EuroSite Power Significantly Expands Potential Customer Group With Financing Agreement

EuroSite Power (EUSP – $0.90), which installs, owns, operates and maintains natural gas fueled CHPs, chillers, and heat pumps at industrial and commercial facilities, has secured a project financing agreement with Societe Generale Equipment Finance (SGEF). In December last year the two parties reached an agreement in principle, and now they’ve signed a formal agreement.

This is an important milestone for EuroSite Power, because in the past the cost to install a CHP unit at a customer’s facility, roughly between $200,000 and $300,000, was entirely funded by the Company. In order to do so, it had to rely on equity financing, which wasn’t an ideal situation.

With SGEF now on board to finance future projects, the Company can handle much larger projects both in system size (kW) and in terms of the number of sites. EuroSite Power has even hired additional sales personnel, as it’s confident that plenty more opportunities are now within its reach.

Societe Generale Equipment Finance (SGEF) is the international equipment and vendor finance specialist of Societe Generale group. SGEF is a worldwide leading player and a key partner for manufacturers and vendors in Europe, Africa, Asia and Americas. Societe Generale Equipment Finance manages more than EUR 22.2 billion end managed assets. With 3,100 people across 35 countries, SGEF serves more than 230,000 customers thanks to its sound industry knowledge in the Transportation, Industrial Equipment and High-Tech markets.

Paul Hamblyn, Managing Director of EuroSite Power mentioned, “With this formal financing agreement in place, EuroSite Power is positioning to rapidly expand its On-Site Utility model”.

On-Site Utility

EuroSite Power sells the energy produced from an onsite energy system to an individual property as an alternative to the outright sale of energy equipment. In this scenario, EuroSite Power pays for the cogeneration equipment, installing the unit, the gas to run the installation, and its maintenance.

In return, the customer only has to pay for the generated electricity, heat and cooling over a set period of time – usually 15 years. In addition, the cost of the generated energy is guaranteed to be lower than the displaced energy from the grid.

EuroSite Power along with Societe Generale, have developed a process that enables them to pre-screen potential customers and projects. They basically, look at each project and its future cash flows. In addition, they research the credit worthiness of the possible customer.

When the outcome of the screening process is positive SGEF will first provide a formal credit approval and EuroSite Power will then sign an On-Site Utility Agreement with its customer, Similar to every financing, the interest rate will be influenced by the customer’s current level of borrowings, the confidence of the lender in the customer, etc.

As soon as the unit is up and running, the lender will then refund EuroSite Power all costs associated with the purchase and the installation of the unit. From then on, the project will pay off the loan in monthly installments. This is obviously a major advantage for the Company, as it now has an almost unlimited access to funds from Societe Generale Equipment Finance.

Conclusion

Not only will EuroSite Power be able to target similar customers and sites to the 36 it already has, it will also be able to offer its attractive services to larger customers and larger projects that previously were out of reach.

We wouldn’t be surprised if we soon saw the first results of this financing agreement. Buy recommendation.

Smallcaps.us Advice: Buy	Price Target: $2.75	Latest Company Report (pdf)
For important disclosures, please read our disclaimer.