Project Finance Modelling For Renewable Energy

Creating Models with Inputs & Assumptions

Best Practice Modelling

This renewable energy financial modelling course explores industry best practices for building robust, flexible and efficient financial models, supported by practical techniques and a hands-on model review.

• Best practices

• Creating flexibility

• Techniques to make modelling easier and faster

• Separation of inputs, calculations, and outputs

• Use of flags to control timing factors

• Use of switches to allow option selection

• Keeping control of versions

• Making the model robust

• Common mistakes

• Practical: Review an existing model to check for compliance with best practice

Operating Model

• Modelling production and sales volumes

• Use of offtake agreements and pricing assumptions

• Building up other operating costs

• Building in efficiency and availability factors

• Practical: Create an operating model with revenue, production & operating assumptions

Capital Expenditure in a Renewable Power Generation Project

• The build-up of construction costs for generating assets, grid connections, and other capital expenditure

• Using lookup functions to make capital expenditure timings flexible

• This section of financial modelling renewable energy includes building in sensitivities for potential changes in costs

• Calculating the depreciation of the resulting capital assets

• Practical: Adding CAPEX and depreciation schedules to the model

Project Financing and Cash Flow for a Renewable Power Project

• Loan finance in a renewable energy project

• Interest rates and repayment terms

• Debt fees

• Cash flow waterfall for funding flows

• Project finance debt amortisation schedules

• Debt Service Reserve Accounts (DSRA) in project finance

• Exercise: Add a loan schedule that will feed into the model's balance sheet, cash flow, and income statement

Project Financing and Cash Flow for a Renewable Power Project

Tax and Dividends

At this stage of Redcliffe’s renewable energy financial modelling course, training transitions into the treatment of tax and dividends within project-level cash flow models.

• Overview of modelling techniques for tax

• Modelling cash available for distribution

• Modelling dividends from the project with typical debt covenant constraints

• Practical: adding tax and dividend calculations into the model.

Ratios

• Ratios and bank covenants in a power generation project

• Mechanics of modelling typical project finance ratios: Debt service cover ratio (DSCR)

• Loan life/project life cover ratio (LLCR / PLCR)

Using the DSCR to create a sculpted debt repayment profile

Practical: Add ratios to the model and adjust the dividend calculations so they are constrained by covenants based on debt ratios.

Discounted Cash Flow (DCF)

• Cost of capital: Cost of debt

• Cost of equity

• Weighted average cost of capital (WACC)

Methods of calculating the valuations of projects

Producing an equity valuation using DCF concludes this section of the renewable energy financial modelling course

Practical: create a valuation of the equity in the model

Sensitivity Analysis for a Renewable Energy Project

• Defining break-even in a project

• Stress-testing a project finance model

• Varying inputs to assess the effect on results

• Using Goal Seek to determine assumptions for break-even

• Excel tools to assist with sensitivity analysis: Goal seek

• Camera

• Data tables

• Scenario manager

Exercise: Add break-even calculations, data tables, and scenarios to the model.

Wrap-Up

• Q&A

• Further reading

Training Objectives

Financial modelling for renewable energy projects has the following training objectives:

• Learn best practices in model structures and logic

• Build a complete financial model for a renewable power project using a phased and systematic approach

• Create flexible revenue, production and cost forecasts

• Add flexible capital expenditure profiles into the model

• Include financing structures

• Discover model dividend distributions to equity shareholders

• Discuss bank ratios, debt covenants and model inclusion

• Learn to calculate the weighted average cost of capital (WACC)

• Value the project using discounted cash flow measures

• Use Excel tools to highlight risk areas, particularly in sensitivity analysis

Training Course Summary

Finance modelling for renewable energy projects is designed to help analysts create and use models on a consistent and focused basis for the renewable power generation industry.

Aims

Participants to create, use and analyse a project finance model, specifically for the renewable energy industry. This is completed by reviewing best practices in model structures. Participants will build up the calculations stage-by-stage, creating an entire model. Using Excel tools, we will analyse outputs, highlight areas of risk and perform sensitivity analysis.

Methodology

Learning methods are practical, with each section covered briefly as a module in a traditional classroom style. The real learning experience is in the exercises within each module. Suggested solutions to each stage are provided for discussion, whilst participants are encouraged to review their work independently. Further supporting materials and additional exercises are available for additional post-course learning, with ongoing support from the facilitator.

Practical Exercises

A big focus of renewables financial modelling is learning through experience, which is why we create an entire model from scratch. Starting with basic assumptions and input data, participants will build a model with financial structures, inflation, cash flow waterfall, tax and dividends, equity returns and valuations, ratios and cover factors, and sensitivities.

Headlines

• Learn how to utilise best practice financial modelling in structure and techniques

• Build flexible models to accommodate change

• Build funding structures and cash flow waterfalls

• Effectively use model outputs – ratios, sensitivity analysis, scenarios

• Create and use an entire model for a renewable energy project