Why does this make financial sense to OSU?

The $1.1 billion energy deal approved by an Ohio State University Board of Trustees committee Thursday and up for a vote before the whole board Friday is big, unusual and complicated.

The parties are OSU and Ohio State Energy Partners (OSEP), made up of the French energy company ENGIE and a Canadian investment firm called Axium Infrastructure. Here is how Ohio State explains the deal:

What’s the basic trade?

Ohio State gets a big upfront payment of $1.1 billion. It also gets an industry leader to run its energy systems, invest in energy-efficient improvements and a partner for energy research. OSEP gets a steady return on that investment in annual payments over 50 years and a large, varied, real-life laboratory for research and development.

Who’s paying whom, for what?

OSEP would pay a little more than $1.1 billion to OSU upon closing of the deal. The money would go into the university’s endowment, and OSU could spend a portion of the earnings each year on university priorities. In addition, OSEP would pay $150 million in three phases for direct spending on university priorities and would spend an estimated $250 million on the energy-conservation projects and new facilities required to reduce OSU’s energy use by 25 percent in 10 years. OSEP also would develop a $50 million center for energy research.

In return, OSU would pay OSEP a fixed fee each year that would start at $45 million and rise by 1.5 percent each year for inflation. It also would pay an operating fee each year, about equal to what OSU would otherwise spend to operate and maintain its energy systems. That fee starts at $9.2 million and would be adjusted each year based on the university’s actual costs. When OSEP spends to upgrade or build new facilities, OSU would repay the cost, plus an interest rate set by a formula.

The upfront cash infusion to the endowment would provide for increased operating cash each year; OSU would get improved energy efficiency without using up its borrowing capacity on capital projects. Also, OSEP would commit to collaborating with academic departments on research and internships, support for professor positions and student scholarships and other projects.

Why does this make financial sense to OSEP?

For the initial upfront investment, ENGIE gets a steady source of income from a highly stable customer whose energy use is likely to grow. Axium’s investment fund is assured of a predictable, long-term return.

Would OSU buy its power from OSEP?

No. It would continue buying electricity, gas and water from various suppliers. OSU spends about $60 million on this annually, but officials expect the energy giant’s buying power to help the university get a better price.