INTRODUCTION 

SESPCo is a Management Consultancy in the Green energy sector seeking to raise £0.15m for working capital. Some £50,000 has been raised to date used for working capital. SESPCo is rewarded by the project management fees and share of excess of revenue from the performance of the IRR derived from installing energy efficient and low carbon emission energy equipment. Which replaces ageing and inefficient heating and lighting systems and provides significant energy savings, over the medium term, to benefit shareholders, end clients and a variety of other stakeholders.

The process reduces waste in energy, in the heating and electrical systems and in addition creates renewable energy from sunlight and even food to realise these financial benefits! We consult with clients in both private and public sector to reduce energy waste not re-invent nuclear fission.

The market in the UK is massive and virtually untouched only 10% of the public and private sector have taken a holistic approach to reduce their energy costs.                                                   

SESPCo’s BUSINESS MODEL                            

SESPCo since 2012 has developed a solution to provide capital equipment to reduce energy costs in the public & private sectors

This funding solution is a tried & proven product and is accessed through a network of financial institutions – basically the financial institution will fund the equipment and other associated costs, over a 5 to 20 year term based on an annuity.

• That annuity being repaid from the energy costs saved with IRR’s sought from 7% to 15% and beyond.
• SESPCo surveys, procures, project manages and installs using its own network of business partners.
• SESPCo secures an upfront fee for its endeavours together with share of any excess share of the IRR.
• Similarly the incentive for the energy user is that shares in the benefits which range from 10% in the first year to 40% of savings at term end when they will own the equipment.

Effectively SESPCo aligns the disparate requirements of a variety of stakeholders to the benefit of all of them

FUNDING                        

Working capital to set up back office and pre revenue costs

The working capital need is £0.15m of which half setting up back office-balance We are seeking up to £150k through the Crowd for Angels platform.

The project Finance is being pursued with financial institutions (strong in green Sector) and with a business partner who wants the outsourced downstream work

BUSINESS                       

It is expected that energy costs will rise in the next 10 years at between 5% and 10% pa compound. There is substantive capital rationing in the public sector. In the private sector the Sespco model is an attractive option to asset finance or operating leases as it is off balance sheet and the payback term for energy efficiency measures are longer than the criteria of most Financial Directors limit paybacks to 3 years. The private sector is therefore persuaded by the SESPCo offering

The barrier to entry for the end client is the initial replacement cost of installing and retrofitting low carbon energy efficient equipment & renewable technologies. The equipment generally comprising LED’s (63% of pipeline), Biomass (37%) It is estimated that 90% of organisations have yet to look at their energy efficiency – that amounts to many billions

MANAGEMENT              

Comprises experienced executives who all have knowledge of the Green renewables sector. Further each has a strong track record of growth within the Groups/Companies they’ve managed. The team comprises;

• Chairman/CEO: David Collett
• Finance Director : John R Davidson
• Operation Director: Connie Mackin

SESPCo presently has offices in Cirencester and Stroud.

SESPCo REVENUES          

These derive from a number of sources:

• Upfront uplift on CAPEX c 15% of which commissions are paid
• Shared excess over cost of capital – assuming 9% cost then if IRR 12% achieved, excess 3% shared with funder - 1½% shared. Future trail income over long term
• Effective commissions from business partners for placing business
• Third party administration services

A fixed fee of 15% on project spend has been assumed in forecast, however the sales pipeline of some £11m has an aggregate IRR is expected of some of some 11.4%.

SESPco has entered into final negotiations for a contract for third party administration (TPA) with a social enterprise who has an operatying lease program for state schools and has a facility of £100 million to spend over the next 5 years. Specificaly for LED, due to the project management and survey resources of SESPco they have been appointed administrator and anticipate that cash flow from this service will start in October when the social enterprise signs contracts with schools. The fee is 5.5% of the finance value and the pipeline in the last 6 month of 2014 is estimated to be in the region of £4 million (20 schools) which will generate £220,000. The social enterprise contract is for 13 years and subject to performance SESPco expect to be the TPA on a rolling contract for this period. 

STRATEGY                      

Focus will remain in UK within the energy efficient sector, securing for the end client substantial savings in the medium term. But strive for more & more added value competancies. These savings will be enabled with the CAPEX being funded by Financial Business partners Norse group, Calvin capita and European funds.

The evaluation & integration of these clients + surveyor+ installer will be SESPCo’s role for which it attracts high added value fees. SESPCo wants to be small highly capable expert, outsourcing the “drudge” work but retaining sales, energy efficiency consultation and financial evaluation.

Therefore despite exponential growth will not need large back office and where white labelling Sespco to lighting manufacturers cost of project management will be borne by the manufacturer, thus increasing volume contracts without corresponding overhead.

The initial objective is to build SESPCo up to £1m EBITDA then seek a trade exit probably through one of the much larger partners

CLIMATE                    

Governmental, societal and financial pressures creates a potent incentive to reduce carbon & energy footprints in the private and public sectors SESPCo can pull the various parties together to share in the rewards of any deal.

There are huge Government incentives to “Go Green” – without them the Biomass offering doesn’t work  (however the Government has ring fenced £800 million through the Renewable Heat Incentive scheme to promote the scheme to industry,  commercial and public sector this applies to Biomass boilers over 50kw).

LED does not require subsidies to work but is an important factor in reducing carbon emissions and supporting the CSR policy of companies due to the significant reductions in energy usage and costs by retrofitting LED

Solar PV for commercial rooftops is now the emphasis for DECC (Department for Energy and Climate Change) as opposed to large solar farms and therefore this compliments the offerings to our clients.  

THE DEAL (to Clients)                  

The SESPCo (shared energy savings performance contract) is an off balance sheet item for corporates and allows SESPco to deal directly with sustainability managers within the corporate environment. The problem is that the payback periods for LED lighting, Biomass heating and renewable energy such as Solar PV extend well beyond the period that Finance Directors are willing to consider for balance sheet financing criteria. However LED lighting has the fastest and shortest payback period for SESPCo/client this is a core product as this does not rely on Government subsidies but on the pure economies derived from the model of retrofitting LED which has a 65% saving compared to conventional lighting.

The CAPEX costs and IRR required by the fund are normally recovered within 10 years maximum for schools and for high energy users such as manufacturing in 5 years.

10 years can be the longest contract length agreed with the fund for LED. The cost of LED lighting is 3/4 times as much as fluorescent/ incandescent lamps, however the advantage is that LED draws down 65% less power/cost

SESPCo has the maximum impact is the Public Sector where it is estimated that operating budgets reduced by 40% or more and a block on Capex  spending has been introduced, which has resulted in Schools and Hospitals being unable to replace ageing lighting and heating systems. Consequentially ageing systems fall requiring more maintenance apart and consume more oil, gas and electricity than necessary.

It is expected from various respected sources that energy costs will rise by 9% per annum (based on our analysis presented at London University October 2013) has resulted in energy costs becoming increasingly a significant cost in the OPEX of any school, academy, college, university or hospital. The technological solutions are readily available in the market place however the barrier to entry for the client is the initial replacement cost.

As the LED lamps last for 50,000 hours under the terms of the warranty provided by Tier 1 manufacturers such as Thorn, the Academy will benefit from the savings for a minimum of 15 years based on the annual burning hours.

The LED lamps last a minimum of 5 times longer than fluorescent or incandescent lights, which has a direct impact on lamp replacement and maintenance costs which add a further £75,000 of savings over the 15 year period. The total savings for the Academy by retrofitting LED over a 15 year period are £708,750 as a baseline. This does not take into account the impact of energy increases over that period which will increase the savings to over £1 million plus

However SESPCo recognise that the opportunity exists to capitalise from converting oil boilers to Biomass boilers based on the key factors of the 40% savings in energy and efficiency costs supported by the subsidies provided by DECC.

DECC recently introduced the RHI (Renewable Heat Incentive Tariff) for 50 KW boilers and above which provides a payment based on operating hours for a period of 20 years.

The Green fund provide the Capex for the installation and maintenance. The fund receive quarterly tariff payments directly from DECC, based on the size of the boiler and the operating hours of the system. RPI linked for 20 years.

Therefore by installing LED and Biomass the client, corporate or public sector, has reduced his carbon emissions and enhanced the CSR policy and where relevant mitigated Carbon Tax.

DECC has ring fenced £860 million to subsidise Biomass boilers until April 2015. The current SESPCo pipeline has £5 million contract value of Biomass boilers which are scheduled for next 12 months, without Biomass installations from new enquiries being taken into account.

PARTNERSHIPS          

SESPCo is negotiating £30 million for the current SESPCo projects pipeline with a panel of institutional funders in the public sector – In addition one of the main funders have a M&E department with over 25 years commercial technical experience and resources to support the rolling pipeline of clients generated regardless of the rate of expansion of SESPCo business development.

SESPCo receive a fee of 15% of the contract value typically a minimum of £20,000 per contract. After agents are remunerated a margin of 11 - 12% is maintained by SESPCo.