Exergy: The 100% Renewable, Always On, Distributed Utility–Making Organizations Green, Reliable and More Profitable

Here’s a clean energy investment opportunity that I came across recently; it’s the best example of “thinking outside the box” that I’ve seen in quite a while.  It may take a few minutes to wrap your wits around it, but I promise that this will be time well spent.  If, at the end, you’d like further information, I’ll connect you directly with my contacts.

As always, let’s start with the “from-to,” i.e., the positive transition that the company, in this case, Exergy, offers its customers.

Historically:

Commercial and industrial customers with mission-critical energy requirements, e.g., hospitals, have created 100% uptime by purchasing backup generators, uninterruptible power supplies, and power conditioning equipment that sits idle most days and, because they are functioning so seldom, do nothing to lower their owners’ energy costs.  Effectively, these capital investments serve only as “insurance policies” because customers lack the specialized knowledge, motivation, capital, and infrastructure to profitably operate such assets and sell services to the grid.

What These Customers Would Love To Have:

The potential customer wants to reduce their electricity costs, and they would like their reduced costs to be stable over a long period of time.  Ideally, they also want 100% renewable energy, and they don’t want to spend any money to get this done. In particular, they want:

1. 100% Renewable Energy: Exergy sources renewable energy to meet the customer’s entire load.
2. Reduced Energy Costs: Exergy provides immediate cost savings that improve its customers’ competitiveness in their marketplaces.
3. Backup and Standby Power: When the Grid fails, Exergy’s Microgrids prevent outages.
4. Power Resiliency: Exergy’s Microgrids protect customer operations from Grid instability and poor quality power.
5. Long-Term Price Certainty: Exergy’s 15-year agreements allow customers to lock in low-cost energy over the long term.
6. Zero Upfront Capital Investment: Exergy provides all capital required to design, install, and operate each Microgrid, requiring no upfront investment from its customers.
7. A Single-Source Energy Provider: Exergy replaces the customer’s utility provider, but customers remain connected to the Grid.
8. Third-Party Management: Exergy possesses the specialized expertise to optimize and manage a Microgrid, allowing our customers to focus on their core businesses.

What Exergy Does

Exergy offers a unique approach and capability to this mission-critical energy space. The company develops, owns, and actively manages co-located Microgrid assets under long-term Power Purchase Agreements (“PPAs”) or operating leases to primarily investment-grade entities, while simultaneously selling power and profitable services to the Grid.  Customers execute 15-year contracts with Exergy to provide 100% of their energy requirements on an exclusive basis.  Each contract is profitable for Exergy, and generates savings and provides backup power to the customer.

Exergy is focused on commercial and industrial companies with mission critical energy needs that are not met by the Grid power.  Exergy provides increased resiliency, backup generation, and 100% of their energy requirements from renewable sources, all at a cost below that offered by their incumbent energy providers.

How Exergy Does It

By actively managing our Microgrid assets, Exergy maximizes revenues by selling services to the customer and to the Grid.

Exergy utilizes its Microgrids to:

1. Reduce customers’ total delivered energy costs. Exergy procures energy at a substantial discount to the customer’s PPA rate, passing through part of the savings to our customers.
2. Peak shave to reduce demand charges. Demand charges represent a sizeable and growing portion of most customers’ bills. Reducing these charges represents a meaningful cost savings.
3. Generate and deliver energy to the customer when Grid prices are higher than self-generation costs. When Grid prices are higher than our cost to self-generate, Exergy remotely dispatches its generation assets to deliver lower-cost energy.
4. Generate additional revenue by selling ancillary services. Demand Response and Synchronous Reserves represent specialized revenue streams that Exergy generates, which are not available to most customers.

How Exergy Profits

Exergy’s Microgrids provide the option to secure energy from the least expensive source, either the Grid or within our portfolio of generation assets; Exergy generates profits on every electron delivered.

By design, our model is protected from disruption to profitability due to fuel price fluctuations.

Owning renewable generation assets effectively eliminates Exergy’s natural gas price exposure.

Exergy’s proprietary model is unique; it provides highly predictable cash flows with virtually no risk to our profit margins because of the effective “no-fuel hedge” provided by our renewable assets.

This structure allows us to fix our profit margins through 100% non-fuel hedging while providing Exergy the ability to generate additional profits simultaneously by selling ancillary grid services. Combining this generation and load structure with a Power Purchase Agreement creates a virtuous profit multiplier.

Exergy offers its customers an immediate discount on their energy bills, typically between 10% and 15%.   We accomplish this by using our natural gas generator to reduce the customer’s peak demand charges. Demand charges average 30% to 45% of a customer’s power bill.

The savings above are generated from a programmatic process.  Automatic, real-time and day-ahead price information is actively compared to our generation trigger price: if the Grid price is above our trigger price, Exergy requests a demand response dispatch. If the Grid price is below our trigger price, Exergy purchases from the Grid.

Current Stage

Exergy seeks an equity investment to fund the growth of its commercial and industrial Microgrid business providing 100% renewable energy with backup and standby power, while providing immediate savings to its customers.

Exergy’s base-case projections forecast equity investors should see an enterprise valuation increase of over 3.5x over the next 5 years.  Exergy’s team previously built and sold over 500 MW of generation assets, and it maintains a pipeline of more than 200 MW of new load (demand) and 550 MW of generation assets.