Energy Pro Usa - Executive Summary

Executive Summary New Energy Industrial Development Opportunities United States industrial manufacturing is the largest energy-consuming sector of the economy, consuming over 33% of the nation’s total energy in the fewest locations. Our company, Energy Pro-USA, has a proven methodology to aggregate, develop, finance and own energy and productivity improvement projects inside large industrial manufacturing plants. These targeted industry sectors are steel, aluminum, refining, chemical and paper industries. These sectors are defined as energy intensive processes and account for over 75% of industrial energy consumption. Energy Pro will make a $145 million investment into this market opportunity over the first and second quarters of 2009. Industrial Manufacturing’s Energy Profile Natural gas, petroleum products and electricity comprise the major energy sources used to heat and power industrial manufacturing facilities. The industry’s expenditures for heat and power totaled over $80 billion last year. In addition to heat and power, the industry used about seven quads of fossil fuels as feedstock to produce industrial materials and products. Usage, combined with dramatic price increases, forebodes a negative impact on profitability. The target markets for Energy-Pro are manufacturers in the energy intensive processes. These manufacturing sectors consume the largest amounts of energy per unit of production/product output. The State of Industrial Infrastructure and the Current Pressures Facing Energy Intensive Industries Since the onset of the nine-year economic boon beginning in 1990, more discretionary capital has gone to investments in new technology as compared to investments in “old-line” North American industrial infrastructure; specifically refining, chemicals, steel, aluminum, and forest products. This diversion of capital away from industrial infrastructure has restricted the industrial’s ability to grow and remain competitive. The result is reduced operating budgets, reduced personnel and reduced capital budgets necessary to implement improvements and maintain profitability. Because these “old-line” industrial plants are part of the infrastructure North America relies upon for countless products and jobs, these plants will not be shut down. While ownership may change, the important fact is these plants will continue operating as part of our industrial landscape and these plants will continue to need access to capital. Unfortunately, because of decreased value, or the credit history of parent companies, many industrial plants will not be able to acquire capital through traditional lending institutions without restrictive guarantees or liens on other assets. For most of the industrial plants, these constraints make the capital for energy/productivity improvements temporarily out of reach. Today, industrial plants need easier access to capital to remain competitive.

Competitive Approaches Unlike other sectors, the specific industrial process always determines energy demand. This is where all competitors fail in their approach to energy intensive manufacturers. Traditional energy services companies (ESCOs), utilities and others have been unsuccessful at developing and managing energy opportunities for large industrials. ESCOs focus on replacing lights and HVAC equipment in commercial properties. This commercial property approach doesn’t transfer to the needs of energy intensive industrials because every industrial is unique. For example, the aluminum industry uses large amounts of electricity for smelting while the glass industry uses large amounts of natural gas to melt silica in furnaces. These inherent industry variations make a one-size-fits-all approach to energy efficiency – the ESCO approach to commercial property – ineffective. With respect to utility companies, their focus on equipment solutions is simplistic and never achieves measurable financial returns because of the complex nature of processes upstream and downstream of the installed equipment. Therefore, to manage energy inside energy intensive industrials, the main driver is controlling the industrial process – the amount of energy per unit of production. A New Approach Has a Two-Fold Payback. Private investment into this opportunity creates increased cash flow from the new improvements inside the manufacturing facility. However, the increased cash flow is generated not only from energy efficiency improvements but a corresponding improvement in productivity. Inside energy intensive industrials, productivity drives energy efficiency and energy efficiency drives productivity. Consequently, with a properly designed financial infrastructure, improvements inside energy intensive industrials can be measured and ensures a two-fold payback to investors: One payback from energy conservation and another payback from productivity/yield improvements, environmental benefits and associated credits. The energy market for industrials is an $80 billion industry with the energy intensive industries consuming 85% of those dollars. The productivity market as related to these industries, the second payback opportunity, is a $742 billion business. The AIP Value Proposition Within the refining, chemical, steel, aluminum and forest products industries, many systems and operational improvements to maximize productivity and energy efficiency are not implemented. There are more one-year to four-year payback projects than the capital markets can accommodate via current financing protocols. What energy intensive industries require are: i) independent entities to provide capital, management, systems integration and development resources; entities with a history of developing capital projects with quick paybacks, and ii) a financial infrastructure willing to provide capital based upon increased cash flow from the improvements. Energy Pro-USA has underwritten a new financing model that provides this “new” type of capital and financial infrastructure targeted at the most energy intensive consumers in America…Manufacturing. Energy Pro is the premiere Advantaged Industrial Producer (AIP), our company develops, manages, finances and owns the improvements for a shared ownership right to the resulting cash flow. Focused upon heavy industrial facilities (the largest energy consumers in the fewest locations) Energy Pro not only saves energy, reduces emissions and implements other

environmental improvements, but also increases productivity/yield – the largest critical factor in the plant’s energy consumption. Energy Pro has a proven record of successes inside industrial manufacturing plants. Many more industrials would implement AIP improvements but lack the management system, measurement modeling, and “new” financing tools to avoid securing loans with cumbersome corporate guarantees; they also need engineering and management personnel to analyze and implement improvements. Energy Pro-USA provides these needed resources to industry thereby improving energy conservation and enhancing productivity improvements inside large industrial facilities.

For more information visit our website at energyprousa.com. Click on our presentations and access our operational and financial presentations. Contact Michael Ratteree, Managing Director, directly at 314-303-5645

BENEFITS SUMMARY Advantaged Industrial Producer SM – Our ability to aggregate resources and our commitment to collaboration, cuts costs and increases innovation beyond what can be achieved in a single transactional supplier relationship. Capital – Energy Pro funds all analysis, staffing and implementation of energy/productivity projects. This results in bringing optimization on line quicker with zero out of pocket costs for our client partner. Our methodology lets you achieve an infinite Internal Rate of Return (IRR). Resources – We staff our projects in order to free your time and personnel to focus on core productivity. Having our project team on-site daily, over the course of our three-year contract, allows us to deliver daily management reports and creates immediate response capability to variances in the energy management system. Measurement – Energy Pro provides a proprietary and quantifiable Energy Management System. Our Enterprise Optimization Model (EOM) measures for management and for dollarized values. The EOM can delineate existing initiatives and measure major equipment process across the enterprise. Models are extremely accurate (plus or minus 1% per year) and are approved by our client partner before implementation. Savings – Operationally, actual savings as measured by the EOM are split 50/50 over the threeyear contract. Energy Pro reimburses itself for implementation costs out of its share of the savings. After 36 months, our client partner owns all improvements and receives 100% of the savings. Shared savings on capital projects are also measured by the EOM and negotiated on a contract-by-contract basis. Project Narrative: The evolution of a typical client/Energy Pro collaboration. •

Client corporate and operations consensus that Energy Pro’s business model should be piloted in a plant with $25,000,000 plus in yearly energy spend and a list of viable capital improvement projects.

•

An approximate 90-day analysis period at the selected plant to assimilate into the client’s culture, mutually earmark opportunities, and build predictive modeling based on up to three years of operational data.

•

An approximate 90-day benchmark period where the models are tested, adjusted, and approved; program implementation is initiated.

•

A 36-month operations contract where savings are measured as the difference between predicted energy demand and actual energy demand.

•

Our Industrial Development Fund will financially design comprehensive capital project recommendations for asset renewal to be evaluated/recommended during 90-day analysis period.

The Energy Pro “Enterprise Optimization Model” Energy Pro-USA (EP) works with industrial companies to help reduce energy usage and associated costs. In return for EP’s services, clients pay EP a percentage of their cost savings over a three-year period. To quantify the amount of the energy savings (and to calculate EP's bill to the client), EP creates a model of the energy usage at the facility based on facility-specific data. This model is called the Enterprise Optimization Model (EOM) and is based on the statistical analysis of as many as 150 variables collected over approximately three years using professional engineering and operational judgment. After EP creates an EOM for a facility that is agreed to by the client company, EP develops Energy Savings Initiatives (ESIs) to reduce energy use at the facility. Typical ESIs include installation of energy efficient equipment, changes to production methods and changes to production schedules. After implementation of ESIs, the EOM is used to estimate the quantity of energy that would have been used at the facility without implementation of the ESIs. The actual energy use is then subtracted from the predicted energy use to calculate the energy savings. EOM development begins with the preparation of input/output block diagrams and process flow charts describing operations at the facility. EP personnel then collect information regarding the facility's individual unit processes. Examples of unit processes include furnaces, mills, grinders, heat exchangers, boilers, and waste treatment systems. After the facility's unit processes are evaluated, EP has a process to systematically identify all of the special or assignable causes of variability in energy consumption (e.g., energy use will generally increase when production rate increases). Three types of independent variables (i.e., production values, weather, and time) are identified during this process. Even at the initial model development stage, some variables may be eliminated from consideration as model variables if they would be directly affected by energy savings. For example, if the number of furnaces in operation is correlated with energy usage, it might be a good model variable. However, if EP believes it may want to make a change to the number of furnaces in operation to reduce energy use, that variable would not be appropriate for use in the model, as it would not give a true picture of the energy savings resulting from that improvement. In all cases, the accuracy of the model is checked by testing its ability to predict the energy use for the historical data set. EP calculates the accuracy of the model by computing the percent deviation between the actual and predicted energy use on a daily, monthly, and yearly basis. If the monthly deviation is more than ± 5 %, or if the yearly deviation is more than ±1 %, the model is rejected. Additional statistical parameters such as the R2 term are also used to evaluate the effectiveness of the model. If the model is rejected, one or more additional independent variables for the unit process are identified and added to the model and the new model is retested. This refinement of the model is repeated until the model meets the predictive accuracy tests described above. Once the model is refined using the tests described above, in most cases EP states that the predictive ability of the model is further checked by testing its ability to predict energy use over an independent validation data set. Validation data consists of sets of data beyond that included in the building of the model. The ability of the model to make acceptably accurate predictions over such an independent data set increases confidence that the model captures the fundamental elements of the process it is intended to represent, and can thus be applied to accurately estimate energy savings resulting from process improvements.

THE CASE FOR ENERGY EFFICIENCY INVESTMENTS

THE NEED FOR THIRD-PARTY CAPITAL

t Energy productivity can help world

t Industrial sectors need an investment

in achieving 50% of greenhouse gas emission reduction targets t Many high-return investments are possible with current technologyminimum is 17% IRR

INDUSTRIAL ENERGY EFFICIENCY + CAPITAL PRODUCTIVITY

t Industrial sectors represent ~40% of

of $83B in annual investments to capture energy efficiency t Many energy productivity actions require skills, systems, and resources…with global scope t Incentives for electric utilities to

opportunity for energy productivity, with

realize benefits from-and therefore

high return opportunities (e.g. 30%+ IRR

to invest in- energy efficiency are not

in steel and pulp/paper)

widely in place

Industrial Global Fund, LLC Prioritizing sectors: steel, pulp/paper, aluminum, chemicals, refining Cash on hand and available: Industrial GlobalFund, LLC Proven capabilities: methodology, trained staff, modeling, contract forms, systems established Proven equity-like returns for customers and investors

Source: McKinsey Global Institute Analysis