EuroSite Power Introduces Four Pillars of Growth

EuroSite Power (EUSP – $0.73), which owns and operates clean, On-Site Utility™ systems that produce electricity, hot water, heat and cooling at facilities in the UK, recorded a 20% revenue growth in the third quarter, ended September 30, 2015.

Although that’s a solid result, four other events, achieved during the quarter, attracted most attention. These four “pillars” have actually laid the foundation for the Company’s success in coming years.

  • Solid Financing – Two banks have submitted terms to provide 100% non-recourse project financing for all of the Company’s future projects. This is a major accomplishment, as EuroSite Power first finances the equipment and installation costs of a system, and then the property owner pays for the generated electricity, heat and cooling over a set period of time – usually 15 years. This means there won’t be any more private placements to finance equipment purchases. It also means the Company can now handle much larger projects, in which 5 or 10 units have to be installed.

    Apparently, the indicative term sheets are ready to be signed and the Company expects to sign both agreements, as it would give them some more funding flexibility.

  • Natural Gas Purchase – During the quarter, EuroSite Power reached an agreement with Corona Energy, a leading independent energy supplier in the UK, to buy natural gas at very favorable prices on a site by site basis. Because the Company now has 29 operating units, the combined amount of gas that these machines consume was large enough to negotiate a much lower tariff with a single gas supplier.

    Currently each customer buys gas from a gas supplier at a regular (retail) price, and EuroSite Power pays the exact same amount to the customer for the gas consumed by the Combined Heat & Power (CHP) unit. Thanks to this new agreement, EuroSite Power will shortly begin signing up its customers to buy their gas from EuroSite Power at the new lower rates. This includes the gas consumed by EuroSite Power’s CHP units, but also the gas the customers’ use to run their own boilers, or for catering etc.

    This new arrangement is a win-win for both EuroSite Power and its customers. The agreements allow EuroSite Power to substantially reduce the price paid to purchase gas consumed by its installed machinery and allows the customers to purchase gas at a discount for their other applications. This deal will considerably improve the Company’s margins and provide additional revenue in the form of gas sales.

  • European Strategic Partner – Third, EuroSite Power identified a strategic partner that will help expand the Company in mainland Europe. Offering clean, reliable power, cooling, and heating to potential customers in mainland Europe had been on the agenda for a while at EuroSite Power and this will be a key relationship going forward.

    Of course, the most difficult aspect of expanding, next to getting to know all the details of each country’s tariffs and legislation, is customer service. If you have a customer in Poland, a couple in Germany, and one in Romania, logistics to maintain the machines soon becomes a costly issue.The deal with this partner, that already has an extensive dealer network in Europe, will be very valuable for EuroSite Power.

  • In-House Maintenance Service Team – Finally, starting December 1st, 2015, EuroSite will have transitioned to using its own in-house maintenance team. Previously, maintenance was handled by third party companies, a costly arrangement that sometimes resulted in less satisfactory work (see financials). Next to better control of the equipment on-site, this too will lead to higher margins.

Third Quarter Financials

Revenues in the third quarter, ended September 30, 2015, reached $421,991, up more than 20% compared to sales of $350,561 in the comparable period of 2014. Net loss for the quarter ended September 30, 2015 was $450,323, or $0.01 per diluted share, compared to a loss of $378,648, or $0.01 per diluted share, for the third quarter in 2014.

The increase in net loss during the quarter can be attributed to three one-time items. First, peripheral equipment on two separate CHP units broke down and had to be replaced. Second, two engines – a CHP unit runs on a regular combustion engine that is modified to run on natural gas – had to be replaced. Finally, a third-party contractor had done some sub-standard work. As a result, some electrical works on site had to be replaced.

Net sales for the nine months ended September 30, 2015 were $1,473,307, compared to $1,117,980 in the comparable period of 2014, an increase of 31%. Net loss for the nine months ended September 30, 2015 was $1,143,143, or $0.02 per diluted share, compared to $1,766,788, or $0.03 per diluted share, in the 2014 comparable period, a 35% improvement in net loss.

Three Months Ended
September 30
Nine Months Ended
September 30
Net Sales
Cost of Goods Sold
Operating Expenses
Income (Loss) From Operations
Other Income (Expense)
Pre-Tax Income
Income Tax Expense (benefit)
Net Income (Loss)
Earnings (Loss) Per Share
Shares Out. – Diluted
Most important income statement data for the quarters and nine months ending September 30, 2015 and September 30, 2014. Source: Company Press Release

In total, the Company now has 29 CHP units up and running, totaling 2,878kW of installed capacity. Currently, there is a backlog of 7 units, for an additional 889kW installed capacity. The total revenue that the Company aims to generate from these 36 On-Site Utility™ agreements is approximately $101 million.

During the third quarter of 2015, energy production of all operating systems was slightly under 5.5 million kWh, a 60% increase compared with the same quarter in 2014. In fact, total energy production for the first nine months of this year has exceeded total production during the whole of 2014. This reflects more machines being sold and installed in the past twelve months.

Margin Improvement

Although gross margins improved to 13.5% in the third quarter of 2015, compared to 8.9% for the same quarter in 2014, margins fell short of management’s expectations. This was mainly due to the three one-time items mentioned above. Without these costs, margins would have been 27% in the third quarter.

EuroSite Power continues to work hard to increase the availability and efficiency of its operational fleet, as it helps to drive up margins. A CHP unit’s availability, or up-time, can never reach 100%. Sometimes the equipment fails, it needs maintenance, or it might even be temporarily shut down because the electricity tariff from the grid is too low at certain times of the day, or year, to make sufficient margins. The equipment availability in the third quarter was 69%, which was lower than the previous quarter due to reliability issues mentioned above.

Efficiency, on the other hand, measures how much of a unit’s input fuel is converted to energy which can then be sold to the customer. In the third quarter the average efficiency was 77%, compared with 74% in the same period last year. In the spring and summer the average efficiency is traditionally somewhat lower than in autumn or winter, as there’s less need for thermal energy in warmer months.

Moreover, the Company has recently adopted a new measurement and verification program to analyze potential opportunities. With the help of this program, EuroSite Power’s engineers are able to better determine if a potential project has high enough margins to merit investment. Although the Company won’t proceed with some projects that it otherwise might have won, this will clearly be beneficial to combined margins in the future.

ADE Award

In other news, EuroSite Power was selected as a finalist for the prestigious Association of Decentralized Energy (ADE) Innovation Award. The ADE Annual Conference and Awards are the leading events for the CHP, district heating, energy services and community energy sectors in the UK.

EuroSite Power’s nomination in the Innovation category was based on its installation at Clifton Hospital. The 100kW CHP unit at the hospital was installed in 2014. The system produces up to 1,745,283 kWh of total energy per annum, while saving up to 208 tonnes of CO2 – equivalent to taking 44 cars off the road each year. The contract is worth an estimated $2.72 million over its 15-year life.

The agreement with Clifton Hospital was the first for EuroSite Power with the British NHS (National Health Service), a publicly-funded healthcare system with annual expenditure of approximately £127 billion. With up to 200 hospitals in the UK appropriate for this type of scheme, EuroSite Power is able to provide unprecedented cost efficiencies and green benefits for UK healthcare.

Clifton Hospital has reported a 55% reduction in imported electricity over the first 12 months of operation. Paul Jackson, Estates Manager-Engineering with the NHS, said: “Like any business we need to keep our operating costs under control and as energy prices continue to rise we needed to find a solution to keep these rises under control too. EuroSite Power’s combination of zero upfront capital cost with pay-as-you-go energy has proven the ideal solution.”

The final awards will be presented in London, on November 25th, 2015.


EuroSite Power’s four pillars of growth will significantly increase the Company’s ability to grow. With project debt finance solutions now in place, it has the ability to take on many and larger projects.

In addition, thanks to its new partner, the Company can now also offer its excellent and money saving services to interested parties all over Europe.

We also expect EuroSite Power’s margins to improve in the coming quarters, especially in light of the new gas supply arrangement, which it will gradually implement with all its customers, and the in-house maintenance team, which will save on third party expenditures.

Moreover, the new measurement and verification program will be useful in ensuring only select higher margin projects are pursued. Buy recommendation. Advice: BuyPrice Target: $2.75Latest Company Report (pdf)
For important disclosures, please read our disclaimer.

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