A new Canadian venture plans to build small, on-site power facilities for businesses as high energy costs and investor demand for infrastructure converge.
Forum Equity Partners, a Toronto-based alternative investment manager with $1.3-billion under management, is backing an initiative that will seek to put individual, natural gas-fired power plants within Ontario hotels, manufacturing facilities and other businesses. In time, the business plans to expand in Canada and internationally.
The venture, called Forum Vostro Energy Services Inc. (FVES), is expected to have between $300-million and $400-million in committed funds by 2019, said Richard Abboud, chief executive officer of Forum. To get FVES up and running, Forum will use capital from its own balance sheet, but it will look to institutional investors for capital in the future. Mr. Abboud said that the power facilities would have contracted cash flows and clear operating costs that would give these investments at a lower risk profile than many other infrastructure assets.
FVES is being rolled out amid government plans to increase infrastructure development, as well as mounting frustrations among business owners over climbing energy prices in some provinces. As Ontario Premier Kathleen Wynne targets lower residential electricity rates to reduce the burden on families, businesses haven't been promised much relief from soaring power costs in the province.
"Part of the reason why it makes sense is because out costs have gone up," said Atul Mahajan, who helped to found FVES after leaving the role of CEO at Oshawa Power and Utilities Corp., an Ontario public utility, this past year. "And natural gas [costs], thanks to fracking technology, are at an all-time low."
FVES's first idea is to put individual co-generation energy plants, sometimes called combined heat and power (CHP) plants, into businesses, giving them efficient localized power and the heat for less than the cost of being a part of the normal energy grid. FVES would install units up to 40-feet-long that run on natural gas into businesses and manufacturing sites. This saves on transmission costs and waste, as well as promising more reliable power not susceptible to extreme weather and pumping out usable steam, FVES says.
Mr. Mahajan sees a $3-billion market opportunity in Ontario. Other provinces such as Alberta could also be ripe for expansion due to their high energy costs, he said, and eventually he'd hope to expand the business into the United States and beyond. But Quebec and B.C. would likely be uneconomic for the businesses.
There are other vulnerabilities. If the government were to artificially reduce electricity costs, this could have an impact on the business plan, Mr. Mahajan said. To counter that, Mr. Mahajan intends to expand the FVES into other renewable offerings such as solar power and storage. That also help address the concern that these plants still run on fossil fuels. "It's a bridge to the future," Mr. Mahajan said , adding that FVES is "technology agnostic."
Still, co-generation isn't right for all businesses. These kinds of power units are also most efficient for businesses such as hospitals or hotels that use power 24/7. For office buildings and other businesses with sleepy hours, there's less potential to save money.
Mr. Mahajan says that he's already sourced customers for Forum Vostro and is working through detailed engineering studies. "We are currently in the process of completing these for several clients and hope to start construction in late summer and be up and running early to mid-next year," he said.