment.  Final pricing of the EICs would, however, be determined in discussions with the investors. It is expected that the Energy Trust will begin to accumulate significant cash balances once the UBC development is completed, since it will no longer be funding significant capital expenditure.  Within the constraints of meeting the required payments to investors, the trustees will be empowered to reduce the cost of heat to householders, to return funds to householders as residual beneficiaries of the Energy Trust or to fund initial additional sustainable technology development on the South Campus. Trusts and income tax Many businesses are currently being structured as trusts, rather than as corporations, to reduce the amount of income tax borne by the business.  Specifically, where all the taxable income of a trust is distributed to its members (in this case the holders of the EICs), then the trust is not subject to income tax.  This contrasts with a corporation, which cannot deduct dividends paid to investors. Key management personnel Given the nature of this opportunity, industry knowledge plays a key role when assembling the management team. For this business venture, the management team members should combine the following skills: • An understanding of property development and the incorporation of new technology into current building codes; industry experience definitely an asset;  • Familiarity with current and upcoming relevant sustainable technologies, including energy efficient building and alternative energy technologies; • Negotiation skills, to discuss commercialization of any identified but unavailable technology with the developers of the technology;  - 10 - The Alternative Energy Trust  • Financial management skills to address financial viability and manage the risks associated with this venture; and • Investor relation skills, to allow liaison with investors such as venture capitalists, and/or representative of investors such as fund managers.  Under the direction of the trustees, the management team would mainly be responsible for controlling costs. They will be salaried staff, with a performance-based bonus tied to attaining a particular level of cost saving.  At the outset, the management team may be too small to encompass all the necessary skills; technical aspects of the project may have to be contracted out until the business becomes more established.   Sales and marketing of the residential units will be the responsibility of the developer and realtors, while formation of the Energy Trust and identification of the initial investors will be the responsibility of UBC. Economics of the Business  The primary long-term financial goal of the business will be to generate consistent positive cash flow.  Initially, this will be dependent upon equity financing from investors.  The ability to pay stable returns to investors as well as transition to substantial positive cash flows from operations will ultimately drive the financial success of the Energy Trust.  Gross and operating margins The gross margin per residential unit per year is approximately $600 (appendix 4).  It is equivalent to the difference between the heating fees provided by the owners of each unit (revenue) and the cost to produce the geothermal energy (expense).  The operating margin is positive by the fourth year and is nearly 20% within five years (See appendix 5 for details). - 11 - The Alternative Energy Trust  Profit potential and durability The profit potential is subject to the risks associated with this project (see the section on Risk Analysis And Evaluation below and Appendix 6).  The revenue stream will be written into the legal ownership documentation of the residential units (resembling the requirement to belong to a strata corporation and pay fees to it) and so a high durability and profit potential is expected, as identified in the income statement (appendix 7). Fixed, variable, and semi-variable costs Fixed costs include the geothermal system earth loop installation, heat pump installation and life-cycle replacement cost.  Indirect fixed (semi-variable) costs include administration (office rent, salaries, marketing, and administrative expenses).  The variable costs include electricity consumed by the geothermal system, and the associated annual maintenance cost (See appendix 5 for specific calculations). Years to break even and reach positive cash flow It is anticipated that cash flow will be positive in the first year, based on the assumption that financing from investors will offset the initial negative cash flow from operations (See appendix 9).  The Energy Trust is expected to break even by year 16 (appendix 10). The Financial Plan Highlights This plan incorporates the benefits of installing a geothermal system as viewed from the “total cost of ownership” perspective.  The entire plan should be viewed over the life-cycle of the system in order to fully obtain the financial benefits of this approach (see appendix 11 for Financial Summary).  The financial plan will take the Energy Trust through five distinct stages, which are identified in Table 1 below.  - 12 - The Alternative Energy Trust  Pro forma income statements and balance sheets The pro forma income statement and balance sheet projections reflect the long-term perspective required to realize the benefits of the Energy Trust.  See appendices 7 and 8 for pro forma income statements and balance sheets. Pro forma cash flow analysis As discussed, the transitions in cash flow will reflect the various stages of the Energy Trust operation. See appendix 9 for the pro forma cash flow analysis. TABLE 1:  Projected Cash flows Phase I II III IVV Years 1-9 10 to 16 16 to 25 25 to 30 30+ Cash from Operations - + + + + Cash from Financing + + 0 - - Cash From Investing - - 0 0 - Phase I The Energy Trust invests in geothermal system installations. Phase II The Energy Trust is financing additional geothermal installations through operations and further issuance of EICs.  Phase III Once the Energy Trust reaches the break-even point, it enters the third phase, where the Energy Trust is generating large amounts of cash from its operations.   Phase IV Cash from operations is used to commence returns of capital to the EIC holders Phase V Cash from operations is used complete returns of capital to EIC holders, and to invest into new technologies. See appendix 9 for specific projected cash flow amounts.   The changes in the projected sources of cash helps to explain why developers would not be interested in performing this type of service -it is not in their core business, and it will  take nearly sixteen years before the Energy Trust becomes a net cash generator.  Break-even point Based on projected revenue and cost, the Energy Trust will reach break-even point at year 16 (2022). Prior to year 16, revenue increases come mainly from the growing number of households utilizing the geothermal system. After year 16, growth of the revenue stream will slow. Future increases in revenue - 13 - The Alternative Energy Trust  will come from energy price increases. Apart from the variable costs, which primarily consist of the cost of electricity to run the geothermal system, other major expenses include depreciationxviii and dividend pay-out to investors. As dividend expenses decrease with the retirement of the EICs, growth in overall expenses will begin to level off beginning year 16 and will stabilize in year 25. Risk Analysis And Evaluation Housing market crash: the financial model incorporates a lower than 100% occupancy.  If decreases in housing prices continue for any significant length of time, UBC will likely scale back its residential developments.  Curtailment of the developments is not expected to render the project uneconomic. Insufficient rate of return: if interest rates increase, it can be assumed that the return demanded by investors will increase.  Equally, however, increasing interest rates are generally an indication of increasing inflation, which would in turn be reflected in increasing energy costs and increasing charges to householders.  It is therefore possible that the rate of return paid to later investors can be increased without negatively impacting the cash flow of the Energy Trust.  If future investment cannot be obtained, geothermal systems would not be installed in future parts of the development. Technology defects:  the technology has been installed in various locations and has operated successfully in those locationsxix.  Test bores must be drilled at UBC early in implementation to ensure that the geothermal system will generate the required energy output. Maintenance costs are significantly higher than expected: maintenance costs will be controlled as far as possible by contracting with third parties on a retainer basis.  The Energy Trust will also maintain a prudent cash balance to buffer against unexpected maintenance costs.  It must be recognized, however, that ongoing significant maintenance costs in excess of those expected could materially impact the long-term cash flow position of the Energy Trust. - 14 - The Alternative Energy Trust  Supplier failure: there is more than one supplier of geothermal technology in Canada, and the failure of a supplier should not therefore have a catastrophic effect on the project.  Supplier failure could, however, lead to significant additional costs to the Energy Trust if it occurs during the course of a construction project.  Potential government interference: the Energy Trust will be an energy provider.  It is possible that the Federal or Provincial governments will determine that the Energy Trust is subject to regulation, either now or in the future.  Regulation may have the impact of requiring additional investment by the Energy Trust, requiring reductions in the charges for heating to householders or reductions in the rate of return to the residual investors. Key Tasks And Timeline Stage I – feasibility 1. Confirm site-specific viability of geothermal system through on-site drilling – requires funding, decision in principle, contracting with the third party to carry out work, and evaluation of results. Stage II – design 2. Identify potential investors in conjunction with UBC, BC Hydro and Western Economic Diversification (a department of the Federal Government). 3. Refine and update the business plan, identify and appoint staff responsible for liaison with potential investors, agree timeline for implementation. Stage III – implementation 4. Structure Trust, agree contracts with developer and geothermal system provider, manage construction.  It is difficult at this stage to develop a timeline for implementation of the plan, for two reasons.  First, timing of the project is dependent upon its acceptance by UBC.  Secondly, implementation will be closely tied to the UBC residential development.  Given the need to bring together the developer, UBC, investors and the supplier responsible for installing the geothermal system, we consider it likely that a lead time of six to nine months at a minimum will be needed for implementation. - 15 - The Alternative Energy Trust  Appendix 1: How Geothermal Works  “The heat energy taken from the ground by your Geothermal System is considered low-grade heat. In other words, it is not warm enough to heat your home without being concentrated or upgraded somehow; however, there is plenty of it – the average temperature of the ground just a few metres below the surface is similar to (or even higher than) the average annual outdoor air temperature. A Geothermal System is made up of three main parts: a loop, the heat pump and the distribution system.  The loop is built from plastic pipe which is buried in the ground outside your home either in a horizontal trench (horizontal loop) or through holes drilled in the earth (vertical loop). Your Geothermal System circulates liquid (the heat transfer fluid) through the loop and to the heat pump located inside the home. The heat pump chills the liquid and distributes the heat collected from it throughout the home. The chilled liquid is pumped back into the loop and, because it is colder than the ground, is able to draw more heat from the surrounding soil. After a Geothermal System has taken the heat energy from the ground loop and upgraded it to a temperature usable in your home, it delivers the heat evenly to all parts of the building through a distribution system.” Source: http://www.canren.gc.ca- 16 - The Alternative Energy Trust  Appendix 2: Geothermal, Natural Gas & Electricity Comparison Source for calculation methodology: http://www.canren.gc.ca Estimated Heating Energy Usage in KWH Enter the heated area of your home (in square metres) in Column A in Row 1, 2 or 3 (whichever best describes your home). Multiply the area (from Column A) by the KWH shown in Column B to calculate the KWH usage for heating your home.   A  B*   C Older home - insulation etc. not upgraded 0 x 200 = 1 0 Average Home 0 x 150   2 0 R-2000 certified home 200 x 70   3 14,000    Result =  14,000        Estimated Hot Water Energy Usage in KWH In Column A, enter the number of people in your household in addition to yourself. Multiply the number of people by the number in Column B.   A  B   C First person in home 1 x 1,900 = 4 1,900 Number of additional people 3 x 1,250   5 3,750 Add Lines 4 and 5 to determine the total KWH needed to head water for a home like yours 6 5,650               Cost of Heat and Hot Water Using Electricity Ask your electrical utility for the cost of electricity per KWH. Enter in Column C, Line 7.   C Cost of electricity per KWH 7 0.065 Multiply Line 1, 2, or 3 by Line 7 to determine the cost of heating your home using Electricity 8 910 Multiple Line 6 by Line 7 to determine the cost of heating water of your household using Electricity 9 367.25    Total   1277.25  Continued on next page …/ - 17 - The Alternative Energy Trust          Cost of Heat and Hot Water Using Natural Gas Determine in what units your utility sells natural gas, and what the Basic Utility Charges is. Enter this figure in the appropriate line in Column A.   A  B   C Cost of Natural Gas (per cubic metre) 0.42 / 10.35 = 10 0.04059 Cost of Natural Gas (per gig joule or GJ)   / 277.79   11 0 Enter the COP (coefficient of performance) of ONE of the gas furnaces shown in Column B in Column C B     C Old gas furnace with pilot light 0.65       12   Newer gas furnace with pilot light(before 1995) 0.76       13   Mid-efficiency gas furnace 0.83       14 0.83 High-efficiency gas furnace 0.93       15   Divide Line 10 or Line 11 by Line 12, 13, 14, or 15 to calculate the cost per KWH   16 0.048891 Add Basic Utility Charge**   17 120 Multiply Line 1, 2, or 3 by Line 16 to determine the total cost of heating your home using Natural Gas   18 684.47 Multiply Line 6 by Line 16 to determine the cost of heating water for your household using Natural Gas   19 276.235    Total   960.712        Cost of Heat and Hot Water Using Geothermal System Determine the COP of the Geothermal you are considering from the manufacturer or your contractor. Enter this in Column C   C Enter COP of the Geothermal System in Line 30 30 3.2 Divide the cost of electricity in Line 7 by the COP of the Geothermal System in Line 30 31 0.02031 Multiply the cost of electricity in Line 31 by 2 32 0.04062 Multiply Line 1, 2 or 3 by Line 31 to calculate the cost of heating your home with a Geothermal System 33 284.37 Multiply Line 6 by Line 32 to find the cost of heating water for your household with a Geothermal System 34 229.53        * Average consumption for residences in Canada ** The “Basic Utility Charge” or “Delivery Charge” is charged by most utilities for monthly service, whether the fuel is used or not. Since most homes will have electrical service for lighting and other uses to which a basic utility charge would be applied, it should not be added to the energy cost of homes heated with Electric Heat or a Geothermal System.   - 18 - The Alternative Energy Trust  Appendix 3: Fixed Cost Estimation Category Value Assumptions Rental Expense Per square foot 20 Assume $20 / SF, UBC Rate Square footage per office 100 Assume 100 SF / Office 50% markup 50% Assume 50% Mark-up of each office Total square footage per office 150 Total SF / Office = 100 + 100 x 50% Admin Assistant 40,000 Salary of one Admin Assistant Tech Manager 60,000 Salary of one technical engineer General Manager 70,000 Salary of one General Manager Total Employee 3   Total Office 3   Total square footage 450   Total Rental 9,000   Total Wage 170,000   Admin Expense 17,000 Total Admin Expense             Total Fixed Cost (Year 1-5) 196,000 Fixed Cost for year 1 to year 4 Fixed Cost (Year 5-15) 300,000 Fixed Cost for year 5 to year 15 Fixed Cost (Year 16-30) 400,000 Fixed Cost for year 16 to year 16    Appendix 4: Net Present Value Calculation Per Residential Unit Category Value Source Geothermal System Revenue 1,120 See appendix 2 Geothermal System Variable Cost (Direct) 514 See appendix 2 Initial Investment 6,000 See appendix 6 Profit 606 Profit = Revenue – Cost Discount Rate 7.3% Use UBC standard Discount Rate       Number of Years to Pay Back (1) 18.07   Present Value 6,000   NPV 0   Gross Margin 54%    (1) Based on the net present value calculation for a single unit, it takes just over 18 years to generate sufficient cash to pay back the initial investment  - 19 - The Alternative Energy Trust  Appendix 5: Assumptions Used To Create Pro-forma Financial Statements Name Value Description Sources Total New Residential Units 4,000 Total number of unit to be build in UBC south campus from year 2006 to year 2021 UBC South Campus Integrated Study New Units Per Year 267 Average number of new unit to be build in UBC south campus per year UBC South Campus Integrated Study Average SM per Unit 200 Average square feet per unit http://www.canren.gc.caElectricity Cost 1,277 Cost of heating and hot water using electricity per unit per year http://www.canren.gc.caNatural Gas Cost 961 Cost of heating and hot water using natural gas per unit per year http://www.canren.gc.caGeothermal System Revenue 1,119 The revenue generated by geothermal system (equal to the cost of heating and hot water using conventional methods.) The average cost of using electricity and natural gas is used here. http://www.canren.gc.caGeothermal System Variable Cost (Direct) 514 The cost of producing energy for a typical home for a year using Geothermal System. See appendix 2 for details. Calculation Cost of Earth Loop 4,500 Cost of geothermal system installation per unit. Cost of ground digging is the major part of this cost. Conservatively assumed to use vertical closed loop on rock. (This is the most expensive combination). As this number is based on individual single house, it is very conservative due to potential economic of scales. http://www.canren.gc.ca/app/filerepository/348A4C62E2F245E7B840ECA7B280CEFC.pdfHeat Pump, Thermostat, Air Conditioning and auxiliary heaters 1,500 This cost is similar to conventional furnace and air-conditioning. Half of it (heat distribution equipment & equipments inside each suite) will be covered by developers and the other half is funded by the Energy Trust.  http://www.canren.gc.ca/prod_serv/index.asp?CaId=163&PgId=914Electricity Price 0.065 Electricity cost per KWH BC Hydro Electricity Price Increase Rate 3.00% Conservatively assumed increase rate of electricity price BC Hydro Years to Heat Pump Replacement 12 Heat pump need to be replaced around year 15 http://www.canren.gc.ca Continued on next page…/ - 20 - The Alternative Energy Trust   Name Value Description Sources Bond(EIC) Life (Years) 25    Assumption Bond Coupon Rate 6.50%    Assumption Earth Loop Depreciation Rate 2.50% From historical data, most Earth Loop systems still operate efficiently after 40 years, so a 2.5% depreciation rate is assumed.   Bad Debt 0.50% The bad debt is expected very low due to the fact that target consumers are property owners at a very exclusive neighbourhood  Assumption Interest Rate 4% Interest rate earned on cash balances  Assumption Earth Loop Insurance Rate  0.25% The insurance of Earth Loop per unit per year  Assumption Occupancy Rate 95% Assume only 95% of the units will be occupied.  Assumption Maintenance Service Contracts 15 Assume 1% of the cost of the pump is the maintenance cost  Assumption      - 21 - The Alternative Energy Trust  Appendix 6: Supporting Data For Financial Statements Year 1 2 5 10 15 20 30 Number of Units 267 533 1,333 2,667 4,000 4,000 4,000 Revenue 0 300,739 1,314,502 3,428,703 6,183,033 7,679,817 10,321,032 Variable Cost 0 149,388 651,475 1,693,553 3,045,090 3,772,687 5,049,541 Gross Margin 0 151,351 663,027 1,735,150 3,137,942 3,907,130 5,271,491 Gross Margin % 0% 50% 50% 51% 51% 51% 51%Contribution Margin % 0% 50% 50% 51% 51% 51% 51%                 Pump Replacement Cost 0 0 0 0 400,000 400,000 400,000 Fixed Cost (appendix 3) 196,000 196,000 196,000 300,000 300,000 400,000 400,000 Bad Debt 0 757 3,315 8,676 15,690 19,536 26,357 Marketing & Testing 200,000 200,000           Insurance Expense 3,900 7,700 18,500 34,500 48,000 40,500 25,500 Operating Expense 439,900 484,457 417,815 743,176 1,363,690 1,460,036 1,451,857 Operating Margin -439,900 -333,105 245,211 991,975 1,774,253 2,447,094 3,819,633 Operating Margin % 0% -111% 19% 29% 29% 32% 37%                 Earth Loop (Investment) 1,600,000 1,600,000 1,600,000 1,600,000 1,600,000                     Assets Before Depreciation 1,600,000 3,200,000 8,000,000 16,000,000 24,000,000 24,000,000 24,000,000 Depreciation Expense 40,000 80,000 200,000 400,000 600,000 600,000 600,000 Accumulated Depreciation 40,000 120,000 600,000 2,200,000 4,800,000 7,800,000 13,800,000 Assets After Depreciation 1,560,000 3,080,000 7,400,000 13,800,000 19,200,000 16,200,000 10,200,000                 EIC Issuance 3,000,000 3,000,000 2,000,000 2,000,000 2,000,000     EIC Retirement             2,000,000 EICs outstanding 3,000,000 6,000,000 12,500,000 22,500,000 32,500,000 32,500,000 20,000,000 Dividend Expense 195,000 390,000 812,500 1,462,500 2,112,500 2,112,500 1,300,000 Interest Income 0 32,204 79,016 113,878 232,028 423,041 962,042 Net Income -634,900 -690,901 -488,273 -356,647 -106,219 757,635 3,481,675                 Cash Flow from Operations -594,900 -610,901 -288,273 43,353 493,781 1,357,635 4,081,675 Cash Flow From Financing 3,000,000 3,000,000 2,000,000 2,000,000 2,000,000 0 -2,000,000 Cash Flow From Investing -1,600,000 -1,600,000 -1,600,000 -1,600,000 -1,600,000 0 0 Cash Flow 805,100 789,099 111,727 443,353 893,781 1,357,635 2,081,675 Cash Balance 805,100 1,594,199 2,087,123 3,290,304 6,694,486 11,933,667 26,132,731                 Equity -634,900 -1,325,801 -3,012,877 -5,409,696 -6,605,514 -4,366,333 16,332,731  - 22 - The Alternative Energy Trust  Appendix 7: Income Statement  Year 1 Year 2 Year 5 Year 10 Year 20 Year 30   2006 2007 2011 2016 2026 2036 Sales (a) 0 300,739 1,314,502 3,428,703 7,679,817 10,321,032 Cost of Good Sold (b) 0 149,388 651,475 1,693,553 3,772,687 5,049,541 Gross Profit 0 151,351 663,027 1,735,150 3,907,130 5,271,491               Operating Expenses             Miscellanous Expenses (c ) 396,000 396,000 196,000 300,000 400,000 400,000 Depreciation Expenses (d) 40,000 80,000 200,000 400,000 600,000 600,000 Bad Debt (g) 0 757 3,315 8,676 19,536 26,357 Insurance Expense 3,900 7,700 18,500 34,500 40,500 25,500 Pump Replacement 0 0 0 0 400,000 400,000 Net Operating Income -439,900 -333,105 245,211 991,975 2,447,094 3,819,633                             Non-operating Expenses             Dividend Expense (e) 195,000 390,000 812,500 1,462,500 2,112,500 1,300,000               Interest Income 0 32,204 79,016 113,878 423,041 962,042               Net Income Before Tax -634,900 -690,901 -488,273 -356,647 757,635 3,481,675 Income Tax (f)                           Net Income -634,900 -690,901 -488,273 -356,647 757,635 3,481,675        a) As geothermal is used to provide heating and hot water, sales equal to the equivalent cost of producing the same amount of heating and hot water using and alternative method such as electricity or natural gas. The average cost of using electricity and natural gas is used here. See appendix 2 for how this number is derived. b) Geothermal consumes electricity and produces heat, hot water, and air conditioning. Maintenance cost is also included in this item. The cost is the electricity consumed See appendix 2 for how this number is derived c) Miscellaneous Expenses include initial testing on geothermal system in UBC area, employee compensation, office rental, and other daily expense. See appendix 3 for how this number is calculated d) From historical data, most Earth Loop systems still operate efficiently after 40 years, so a 2.5% depreciation rate is assumed. e) Dividend expense is calculated as 6.5% of total issued EICs. f) Due to the structure of the business as a trust, it is expected that little or no income tax expense will occur in the business. g) The bad debt is expected very low due to the fact that target consumers are property owners at a very exclusive neighbourhood - 23 - The Alternative Energy Trust  Appendix 8: Balance Sheet  Year  1 Year  2 Year  5 Year  10 Year  20 Year  30   2006 2007 2011 2016 2026 2036 Asset             Cash  805,100 1,594,199 2,087,123 3,290,304 11,933,667 26,132,731 Earth Loop & Pump (a) 1,600,000 3,200,000 8,000,000 16,000,000 24,000,000 24,000,000 Less Accumulated Depreciation (b) 40,000 120,000 600,000 2,200,000 7,800,000 13,800,000 Non-Cash Asset  1,560,000 3,080,000 7,400,000 13,800,000 16,200,000 10,200,000 Total Assets 2,365,100 4,674,199 9,487,123 17,090,304 28,133,667 36,332,731               EIC 3,000,000 6,000,000 12,500,000 22,500,000 32,500,000 20,000,000 Equity -634,900 -1,325,801 -3,012,877 -5,409,696 -2,317,868 16,332,731               Total Liability and Owner's Equity 2,365,100 4,674,199 9,487,123 17,090,304 30,182,132 36,332,731        a) The earth loop and pump are the main assets of the Energy Trust. The book value of the system is equal to its cost and installation costs.   b) From historical data, most Earth Loop systems still operate efficiently after 40 years, so a 2.5% depreciation rate is assumed.  Appendix 9: Cash Flow  Year  1 Year  2 Year  5 Year  10 Year  20 Year  30   2006 2007 2011 2016 2026 2036               Net Income -634,900 -690,901 812,500 -356,647 757,635 3,481,675 Depreciation Expense 40,000 80,000 200,000 400,000 600,000 600,000 Cashflow from Operations -594,900 -610,901 1,012,500 43,353 1,357,635 4,081,675               Cashflow from Investing (a) -1,600,000 -1,600,000 -1,600,000 -1,600,000 0 0               Cashflow from Financing (b) 3,000,000 3,000,000 2,000,000 2,000,000 0 -2,000,000               Cash Increase 805,100 789,099 1,412,500 443,353 1,357,635 2,081,675 Cash Balance in Previous Year 0 805,100 1,975,396 2,846,951 10,576,032 24,051,055 Cash Balance this year 805,100 1,594,199 3,387,896 3,290,304 11,933,667 26,132,731        (a) Investing in the earth loop       (b) Cash from EIC issuance        - 24 - The Alternative Energy Trust  Appendix 10: Breakeven Analysis -2024681012135791131517192123252729Year$MRevenue + Interest IncomeTotal ExpenseNet Income Appendix 11: Financial Summary -10-5051015202530351 3 5 7 9 11 13 15 17 19 21 23 25 27 29Year$MEICsCash AssetNon-Cash Asset(Earth Loop)Residula interestsCash flow from Operations Notes - 25 - The Alternative Energy Trust                                                                                                                                                                             i Giga-Watt Hour.  Electricity is generally measured in Kilo-Watt Hours (KWH) or “units” – a Giga-Watt Hour is 1,000,000 Kilo-Watt Hours. ii Oil prices are currently around $52.50 a barrel, down from $55 earlier in the week and up around 75% from a year ago.  See, for example, http://biz.yahoo.com/ap/041027/oil_prices_14.html. iii Canada's commitment under the Kyoto Protocol is to reduce net GHG emissions (covering 6 GHGs and 'sinks') to 6% below 1990 levels between 2008 and 2012.  http://www.ec.gc.ca/international/multilat/unfccc_e.htm#com.iv "It is now that timely action can avert disaster. It is now that with foresight and will such action can be taken without disturbing the essence of our way of life, by adjusting behaviour, not altering it entirely", British Prime Minister Tony Blair, September 15th, 2004 as reported at http://news.bbc.co.uk/1/hi/uk_politics/3656812.stm. v Helen Goodland, Senior Advisor Sustainable Buildings, GVRD, “Investing in energy savings: reaping the rewards for energy efficient building design”, draft paper, June 29, 2004. vi A brief web search on “green investments” produces over a million hits.  Locally, Ethicalfunds (www.ethicalfunds.com) and Vancity Credit Union (www.vancity.com) are both known for their attempts to identify and support ethically responsible investments. The Clean Power Income Fund (www.cleanpowerincomefund.com) is only one example of an investment opportunity that appeals to investors interested in sustainable energy. vii Social Investment Forum (1999), Socially Investment Forum News 1999 Report on Socially Responsible Investing Trends in the United States. viii Roberts, Jennifer “The state of Green Building” 2001 http://www.housingzone.com/green/index.asp. ix CMHC greater Vancouver healthy housing survey on Consumer Demand. May 2003. x Khan, Aleisha. Institute for Market Transformation. “Recognizing the asset value of high-performance building”, 2002 http://www.imt.org. xiUBC South Campus Sustainability Report, June 2004. xii http://www.vanmag.com/0309/f3.htm. xiii  http://www.assignmentscanada.ca/definitions/presales.html.   xiv Khan, Aleisha. Institute for Market Transformation. “Recognizing the asset value of high- performance building” 2002 http://www.imt.org. xv See for example, Vancity Credit Union at http://www.vancity.com/Personal/Investing/SociallyResponsible, (Vancity is referenced as a potential investor in the Goodland paper above, along with BC Hydro) and Ethical Funds at http://www.ethicalfunds.com/do_the_right_thing/about_ef/newsroom/2004_articles/10_01_04.asp.  xvi Discussion with David Grigg (UBC Planning Department), January 2005 xvii This mirrors the governance structure of many public business trusts. xviii Which is a non-cash expense but which effectively represents the costs of the long-term renewal of the system. xix Information on actual projects can be found on http://www.geoexchage.org- 26 - 

Cite

Citation Scheme:

    

Usage Statistics

Country Views Downloads
China 9 0
Germany 3 0
United States 3 0
Japan 3 0
Canada 1 0
City Views Downloads
Beijing 9 0
Unknown 4 0
Tokyo 3 0
Ashburn 2 0
Sunnyvale 1 0

{[{ mDataHeader[type] }]} {[{ month[type] }]} {[{ tData[type] }]}
Download Stats

Share

Embed

Customize your widget with the following options, then copy and paste the code below into the HTML of your page to embed this item in your website.
                        
                            <div id="ubcOpenCollectionsWidgetDisplay">
                            <script id="ubcOpenCollectionsWidget"
                            src="{[{embed.src}]}"
                            data-item="{[{embed.item}]}"
                            data-collection="{[{embed.collection}]}"
                            data-metadata="{[{embed.showMetadata}]}"
                            data-width="{[{embed.width}]}"
                            async >
                            </script>
                            </div>
                        
                    
IIIF logo Our image viewer uses the IIIF 2.0 standard. To load this item in other compatible viewers, use this url:
http://iiif.library.ubc.ca/presentation/dsp.18861.1-0108126/manifest

Comment

Related Items