30 Year Old Tecogen Chiller Replaced by… Tecogen Chiller

30 Year Old Tecogen Chiller Replaced by… Tecogen Chiller post image

After having provided reliable cooling for almost thirty years, a regional utility company in Boise, Idaho, decided that it was time to replace its Tecogen (TGEN – $3.27) chiller with… a brand new TECOCHILL. The unit will provide 150 refrigeration tons of year-round cooling for the corporate headquarters of the company.

Having a customer come up and say that it wants to replace its 30 year old chiller with an identical one, albeit a modern version, is a true testament of the durability and reliability of Tecogen’s equipment.

Although the new water-cooled chiller is of similar size to the old one, it is a much more efficient machine, enabling the customer further operational savings beyond what the original equipment provided. Also, the new chiller comes with the unique and patented Ultera system, which reduces the emissions of pollutants contributing to smog (NOx, CO, and hydrocarbons) to near zero levels.

In addition to the strong construction of a machine, its systematic maintenance also significantly contributes to its lifespan. Although this particular unit was serviced by a third party – Tecogen doesn’t have enough installed machines in the vicinity to justify opening a service center – more than half of the Company’s installed units do have a service contract.

Nationwide Factory Service

Tecogen offers service support on all its CHP products through a network of nine field service centers in California, the Midwest, and the Northeast. These centers are staffed by full-time Tecogen technicians and have been an essential part of Tecogen’s growth and success through the years, as good factory support from Tecogen allows its customers to focus on their core missions and businesses. Factory service also keeps Tecogen in close touch with its customers and their specific site issues.

Most of the service revenue is in the form of annual service contracts. Customers are invoiced based on equipment run-time hours, thus avoiding unforeseen add-ons for such items as unscheduled repairs or engine replacements.

Tecogen encourages its customers to provide internet connections so that it can maintain remote communications with the installed equipment. This communication link is used to support the diagnosis effort of the service staff and to send messages to preprogrammed phones if a unit has experienced an unscheduled shutdown. In many cases, communications received by service technicians from connected devices allow for proactive maintenance, thus minimizing equipment downtime and improving operating efficiency for the customer.

In early 2016, Tecogen started using General Electric’s Equipment Insight solution for new units sold and for select upgrades to the existing installed equipment fleet. With GE’s technology, Tecogen is able to collect, analyze, and manage valuable asset data continuously and in real-time, providing the service team with improved insight into the functionality of the installed CHP fleet.

The solution also allows users to better utilize monitoring data, ensuring customers are capturing maximum possible savings and efficiencies from their installation.

Through constant monitoring and analysis of equipment data, Tecogen expects to enhance the performance of installed equipment by ensuring machinery consistently operates at peak performance and is available to deliver maximum potential value for customers.

Conclusion

Besides selling machines, Tecogen generates a big chunk of its revenue through service contracts. This is a reliable and growing part of the Company’s total sales.

Thanks to the recently completed acquisition of American DG Energy (ADGE) that reliable income has even increased.

American DG owns natural gas powered cogeneration systems that produce electricity, heat and cooling at customers’ facilities. Ultimately, ADG bills its customers each month, just like any other utility would do, for the energy delivered to them. The fee charged by ADG is guaranteed to be below conventional utility rates.

This model, called an “On-Site Utility” is really an essential part of any distributed generation infrastructure, since not every customer has the capital or the financial flexibility to own the system outright.

Prior to the acquisition, ADG produced around $6 million of steady revenue annually. In addition, the company is cash flow positive, so it will contribute cash to Tecogen.

While Tecogen’s service revenue is very predictable, its sales revenue fluctuates. With the addition of ADG, about half of Tecogen’s total sales will consist of steady, predictable revenue, softening the ebbs and flows of the sales cycle, which is a big advantage!

Tecogen’s second quarter results, for the period ended June 30, 2017, which will include ADG’s results for the first time, will be announced on Monday, August 14th. Recommendation BUY.

Smallcaps.us Advice: BuyPrice Target: $8.97Latest Company Report (pdf)
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