Project Finance Modelling For Renewable Energy

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1 Project Finance Modelling For Renewable Energy A 3-Day Programme This course can be presented in-house for you on a date of your choosing The Banking and Corporate Finance Training Specialist

2 Course Overview Objective The course is designed to help analysts to create and use project financial models on a consistent and focussed basis, specifically for the renewable power generation industry. Aims The principal aim of the course is enable participants to create, use and analyse a project finance model, specifically for Course the renewable Overview energy industry. This will be done by reviewing best practice in model structures, and then building up calculations stage-by-stage to create an entire model. We will then use Excel tools to analyse outputs, highlight areas of risk and perform sensitivity analysis. Methodology The learning methods used are practical, as practicing newly-learned techniques builds skills more deeply and more effectively. Each section will be covered briefly as a module in a traditional class style, but the real learning experience will be found in the exercises within each module. Suggested solutions to each stage will be provided and discussed, and participants will be encouraged to review their work independently. Further supporting materials and additional exercises will be available for further postcourse learning, with ongoing support from the facilitator. Practical Exercises An entire model will be created from scratch. Starting with basic assumptions and input data, delegates will build a model with financial structures, inflation, cash flow waterfall, balance sheet and P&L, tax and dividends, equity returns and valuations, ratios and cover factors, and sensitivities. Headlines Learn about using best practice financial modelling in structure and techniques Building flexible models to accommodate change Building funding structures and cash flow waterfalls Integrated modelling with balance sheets and P&L statements Using the outputs of the model ratios, sensitivity analysis, scenarios Creating and using an entire integrated model for the power generation industry Course Content Day 1: Creating Models with Inputs & Assumptions Best Practice Modelling Best financial modelling practice Creating flexibility Separation of inputs, calculations and outputs Logic flow within the model Use of switches to allow option selection Use of flags to control timing factors Techniques to make modelling easier and faster Keeping control of versions Making the model robust Common mistakes Practical: review an existing model to check for compliance with best practice

3 Setting-Up a Model for a Power Generation Project Starting position & overall objective(s) Input sheets, calculation areas and output sheets Key Excel features and techniques Setting up multiple currencies Practical: producing a model framework for a power generation project using best practice Electricity Production Forecasts Production sales and volume Offtake agreements Pricing assumptions Building up other operating costs Building in efficiency and availability factors Practical: adding revenue, production & operating assumptions into the renewable energy model Capital Expenditure in a Power Generation Project Build-up of construction costs for the generating assets, grid connections and other capital expenditure Using lookup functions to change capital expenditure timings Building in sensitivities for potential changes in costs Calculating depreciation of the resulting capital assets Practical: Adding CAPEX and depreciation schedules to the model Day 2: Project Financing and Cash Flow for an Electricity Project Financing and Loans Loan finance in a Renewable Energy project Interest rates and repayment terms Debt fees Dealing with any circular references: consequences in Excel possible solutions to circular references Project finance debt amortisation schedules Debt Service Reserve Accounts (DSRA) in project finance Practical: Add a loans schedule which will feed into the balance sheet, cash flow and income statement of the model. Income Statement and Balance Sheet Adding income statements and balance sheets Model checks on consistency Minority shareholders Practical: completing and checking the financial statements in the model.

4 Tax and Dividends Overview of modelling techniques for tax Tax concepts: Capital allowances Tax loss carry-forwards Disallowed expenditure Payment of taxes by instalments Tax shield of interest Modelling cash available for distribution and dividends arising from the project Practical: adding tax and dividend calculations into the model. Day 3: Deriving Results from the Renewable Energy Model Ratios Ratios and bank covenants in a power generation project Mechanics of calculating ratios: Debt service cover ratio (DSCR) Loan life / project life cover ratio (LLCR / PLCR) Interest cover ratio (ICR) 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. Cost of Capital Review of cost of capital theory Capital Asset Pricing Model Computing the Weighted Average Cost of Capital (WACC) for the project Using the WACC to determine a capacity charge fee for the power generation assets Practical: add WACC to the model and calculate a capacity charge to meet cost of capital requirements Discounted Cash Flow Methods of calculating valuations of projects Producing an equity valuation Practical: create a valuation of the equity in the model Sensitivity Analysis for a Power Generation Project Meaning of break-even in a project Stress-testing a project finance model Varying inputs to assess effect on results Excel tools to assist with sensitivity analysis: Goal seek Watch window Data tables Scenario manager Exercise: Add break-even calculations, data tables and scenarios to the model.

5 Management Summary Objectives of a management summary Identifying the users of the model outputs What to include in the summary Use of charts to summarise data Exercise: Add a succinct management summary for decision-makers who will use the model. Wrap-Up Questions and answers Further reading on the subject What Redcliffe s clients are saying about the course Very thorough and even for a complete beginner with no previous modelling experience Step-by-step contruction of a project finance model and simplified calculations in order to explain the underlying logic Topics were really clearly explained and presented