project finance model example

project finance model example

The Essentials of Renewable Energy Project Finance: A Comprehensive Course

1. Introduction to Renewable Energy Project Finance

This course presents all the essentials of debt project finance for developers, investors, and other interested parties to comprehend the more sophisticated financing methodologies with only the traditional debt sources and without additional government subsidies. The course is designed to provide the participants with a comprehensive understanding of the concept and structure of renewable energy project finance. The course, as such, is very relevant for developers, COOs, CFOs, controllers, corporate underwriters, risk managers, and asset managers with projects or project-related responsibilities either in heavy industry sectors benefiting from carbon constraints such as wind, mid-merit IGCC, biomass, biomass feedstock, geothermal, or in renewable energy. Module 1 introduces project finance and addresses the basic concepts. We start by introducing and defining project finance. Then an overview is presented with the basic project finance structuring and the parties involved. This overview is provided to prepare the transformation to renewable project finance in the second module.

2. Key Concepts and Principles in Project Finance

Understanding the concepts and principles behind project finance, as they relate to renewable energy, is the focus in the next five lessons. First, we’ll talk about the players involved in project finance, including those responsible for the project, including the lender/financier and those that support the process, such as the independent engineer, technical advisor, or insurance or agency. Then we’ll discuss the concepts, such as the use of bonds versus a bank syndicate, inherent debt capacity, the put option and the loan repayment profile, and the fact that not all subsidies are south of 0%. Freely using these principles and concepts are the keystone to successful development and financing of renewable energy projects.

Project finance is a complex, often intricate system of financing large-scale, long-term, capital-intensive infrastructure and industrial projects. It’s a system that demands a large number of specialized skills, necessitates diverse sources of investment, and requires the blending of high-risk, low-risk, and off-balance-sheet finance. Done correctly, it ensures a rational, efficient approach to risk, a fair division of returns to the project sponsors, and an allocation of risk to those best suited to manage it. The end result is a project that provides an essential function in society: that of transporting, producing, or otherwise supplying an essential service to millions or even billions of people. In your daily lives, for example, you probably benefit from project finance in many ways.

3. Financial Models and Analysis for Renewable Energy Projects

An analysis of the real economic life, the useful life in auto-consumption regimes, the rate of return and the Net Present Value (NPV) obtained by using the Real Options Method and the Finite Elements Method will also be presented, in both situations, taking into account all the fortunes and accidents that exist in any business. A very important aspect of the financial modeling is the probability of loss. With the Real Options, as in the WTO and auto-consumption, it will also be possible to find some places with no risk when starting a business, with initial investments as consistent as possible.

Any renewable energy project starts and ends with its financial model, once the project has been defined and the methodology has been established to quantify its business plan. A thoroughly developed financial model will enable the project developer to understand and properly account for the sources and uses of the capital involved in his project. The paper presented here summarily addresses the basic concepts of the financial analysis for renewable energy projects in general and the financial modeling specifically required to analyze the business plan for a wind power project.

4. Risk Management and Mitigation Strategies in Renewable Energy Project Finance

Risk governs the ability of an investor to make a return commensurate with the level of investment and risk profile assumed. Decisions to develop, finance, and invest in a given renewable energy project depend upon each stakeholder’s individual appetite for risk and their ability to allocate and manage risk. Effectively implemented risk management principles provide an environment that enhances flexibility, supports investment-grade development, and reduces overall project costs. Costs can be reduced through numerous risk management/financing strategies, which can be applied during project development and through construction to achieve the desired outlook for a renewable energy project. The key is to recognize that each risk has its own voice, and through the proper development and funding strategy, an appropriate allocation can be achieved throughout the life of a project.

This course covers the essentials of project finance for renewable energy projects. Tailored for contractors, investors, lenders, policymakers, and other professionals in the renewable energy space, this comprehensive 30-hour training course provides the fundamental concepts and flexibility to be completed whenever your schedule allows. With a curriculum developed by some of the brightest minds in the solar finance industry, this new addition to NYSEIA’s extensive course offerings will provide the opportunity to learn from the industry’s best and brightest, at a time that works for you.

5. Case Studies and Best Practices in Renewable Energy Project Finance

Proponents of these projects are expected to provide a detailed and professional package of documents and data when seeking financial support. They must also have a clear understanding of the sensitivities and risk profiles of their projects, for it is unlikely that any third parties will ever fully share the complex set of risks associated with any particular RE project. This case study-based session will build upon the earlier sessions to provide attendees with an overview of best practices in the development and financing of RE projects of various types, sizes and in a number of different jurisdictions. The session will focus upon showcasing the various financial and investment support mechanisms at play and discuss where they have been successful and where they have fallen short of expectations. The distinctive role taken by various categories of project developers, equity sponsors, banks, agencies and multilateral investment organizations will be highlighted and discussed. Before delving into the case studies, the session will feature a discussion of the key functional and economic drivers which will determine the financing packages that are eventually offered to RE projects at a dozen or so various growth stages. These drivers encompass political, credit, technical, commercial and legal risks, and which will often reflect the particular stage of growth, development or commercialization reached by various sources of RE. The session will close with a high-level summary for the various technologies, scales and growth stages.

Renewable energy (RE) projects are capital intensive. Prospective sponsors are typically required to make equity contributions equal to somewhere between 25 to 50% of the total installed cost of the projects. As a result, careful consideration must be given to the appropriate sources of financing and the credit tenors that can be secured. Furthermore, the cost of capital for RE projects, both at the equity and debt level, is generally higher than that faced by traditional project finance structures. This is the result of a number of factors, including the specific risk profiles of these projects, the expected life and operational performance of the actual installed technologies, the legal and regulatory context in which the projects are to be built, the off-take and other support structures put in place by the various governments in support of their domestic RE strategies, and the nature of the project finance market, particularly as it has developed in emerging markets with many projects in the construction, commissioning and initial operation stages.