Project Finance

Course Information

Overview: Advanced Project Finance Analysis provides participants with the ability to create and understand sophisticated project finance models. Through building models in a hands-on environment, you will be better able to quantify risks of different types of projects and to use models to design the best debt, equity and contractual structure to build models.

Course Length: 3 days

What You’ll Learn

• Understand the objectives and the structure of project finance models in terms of structuring and risk analysis.
• Learn financial modeling best practices to allow for high levels of flexibility and complete transparency in calculations.
• Master model accuracy with effective error checks to verify model results.
• Create master scenario pages with time series and fixed variables to allow for advanced risk analysis.
• Learn to understand and program structured models that incorporate complex cash flow waterfalls, alternative funding cascades and sculpted repayment techniques.
• Create flexible models with effective summary statistics to evaluate alternative timing, operating assumptions, financial structures, re-financing and contract pricing.
• Work through the difficult problems in project finance modelling including
  • Complex cash flow waterfalls with balloon payments and mini-perm structures
  • Sizing of debt with capitalized interest and alternative drawdown schedules
  • Flexible debt sculpting with income taxes
  • Sizing of debt service reserves and use of DSRA in waterfall
  • Re-financing of debt and mini-perm debt
  • Debt service reserves that look ahead to future years
• Understand the benefits of creating user defined functions rather than copy and paste macros to resolve any circular reference problems in project finance models including funding problems and debt sculpting
• Incorporate structural enhancements into models such as maintenance reserve accounts and gain insight into the costs and benefits of the alternative features such as cash flow sweeps, covenants and debt service reserve accounts
• Learn Excel techniques with some VBA to make better presentations from models and to make models more transparent and efficient

Agenda

Module I: Introduction and Model Structure 

The Project Modelling with Excel program begins with introductory comments about the skills and general objectives in project finance modelling with an emphasis on the difficulty in measuring and valuing risk. After the introductory discussion, participants begin work on construction of a flexible, structured, accurate and transparent project finance model.

• Flexible Timing in Project Finance Models
  • Review of actual models and date inputs and timing
  • Modelling project phases with switches and timing switches
  • Modelling delay risk and flexible construction periods and S-curves
  • Conversion of periodic data into annual and semi-annual presentations
• Operating analysis and pre-tax IRR
  • Setting-up operating assumptions for revenues, operating expenses and capital expenditures
  • Alternative methods for presenting time series assumptions
  • Modelling inflation rates and growth rates with different time periods
  • Calculation of pre-tax IRR and construction of summary page
  • Computation of liquidated damages from construction delay
  • Calculation of contract price from required pre-tax IRR

• Depreciation, capital allowance and fixed asset module
  • Notion of structured models with separate page for depreciation analysis
  • Use of timing switches for depreciation and/or capital allowance
  • Introduction to verification and auditing for testing balances
  • Benefits of separating deprecation on interest during construction and fees from other depreciation and amortization
  • Calculation of after-tax project IRR
  • Calculation of project IRR assuming alternative sale dates earlier than the retirement date
  • Scenario analysis with data tables and VBA

Module II: Financial Structuring In Model During Construction 

The second module of the program begins the addressing details of project finance models including funding structure during construction, interest during construction, bond financing and various other exercises relevant to financing during construction in project finance models.

• Review of Financing Calculations in Sample Completed Models
  • Alternative possible financing assumptions
  • Notion of funding versus debt commitment and presentation in models
  • Presentation of sources and uses of funds
• Circularity Macros and Functions for Capitalized Interest and Fees
  • Alternative methods to resolve circularity
  • Illustration of four methods for resolving circularity with fee example
  • Advantage of functions relative to macros for transparency and flexibility
  • Use of algebra and functions instead of macros

• Funding Cascade
  • Pro-rata construction versus equity up-front versus equity bridge loan
  • Funding Needs versus Debt Commitment and Funding Ratio
  • Use of MAX and MIN in developing funding cascade
  • Modelling of bond financing with flexible timing and cash fund
• Debt Schedule During Construction
  • Interest during construction and interest capitalized using periodic interest rates and credit spreads
  • Set-up of summary sources and uses of funds to resolve circularity
  • Up-front fees and commitment fees
  • Repayment of construction debt at project completion date to avoid DSRA circularity
• Model Verification and Accuracy Audits
  • Developing multiple tests for funding needs and funding uses using logical variables
  • Aggregation of multiple tests
  • Effective presentation of model verification on each page of model

Module III: Debt Structure, Sculpting and Debt Sizing

As project finance is a type of debt, the third module addresses various theoretical and practical issues related to debt financing in general and project debt in particular. Subjects included in module three include setting up a debt schedule, debt sculpting, flexible debt terms, debt capacity, debt structure and credit measures.

• Debt Schedule and Debt Capacity
  • Set-up of debt schedule from construction debt
  • Debt capacity from debt service coverage
  • Debt repayment with equal instalments or mortgage repayments
  • Presentation of cash flow and  debt service on summary page
• Debt Structuring
  • Alternative debt tenor
  • Varying credit spreads
  • Verification tests for debt balance and debt repayment
  • Inclusion of bond financing and mini-perm
• Debt Sculpting
  • Computing repayments assuming debt sculpting without taxes and DSRA
  • Circularity problems arising from sculpting and taxes
  • Resolution of circularity problems using function

 

 Module IV: DSRA, MRA and Cash Flow Waterfall

The fourth module moves from debt structuring to risk analysis.  The principal issue addressed is how to model a cash flow waterfall where different instruments such as cash flow sweeps reserve accounts and covenants are used to protect senior debt service.

• Cash Flow Sweep and Cash Trap Covenants
  • Incorporation of cash sweep in debt schedule
  • Limits on cash sweep using MIN function
  • Programming cash trap covenants
  • Set-up of cash lock-up account
• Efficient Cash Flow Waterfall Modelling
  • Setting up debt and reserve schedule combined with cash flow analysis
  • Setting up cash flow with positive and negative conditions
  • Use of sub-totals in modelling cash flow
  • Application of MAX and MIN functions to limit cash flows
  • Modelling sinking fund, sweep and bullet repayment
• Debt Service Reserve Accounts
  • Modelling required debt service balances
  • Withdrawals from debt service reserve
  • Topping-up of debt service reserves
  • Debt reserve during end of construction period
  • Resolving circularity associated with debt service reserve

Module V: Taxes and Financial Ratios

The fifth module completes the project finance model through inclusion of a profit and loss statement and computation of income taxes.  Given the income, a balance sheet is computed to verify calculations in the model. Finally, the LLCR, PLCR and the average debt life are computed.

• Profit and loss statement and income taxes
  • Structuring profit and loss
  • Inclusion of depreciation on interest during construction and amortization of fees
  • Programming basic net operating loss account
  • Accounting for expiration of net loss carry forward
• Calculation of Alternative Financial Ratios
  • DSCR with and without tax effect of interest during construction and fees
  • Calculation and interpretation of PLCR with varying interest rates
  • Adjustments to compute LLCR
  • Alternative calculations of loan life
• Balance Sheet Calculation
  • Limited need for balance sheet in analysis
  • Concept of computing equity balance and using closing balances from other sections of the model
  • Use of balance sheet as auditing tool

Module VI: Re-financing and Risk Analysis 

In the final part of the program participants use the model they have created to analyze a series of decisions and evaluate various risks. Participants first address traditional measurement of risk through break-even analysis, scenario analysis and sensitivity analysis. Next, the program moves to mathematical approaches that directly attach a numeric value to risk. Exercises in this part of the program include creation of time series models, Monte Carlo simulation, and credit issues associated with long-term supply contracts.

• Major Risks of Projects (analysis and mitigation)
  • Commodity price risk versus volume risk
  • Technology risk (breakdown and obsolescence)
  • Input supply and availability risk
  • Foreign currency and political risk
  • Construction cost
  • Contract breakage risk
• Re-financing
  • Switches for the re-financing period
  • Sources and uses for re-financing
  • Sizing of re-financed debt

• Risk Analysis Exercises
  • Set-up of master scenario page
  • Break-even analysis
  • Sensitivity analysis and graphs
  • Scenario analysis
  • Tornado analysis
  • Monte Carlo Simulation

Course Information

Course: Mezzanine Finance Masterclass

Course Length: 1 day

Key Topics

• How can senior and mezzanine debt be used to facilitate a management buyout or other forms of ownership transition?
• How can one assess a company’s borrowing capacity?
• What are the key credit, pricing and rating issues surrounding mezzanine financing?
• What is the right pricing and covenant structure for mezzanine debt in alternative types of transactions?
• How do mezzanine financing techniques such as warrant notes work, and when does it make sense to use them?
• How can one model the cash flows and debt pay-down in a transaction with mezzanine debt?

Agenda

Why Mezzanine Finance?

• Performance-driven leveraged finance
• Defensive leveraged finance
• Deal-driven leveraged finance
• Leverage in ownership transition
• Mezzanine debt as temporary financial instrument
• Use of Mezzanine debt in project finance
• Identifying corporate debt restructuring opportunities

Alternative Structures of Mezzanine Debt

• Review of Mezzanine Debt Term Sheet
• Capitalizing Interest in Mezzanine Debt and PIK
• Repayment Structures in Mezzanine Debt
• Equity Kickers in Mezzanine Debt
• Subordinated vendor financing

Debt Capacity Analysis for Senior and Mezzanine Debt

• Implicit or explicit credit rating targets to determine debt size
• Use of mezzanine debt to manage senior debt capacity
• Computing debt size with prospective financial ratios
• Deriving the debt size through assessing downside scenarios

Pricing of Mezzanine Debt

• History of debt pricing for different instruments and credit ratings
• Theory of debt pricing from probability of default and loss given default
• Deriving the implicit probability of default using alternative pricing
• Case study of pricing of mezzanine financing – Iridium
• Use of financial ratios to determine the rating of senior and subordinated debt

Four General Categories of Financial Ratios to Measure Credit Risk of Mezzanine Debt

• Debt to EBITDA and Time to Repay Debt
• Debt to Capital and Value of Firm versus Value of Debt
• Interest Coverage/Debt Service Coverage and Cash Flow Buffer
• Quick Ratios and Other Measures of Liquidity Risk
• Why Different Ratios should be used in Different Industries
• Case Study of Credit Ratios for LBO

Overview of Mathematical Models for Credit Analysis of Mezzanine Debt

• Debt Defined as Sold Put Option
• Merton Model and KMV Model Discussion
• Case Exercise on Building the Merton Model
• Use of Option Pricing Models for Credit Scoring
• Structure of Mezzanine Debt in Option Pricing Models
• Practical Use of Option Pricing Models in Measuring Mezzanine Debt
• Valuation of Senior and Mezzanine Debt Using Option Pricing Models
• Problems with Measuring Parameters and Limits of Mathematical Models

Analysis of Covenants and Cash Flow Sweeps for Mezzanine and Senior Debt

• Advantages and disadvantages of covenants
• Cash Trap covenants and cash flow sweeps
• Good time covenants and cash flow sweeps
• Valuation of covenants

Pricing of Warrants and Equity Kickers for Mezzanine Finance

• Structure of alternative equity kickers
• Value of warrant as call options
• Alternative ways to value call options using option pricing models
• Effect of warrants on coupon rate

Course Information

Course Length: 7-10 days

Overview: This course is geared towards utilities, grid operators, power companies, and policy makers.  You’ll learn every aspect of the power business. Topics give a strong foundation in every aspect of operations, economics, and financing. Multiple case studies are included.

Agenda

I. Policy Issues and Overview of Electricity Markets

Policy Part 1: General Discussion of Policy

• General Policy Objectives
  • Efficiency
  • Fairness
  • Reliability
  • Transparency
  • Economic Growth

• History of Electric Policy
  • Vertical Utilities
  • Government Owned Utilities
  • Independent Power
  • Independent Transmission
  • Independent Distribution

• Financial Objectives of Industry Participants
  • Earned Return and Cost of Capital
  • Reduction of Risk
  • Stock Price and Financial Analysis
  • Risks of Generation and Distribution
  • Project Finance for Generation and Corporate Finance for Distribution

Policy Part 2: Distribution Policy Issues

• Rate of Return Regulation
• Cost of Capital
• Revenue Requirement
• Regulatory Lag and Inflation
• Sales Growth/Energy Efficiency
• Adjustments
  • Operating Expenses
  • Rate Base
  • Prudence
  • Over-capacity
  • Acquisition Adjustments

• Performance-Based Regulation
  • Incentives
  • Reliability Targets
  • Customer Service Targets

• Collection Policies and Non-technical Losses
  • Shut-off and Pre-paid Meters
  • Who Pays for Losses
  • Disconnection and Re-connection

• Energy Efficiency, Smart Grid, Low Income, Regional Differences
  • Implementation of Policy in Distribution versus Generation
  • Policy to Encourage Energy Efficiency
  • Rates Paid by Extension of the System
  • Alternative Low Income Programs
  • Advanced Metering and Smart Grid

Policy Part 3: Transmission Policy Issues

• Transmission Pricing Policy
  • Integrated Utility
  • Paid by Generators
  • Paid by Consumers
  • Congestion Pricing

• Transmission Investment
  • Investment for Generation Connection
  • Investment for Trading
  • Economics of Transmission Investment

Policy Part 4: Generation Policy Issues

• Objective of Alternative Generation Policy
  • Integrated Utility Companies
  • IPP/PPA and Single Buyer Model
  • Government Ownership
  • Merchant Generation
  • Retail Access

II. Benchmarking, Cost of Service and Data Analysis

• Comparison Across Countries
  • Electricity Consumption per Person
  • Consumption Growth
  • Consumption per GDP
  • Capacity Mix
  • Capacity Factors

• Distribution Cost of Service
  • Total Cost of Distribution
  • Components of Distribution Cost
  • Case Study
    • High Voltage
    • Substations
    • Transformers
    • Underground and Overhead
    • Distribution Losses
  • Cost of Service Allocation to Consumer Groups
  • Performance-Based Regulation

• Cost Benchmarking for Distribution
  • Classification of Accounting Costs
  • Cost Metrics
  • Adjustments for Different Regions
    • Load Factor
    • Cost of Living
    • Population Density
    • Age of Equipment
    • Underground/Overhead
    • Central Business Districts
  • Billing, Metering and Overhead Cost

• Cost Benchmarking for Generation
  • Capital Cost
  • Operation and Maintenance Cost
  • Fuel Cost
    • Review of Fuel Prices
    • Heat Rates
  • Levelized Cost of Generation
  • Screening Analysis

III. Engineering Economic Analysis and Levelized Cost Analysis

• Cost of Capital in Distribution and Generation
  • Estimating Cost of Capital for Pricing
  • Cost of Capital for Financial Analysis
  • Cost of Equity Measurement
  • Cost of Debt
  • Weighted Average Cost of Capital
  • Market to Book Ratios
  • Examples of Finding Cost of Capital

• Present Value of Revenue Requirement
  • Investment Cost
  • Construction Timing
  • Cost of Service
  • Case Exercise

• Reliability Cost and Outage Cost
  • Theory of Outage Cost
  • Measuring Cost of Customer Outage
  • Distribution Outage and Generation Outage
  • Loss of Load Probability
  • Reserve Margin

• Simple Financial Models
  • Corporate Model of Distribution Company
    • Historic Data
    • Key Assumptions
    • Key Outputs
  • Project Finance Model of Generation Company
    • Key Inputs
    • Project Phases
    • Key Outputs

• Risk Analysis in Economic Evaluation
  • Risk Matrix and Mitigation
    • Risks in Distribution
    • Risks in Generation
  • Sensitivity Analysis
  • Break-Even Analysis and Outage Cost
  • Scenario Analysis
  • Reserve Margin

IV. Cost of Service Allocation – General Issues

• Cost of Service  – General Issues
  • Objectives of Cost of Service Study
  • Customer Class Costs
  • Problem of Common Costs

• General Issues in Cost of Service
  • Cost of Service versus General Policy
  • Marginal versus Embedded Cost
    • Definition of Marginal Cost
    • Definition of Embedded Cost
  • Customer Class Definitions
  • Data Requirements
    • Load Research
    • Billing Determinants
  • Top Down and Bottom Up

• Cost Causation
  • Distribution Cost Causation
    • Regional Peak Demand
    • Geography and Distribution Engineering Model
    • Primary and Secondary Costs
    • Line Losses
  • Generation Cost Causation
    • Peak Demand and Energy Use
    • Time of Use
    • Season of Use
  • Customer Costs
  • General Costs that Cannot be Directly Allocated
    • Overhead Costs
    • Call Center Costs
    • Non-Technical Losses

• Customer Class Definition
  • Basis for Separating Classes
  • Common Class Definitions
  • Residential, Commercial and Industrial
  • Street Lights
  • Space Heat, Schools and Other Special Classes

• Allocators and Load Factors for Alternative Customer Classes
  • Importance of Load Factor
  • Diversity for Alternative Customer Classes
  • Coincident Peak Diversity
  • Non-coincident Peak Diversity
  • Customer Allocator
  • Costs that Cannot be Directly Allocated

V. Cost of Service for Distribution and Customer Costs

Distribution Cost of Service

• Embedded Cost
  • Allocation from Demand
  • Top Down and Bottom Up
  • Specific Customer Cost
  • Density and Regional Characteristics
• Marginal Cost
  • Theory
  • Alternative Marginal Calculations
  • Applying Marginal Cost
  • Surplus Capacity
  • Short-run versus Long-run
  • Problem of Collecting Revenue Requirement
  • Stranded Investment Problem
• Customer Costs
  • Definition of Customer Cost
  • Embedded Cost
  • Uncollectible Costs, Stolen Electricity and Difficult Allocations

VI. Rate Design for Distribution and Customer Costs

• Definition and Objectives of Rate Design
  • Cost Causation
  • Stability of Revenues
  • Conservation and Demand Side Management
  • Low Income Rates
  • Regional Differentiation

• Residential Rate Design
  • Meter Constraints
  • Examples of Alternative Designs
  • Level of Customer Cost
  • Seasonal Differentials
  • Declining Block and Inverted Block Rates
  • Time of Use Rates

• Non-Residential Rate Design
  • Demand Charges versus Energy Charges
  • Demand Ratchets
  • Metering Issues
  • Street-Lighting Rates

VII. Cost of Service and Rate Design for Generation

• Embedded Generation Cost
  • Construction of New Generation
  • Problem of Allocating Fixed Plant Cost
  • Allocation of Base Load, Peaking and Intermediate Plants
  • Alternative Allocation

• Marginal Generation Cost
  • Marginal energy cost
  • Short-run versus long-run cost
  • Reconciliation of short-run marginal cost, long-run marginal cost and market prices

• Calculation of Supply Curve
  • Volatility in Marginal Energy Cost
  • Marginal capacity cost
  • Peaker method
  • Demand curve
  • Intersection of supply and demand
  • Computation and presentation of short-run marginal cost
  • Incorporation of renewable energy and hydro in short-run marginal cost
  • Wind and seasonal
  • Storage hydro with load duration curve

• Case Study of Supply and Demand – U.K. Market Crash
  • Sutton Bridge Discussion
  • Changes in market structure
  • AES Drax financial analysis

• Modelling uncertainty in short-term cost marginal cost
  • Uncertainty and volatility in demand – working with demand curves
  • Uncertainty and volatility in fuel cost
  • Uncertainty in plant outages
  • Uncertainty in hydro generation
  • Effects of uncertainty with different reserve margins

VIII. Long-Run Marginal Generation Cost and Transmission Constraints 

• Transmission constraints and energy prices
  • Theory of transmission constraints and prices
  • Transmission constraints in electricity versus transmission in oil, gas, food and other products
  • Modelling of region by region supply and demand
  • Modelling transfers of capacity with alternative transmission constraints
  • Computing the value of transmission
  • Policy issues associated with addition of transmission capacity

• Long-run marginal cost and capacity prices
  • Theory of long-run marginal cost
  • Equilibrium long-run price of electricity
  • Theory and importance of computing long-run cost

• Integrated Marginal Cost Model for Evaluating Long-term Prices
  • General Structure – combining short-run cost models with value per kW
  • Setting-up model with different capital costs, fuel costs and supply mix
  • Computation of energy value per KW and capacity value per KW for each unit
  • Simulation of clearing energy price with multiple units
  • Computation of optimal supply mix and resulting combined energy and capacity price
• California Case Study

IX. Economic Analysis of Generation and PPA Contracts

• Risk Allocation and PPA Contracts
  • Allocating risks to IPP that can be controlled
  • Nuanced issues of risk allocation associated with target heat rate, fuel price, maintenance outage and plant availability
  • Incorporation of different risks in multipart PPA tariffs
  • Capacity factor risk in renewable projects versus dispatchable plants

• Measurement of PPA Provisions and Electricity Economics
  • Notion that penalties and bonuses should reflect off-taker costs
  • Use of marginal cost analysis in measuring availability benefits and costs in different periods
  • Analysis of target heat rates in the context of marginal heat rate and average heat rate curves
  • Calculation levelized prices in PPA contracts
  • Evaluation of long-term marginal cost and comparison of levelized PPA prices to long-run marginal cost

• Currency Risk and Interest Rate Risk in IPPs
  • Theory of purchasing power parity and indexing capacity payments
  • Volatility of exchange rates
  • Problems with indexing capacity charges from off-taker perspective
  • Alternatives for allocating exchange rate risk

• Policy Arguments For and Against IPPs
  • State owned systems and power outages, inefficient plants, high losses
  • Vertically owned systems, regulatory costs, nuclear power in the U.S.
  • Merchant power systems, California crisis, merchant meltdown and price increases
  • Purchase power contracts, Philippines, Pakistan, Indonesia

• Case Study of IPPs in the Philippines and India
  • Context of Power Shortages
  • Structure of PPA Contracts
  • Selected plant analysis and review of financial models
  • Postscript in Philippines
  • Contract structure,  risk insurance and PPA agreements for the Dabhol plant
  • Case studies of recent power plants in India
  • Evaluation of the level of price that avoids disputes

X. Project Finance Analysis and IPP Transactions

• Theory and Structure of Project Finance in Context of IPP’s
  • Overview of Selected Project Finance Terminology
  • Importance of Phases in Risk Analysis, Accounting and Modelling Project Finance
  • Theory of Using Project Finance in Investment Decisions versus Traditional
  • Project Financial Analysis using NPV and WACC
  • Role of Contracts and Integration of Contracts in Project Finance
  • Risk Analysis in Project Finance
  • Use of Debt Capacity to Measure Risk
  • Target DSCR, Debt Tenor and Required IRR in Different Markets
  • Use of Export Credit in Power Finance

• Project Finance Modelling of Debt Structure of IPP with and without PPA Contract
  • Architecture of Project Finance Models with Comprehensive Debt Structure
  • Review of Actual Project Finance Models in Different Regions of the World
  • Programming Sources and uses of funds statement during the construction period
  • Programming Debt Structuring with Sculpting in Project Finance Model
  • Computation of Cash Flow, Waterfall, Tax Payments and Financial Statements
  • Equity IRR with Different Debt Structure in PPA Case – Level versus Annuity versus Debt Sculpting
  • Computation of Debt Capacity and IRR with Alternative Repayment Structures – Direct and Indirect Effect

• Distribution Company Perspective in IPP Analysis
  • Modelling prices and costs in operating section – A,B,C, and D components for coverage of fuel cost, variable O&M cost, fixed O&M cost and capital recovery
  • Optimization of both debt capacity and PPA tariff using Solver
  • Effect of PPA on Capital Structure of Off-taker
  • Effect of PPA on Cost of Capital and Debt Capacity in Project Finance Model
  • Cost of PPA with and without Capital Structure Penalty
  • Effect of PPA on Technology Choice
  • Risk Analysis of Off-taker

• Documents and Finance Sources
  • Coordination of PPA with Other EPC, O&M and Loan Agreement
  • Default and other Provisions in Loan Agreements
  • Equity support agreement
  • Interest rate swaps in project finance
  • Bonds versus Commercial Banks
  • Insurance and International Financial Institutions
  • Credit Enhancements and Security

XI. Economic and Financial Analysis of Renewable Energy

• Renewable Energy versus Conventional Energy
  • Cost Trends in Renewable Energy
  • Subsidies and Feed-in Tariffs
  • Capital Intensity
  • Capacity Factor
  • Levelized Cost of Renewable Energy
  • Case Study of First Solar

• Resource Analysis of Renewable Energy
  • Solar Resource Assessment
  • Hydro Resource Assessment
  • Wind Resource Assessment

• Risk Analysis of Renewable Energy
  • Project Finance Models of Renewable Energy
  • Renewable Energy versus Conventional IPP Pricing
  • Scenario Analysis in Renewable Energy
  • Case Study of Renewable Energy Financing

Course Information

Course Length: 2 days

What You’ll Learn:

• Learn an efficient structure for developing real estate models
• Develop models from A-Z covering fundamental concepts through advanced issues
• Create transparent and effective presentation of models that present alternative portfolios of projects with different start dates and holding periods
• Incorporate complex financial structures into models and create cash flow waterfall analysis
• Develop alternative risk analyses from models including break-even analysis, sensitivity analysis, scenario analysis and Monte Carlo simulation
• Understand finance theory underlying modelling issues such as capitalization rates, required returns and debt capacity.
• Create alternative approaches to measure the trade-off between risk and return for different projects and different financing instruments.

Overview: Real Estate Modelling is an intensive hands-on course that provides attendees with knowledge regarding both fundamental and challenging modelling issues in the real estate industry.  Delegates will learn how to model mixed development projects, residential projects with multiple portfolios, cash flow waterfalls, and simulation of risk associated with different lease rolls.  Sessions of the course will include effective presentation of model outputs and comprehensive scenario analysis.  In addition, the program will enable delegates to develop their skills in a variety of modelling issues associated with setting-up inputs, working with flexible time periods and incorporating alternative financing structures.

Agenda

Section 1: Introduction

• Real estate model structure compared to corporate model, LBO model, project finance model
• Difficulties in real estate modelling
  • Modelling timing of construction, phases and exit proceeds o Modelling portfolios of projects
  • Modelling milestone payments
  • Modelling of cash flow waterfalls and structured finance
  • Lease portfolios and risk analysis
• Excel techniques for real-estate modelling  and annual single project
  • Short-cut keys for setting-up sheets
  • Use of switches for project phases and exit period
  • Presentation of cash flows and sensitivity analysis

Section 2: Model of Single Project

• Periodic modelling and flexible analysis of alternative periods
  • Modelling delays in construction and alternative terminal periods
  • Theory of capitalization rates
  • Conversion of periodic model to annual model
• Developing flexible inputs for utilization rates, lease rates and operating costs
  • Variables that change as a function of calendar years
  • Variables that change depending on the age of a project
  • Development of annual period counters
• Debt sizing and debt re-structuring
  • Debt inputs including repayment pattern, interest rates, covenants, debt service reserves and debt sizing
  • Modelling of debt drawdowns during construction period
  • Computation of repayment during operation and at exit
  • Adjustments for periodic interest expense
• Model verification
  • Creative establishment of multiple tests
  • Aggregation of verification checks
  • Identification of places in which model is not working
• Scenario analysis with single project model
  • Computation of Equity IRR, Unleveraged IRR and other ratios
  • Creation of flexible master scenario pages
  • Presentation of sensitivity analysis demonstrating the relative effect of different variables

Section 3: Model of Mixed Development Project

• Set-up of inputs for overall project and for individual sub-projects
• Land costs and development of infrastructure costs
• Timing assumptions for individual sub=projects
• Operating assumptions for commercial projects
  • Operating assumptions for residential projects including s-curves and progress payment profiles
  • Set-up of financial assumptions
• Development of model for single project
  • Use of common date structure for all projects
  • Computation of time period counters for different projects
  • Construction of models that allow flexible construction, revenue and operating costs that evaluated different types of projects
  • Pre-tax cash flow and IRR’s on sub-project basis
• Consolidation of operating inputs for multiple sub-projects
  • Efficiently summing sub-project items without creating separate models
  • Alternative presentations of project portfolio
  • Items required for financial model
• Financial model of consolidated model
  • Debt commitment and debt draws with multiple completion dates
  • Allocation of interest during construction
  • Repayment of mortgage debt
• Scenario analysis in mixed development model
  • Problems with traditional excel tools for sensitivity and scenario analysis
  • Creation of master scenario page
  • Use of macros in creating scenarios

Section 4: Model of Residential Portfolio with Milestone Dates

• Model inputs with milestone dates
  • Set-up of flexible milestones
  • Use of dates or periods
  • Construction expenditures for different milestones
• Individual projects with milestone dates
  • Model timing and switches
  • Calculation of construction time periods for different milestones
  • Computation of construction expenditures and revenues
  • Cash flows and IRR’s for individual projects
• Consolidation and financial model
  • Effect of milestone dates on IRR
  • Debt sizing and debt capacity with different residential margin and timing assumptions

Section 5: Structured Finance in Real Estate Models

• Alternative Financing Structures
  • Mortgage debt
  • Senior and subordinated debt
  • Preferred stock and trigger returns
• Inclusion of alternative finance structure in mixed development model
  • Inputs for alternative financing instruments
  • Set-up of schedules for alternative financing instruments
  • Modelling of cash flow waterfall
  • Auditing of cash flow waterfall
• Evaluation of risk and return of different financing instruments
  • Computation of IRR and NPV for each financial instrument
  • Break-even points for different instruments
  • Inclusion of NPV and IRR in scenario analysis

Section 6: Lease Roll Analysis and Risk Simulation

• Risk and return of projects with different lease expirations
  • Volatility of lease rates
  • Effect of lease rate on debt capacity and required return
  • Valuation of projects with different lease rate structures
• Inputs for lease roll
  • Lease rate, expiration dates, idle time and renewal rates
  • Volatility of lease rates
  • Downside and upside scenarios
• Modelling of future lease rates and idle time
  • Vintage of lease rates
  • Use of range names with formulas
  • Monte Carlo simulation of the distribution of returns with different lease rolls

Course Information

Course Name: Renewable Energy Masterclass

Overview: This class is our largest, most comprehensive course offering for renewable energy. We’ll walk you step-by-step through every aspect of analyzing, structuring, and financing every major renewable energy project. You’ll work through resource assessment for technologies from Hydro to Solar, you’ll analyze risks belonging to each respective technology, and you’ll learn to structure the project’s financial profile under every credit constraint known.

Course Length: 7 days

Agenda

DAY 1

 

PART 1: DEFINITION OF TERMS, RENEWABLE COSTS, LEVELIZED COST OF ELECTRICITY

Overview of Terms in Project Finance Terms in the Context of Renewable Energy through Review of Financial Models

• Renewable Energy Terms
• Economic Issues Associated with Renewable Energy
• Alternative Contract Structures Relative to Conventional Plants
• Grid Parity
• Carrying Charge Factor
• Feed-in Tariff Policy
• Renewable Energy Pricing versus Multi-part Tariffs in Conventional Energy

Drivers of Value in Renewable Energy Projects

• Resource Assessment and Capacity Factor
• Development Cost and Timing
• Electricity Pricing
• Capital Costs
• Operating and Maintenance Costs
• Capital Recovery Factor, Taxes, Financing
• Operating Costs, Maintenance Costs and Availability

Capital Intensity and Levelized Cost of Alternative Technologies

• Definition of Capital Intensity and Cost of Capital
• Four Factors that Drive LOCE
• Capital Cost of Project
• Capacity Factor of Project
• Operation and Maintenance Expenses
• The Carrying Charge Rate

Exercise on Computing Grid Parity

• Databases for Electricity Costs
• General Discussion of Cost Trends in Wind, Solar, Natural Gas and Other Technologies
• Review of IEA Cost Analysis for Various Types of Renewable and Non-Renewable Plants Including On-Shore and Off-Shore Wind, Solar PV, Solar Thermal, Geothermal, Wave Energy, Hydro and Biomass
• Natural Gas Prices by Region and Over Time
• Grid Parity with Different Capital Cost, Carrying Charge Rates and Natural Gas Prices

DAY 2

PART 2: OVERVIEW OF PROJECT FINANCE, COST OF CAPITAL AND PRICING CONTRACTS FOR RENEWABLE ENERGY

Economic and Financial Theory of Project Finance

• General Discussion of Risks for Renewable Projects
• Capacity Factor Risk (Solar, On-Shore Wind, Off-Shore Wind, Hydro)
• Construction Risk (Off-Shore Wind and Hydro versus Solar)
• Operation and Maintenance Risk
• Contract Risk
• Measurement of Risk using Traditional Finance Theory and WACC
• Review of Solar Manufacturers
• Theory of Cost of Capital, Beta and Equity Risk Premium Applied to Renewable Energy
• Contrast of Solar and Off-shore Wind from Traditional Cost of Capital and Free Cash Flow Perspective
• Measurement of Value and Risk using Project Finance
• Debt Capacity and Credit Analysis of Different Transactions
• Use of Equity IRR versus Project IRR
• Relying on External Cash Infusions Rather than Internal Analysis
• Financing for Different Types of Projects
• Debt Capacity and Project Finance Terms
• Effects of Debt Service Coverage Constraint versus Debt to Capital Constraint
• Debt Service Coverage Ratio Definition and Targets
• Debt Tenor, Alternative Repayment Structure, Average Life
• Credit Spreads and Target Credit Ratings in Project Finance
• Debt Service Reserve and Maintenance Reserve
• Covenants, Cash Flow Sweeps and Subordinated Debt

Project Finance Valuation for Renewable Energy

• Project IRR to Screen Projects
• Equity IRR to Structure Projects and Minimum Required Equity IRR for Different Renewable Projects
• Equity IRR Complexities from Re-Financing and Development Fees 

PART 3: REVIEW OF COSTS, CAPACITY FACTORS, AND PRICING STRUCTURES FOR ALTERNATIVE RENEWABLE TECHNOLOGIES AND BUILD-UP OF PROJECT FINANCE MODEL

Discussion of Wind and Solar Technologies

• On-Shore Wind
• Historic and Current Trends in Capital Cost
• Review of Financial Data for Suppliers
• Fixed and Variable O&M Cost
• Capacity Factors and General Discussion of One-year versus Long-term P90, P75 etc.
• General Contract Terms
• Feed in Tariffs and PPA Agreements for On-Shore Wind
• Off-Shore Wind
• Capital Cost Data Base, Distance, Depth and Height
• Balance of System Costs for Off-Shore versus On-Shore
• Operating Costs and Availability Issues
• Capacity Factors
• Feed-in Tariffs
• Case Study of Princess Amelia Financing
• Solar PV
• General Discussion of Technology
• Demand and Supply and Changes in German Feed-in Tariffs
• Review of Solar Companies and Financial Issues
• Financial Performance of Manufacturers
• Balance of System Costs and Inverter Costs
• Performance Guarantees and Other Contract Terms
• First Solar Case Study
• Solar Thermal
• Costs and Capacity Factor
• Operating Cost
• Potential Trends

DAY 3

PART 4: RESOURCE ASSESSMENT

Overview of Resource Assessment in Renewable Projects

• Resource Assessment of Wind – working with hourly wind speeds, Weibull Distributions and Statistical Analysis (P90, P50 etc.)
• Resource Assessment of Solar – Direct and Diffuse Radiation, Sunlight Angles and RetScreen.)
• Resource Assessment of Geothermal and Hydro
• Probability Distributions of Resources
• Case Study on Resource Analysis in Loans

Modelling Resource Distributions of Solar Power

• Data sources for Solar Irradiation
• Computation of Production from Efficiency with Adjustments for Performance
• Statistical and Seasonal Distribution of Production Data in Different Locations
• Use of RetScreen for Simple Analysis
• Computation of P95, P90, P75 and P50 Statistics

Case Study on Interpretation of P75, P90, P95 and P99

• Review of Credit Analysis for Wind Projects
• Analysis of Resource Risk in Different Reports
• P90/P50 for One Year and for Ten Years
• Case Study on Detailed Calculation of Resource Distribution

Modelling Resources for Hydro Power

• Fundamental Hydro Power Equation
• Sizing of Hydro Plants and Exceedance Curves
• Variance in Rainfall and River Flow
• Computation of P95, P90, P75 and P50 Statistics for Hydro Capacity Factor

Modelling Resource Distributions of Wind

• Overview of Wind Data
• Weibull Distribution and Wind Data
• Power Curve for Wind Turbines
• Distribution of Wind Resources and Wind Studies
• Simulation of Power Distribution
• Computation of P95, P90, P75 and P50 Statistics

Interpretation of Resource Assessment for Risk Analysis

• Mean Reversion of Resources
• Aspects of Probability Distribution other than Resources
• Use of Probabilities in Financial Analysis
• Contrast Among Different Risks

DAY 4

PART 5: VALUATION AND PROJECT FINANCE MODELLING FOR RENEWABLE PROJECTS

Financial Statement Analysis in Renewable Project Finance

• Risks and Stages of Project
• Source and Use of Funds Statement before Commercial Operation
• Focus on Cash Flow and EBITDA
• Interpretation of Cash Flow Statement
• Reserve Accounts for Debt Service and Other Factors
• Computation of Equity Cash Flow and Free Cash Flow and IRR versus Return on Investment

General Discussion of Project Finance Models

• General Objectives of Financial Models and Financial Forecasts
• Objectives of Project Finance Models
• Flexibility, Structure, Accuracy and Transparency of Project Finance Models
  • Examples of the Structure of Actual Project Finance Models
  • Creation of Project Finance Model Structure

Mechanical Issues in Creating and Interpreting Project Finance Models

• Phases in Project Financing for Renewable Projects
• Sources and Uses Analysis in Models
• Importance of Debt Sizing, Debt Funding and Debt Repayment
• Fixed Asset Analysis
• Profit and Loss Statement and Tax Analysis
• Cash Flow Waterfall
• Resolving Circular References without Copy and Paste Macros arising from Funding and Sculpting

Model Complexities for Renewable Finance Projects

• Mechanics and Rational for Alternative Incentive Schemes
• Benefits of Investment Schemes Relative to Feed-In Tariffs
• Effects of Incentives on the Overall Cost and Require Feed-in Tariffs of Different Renewable Projects
• Cash Flips and Allocations of Cash Flow to Different Equity Investors – Interpretation of Risk and Return with Different Cash Flow Allocations
• Computation of Project Value Assuming Different Sale Dates and Risk Adjusted Discount Rates from Buyer Perspective as Risk of Project Changes from Signing Contracts, Working Through Mechanical Issues and Demonstrating Cash Flows from Historic Record.
• Incorporate Refinancing Assumptions in Financial Models through Adding Sources and Uses of Funds Analysis in Alternative Re-financing Periods and Evaluating Different Possible Features of Re-financing.

DAY 5

PART 6: RISK ANALYSIS OF RENEWABLE ENERGY

General Discussion of Risk in Renewable Energy Projects

• Discussion of Differences in the Nature of Risks for:
  • On-Shore Wind (Wind Resource)
  • Off-Shore Wind (Maintenance and Life Expectation)
  • Solar (Small Risks become Big with High Leverage)
  • Hydro (Capacity Factor and Merchant Price Risk)
  • Wave (Refurbishment Timing)
  • Geothermal (Development Probability)
• Risk Matrix, Risk Classification and Risk Mitigation
• Risk Evaluation Using Break-Even and Sensitivity Analysis
• Risk Evaluation Using Scenario Analysis with Focus on the Manner in which Bankers Apply Downside Analysis
• Measurement of Risk Using Structured Master Scenario Page in Excel Model with Options for Adding Sensitivity Analysis to Defined Scenarios
• Risk Analysis Using Spider and Tornado Diagrams

Credit Analysis in Renewable Project Finance

• Background on Probability of Default and Loss Given Default
• Definition and Calculation of DSCR
• Use of DSCR in Base (P50 Cases) and Downside (P90, P95 Cases) in Determining Debt Capacity
• Application of LLCR and PLCR

Contract Structuring in Renewable Project Finance

• Importance of EPC Contract in Different Projects (Off-Shore Wind and Hydro)
• Performance Contracts in Solar Projects
• Power Curve and Availability Guarantees in Solar and Wind Projects
• O&M Contracts and Warranties
• Insurance
• Counterparty Risk in Different Projects

PART 7: RE-FINANCING, ELECTRICITY PRICING, BIOMASS AND GEOTHERMAL ISSUES

Re-Financing for Renewable Projects

• Types of projects where re-financing is important – off-shore wind, wave energy, merchant hydro projects and geothermal
• Effects of re-financing on equity IRR and difficulty of defining the equity IRR with short-debt duration
• Structuring project finance models and analysis to measure the effect of re-financing on equity returns

Electricity Pricing Analysis in the Context of Renewable Energy

• Overview of Electricity Prices and Electricity Pricing Designs Around the World
• Relevance of Electricity Pricing to Renewable Analysis
• Short-term and Long-term Marginal Cost for Pricing Analysis

Pricing Analysis for Biomass Projects

• Evaluation of Project Finance Model for Biomass
• Capital Cost, Heat Rates and Operating Costs of Biomass Projects
• Examples of Biomass Projects
• Tipping Fees and Construction of Price Curves from Local Supply and Demand Data

Development Costs in Renewable Projects

• Development Time Frame and Costs in Wind and Solar Projects
• Exploration Costs and Time Frame in Geothermal Projects
• Fees and Compensation for Development and Treatment of Development Fees when Computing Equity IRR
• Probabilities of Proceeding Beyond Development
• Value and Costs of Development and Research Stage
  • Value of Development Expenditures versus Construction Expenditure
  • Payment of Development Fees
  • Development Costs and Real Option
  • Valuation of Development as Real Option
  • Compensation for Development Costs

Modelling Exploration and Development Options – Geothermal Case

• General Cost and Resource Parameters for Geothermal Projects
• Review of Project Finance Model for Geothermal Project
• Exploration and Development Cost, Probability Time Frame
• Segregating Development Phases
• Discount Rates for Different Stages
• Computation of Expected Value

Interpretation of Development Value

• Relative Effect of Development Cash Costs and Construction Costs
• Break-even Development Probability
• Length of Development Period

Resources Received by Participants

• Financial Model Library
• Electricity/Commodity Pricing Software (C++)
• Databases on Actual Projects, Commodity Price History and Case Studies
• Manuscript of Trivium Lead Trainer Ed Bodmer’s upcoming book, The Valuation Mirage – addressing many modeling and valuation issues covered in the course

Course Information

Overview: The Risk Analysis Modelling in Excel training course will provide participants with the ability to add alternative types of risk analysis to different types of financial models in a flexible and efficient manner.  Risk analysis techniques will cover traditional methods ranging from scenario analysis, sensitivity analysis and break even analysis to mathematical analysis with Monte Carlo simulation.  Key objectives of the course include understanding the process to add scenario analysis to any financial model and to evaluate the benefits and problems of applying time series equations and simulation analysis with alternative parameters.

Course Length: 1 day

What You’ll Learn

• Create a structured scenario and sensitivity analysis from existing models that effectively displays the effect of variables and compute break-even analysis in alternative scenarios.
• Evaluate alternative break-even points for structured finance transactions with multiple debt and equity tranches as well as different credit enhancement structures such as cash flow sweeps, traps and reserve accounts.
• Compute P75, P90 statistics for alternative variables and understand how to interpret effects of mean reversion, limits and alternative approaches to measuring variance.
• Discover how easy you can create a Monte Carlo simulation analysis without any add-in programs using a few lines of VBA code and how to create functions that can perform Monte Carlo simulation with a user-defined function.
• Compute volatility mean reversion and price boundary statistics for different time series and understand the difficulty in computing volatility in the presence of a series with high mean reversion.
• Use historic data for securities prices, commodity prices and demand to evaluate alternative whether the distributions follow a normal distribution or are better represented by alternative distributions.
• Simulate the possible movement of correlated variables and create test statistics to evaluate whether the input correlation is the same as the generated correlation.
• Add Monte Carlo simulation to corporate models, project finance models and acquisition models with different price boundaries, mean reversion parameters, correlations and volatility statistics.
• Learn Excel techniques included selected user defined functions with VBA to make better presentations from models and to make models more transparent and efficient.

 

Agenda

Part I – Adding Risk Analysis to Financial Models

• Review of alternative traditional and mathematical risk analysis techniques applied to corporate models, project finance models and structured acquisition models.
• Incorporation of master scenario analysis and sensitivity diagram from corporate model to evaluate credit ratios and to demonstrate variability in enterprise value and use of the return on invested capital to evaluate the reasonableness of the EBITDA assumptions.
• Inclusion of break-even analysis in structured finance transactions with multiple debt and equity tranches to measure the effects of different capitalization and different credit enhancements (such as cash flow sweeps) on the risk of a transaction.
• Measurement of Risk Using Structured Master Scenario Page in Excel Model with Options for Adding Sensitivity Analysis to Defined Scenarios
• Computation of value assuming different sale dates and risk adjusted discount rates from buyer perspective as risk of project changes from signing contracts, working through mechanical issues and demonstrating cash flows from historic record.

 

Part II – Evaluation of Time Series Data and Computation of Statistical Parameters

• Review of time series theory to define the possible movement in prices, quantity sold, costs and other variables.
• Program spreadsheets to automatically upload data from alternative websites on an automated basis using simple VBA code.
• Compute volatility statistics for alternative time periods and evaluate whether different distributions such as stock prices, interest rates and commodity prices follow a normal distribution.
• Derive implied mean reversion from computing volatility with random walk compared to actual volatility and fit alternative distributions to data.
• Compute implied volatility from option pricing models and use the Merton Model to evaluate credit spreads on different types of debt instruments.

Part III – Use of Monte Carlo Simulation and Options Pricing Models in Measuring Risk in Different types of Financial Models

• Illustration of Monte Carlo simulation using four different excel methods to evaluate the credit spread on senior and subordinated debt with different levels of volatility.
• Reconciliation of Monte Carlo simulation models with option pricing models through constructing option pricing models with VBA functions.
• Incorporation of boundary conditions, mean reversion and correlation among in Monte Carlo simulation analysis and analysis of whether input parameters for mean reversion and correlation are consistent with constructed distributions.
• Construction of Monte Carlo simulation using non-normal distributions through creating distributions with fat tails, skewed probabilities and extreme jumps.
• Addition of Monte Carlo simulation to existing corporate models and project finance models and effective presentation of outputs to measure credit risk and equity value at risk.
• Case study of measuring the risk benefits of cash sweeps and other credit enhancements in a wind transaction through converting P90 and 75 statistics to volatility parameters and applying Monte Carlo simulation.

Course Information

Overview: This course is designed for renewable energy finance beginners and professionals alike. With a focus on Solar PV and thermal, we will break down every aspect of a solar project financing while keeping a broader view of how the technology compares to the rest of the renewable energy sources at large. We won’t just teach you about the financing, we’ll teach you how to think about and quantitatively analyze the value drivers of solar projects.

Course Length: 2–3 Days

Key Objectives:

• Understand the differences in financing structures for solar PV and solar thermal project relative to other sources of renewable energy (biomass, wind, geothermal, etc.)
• Learn to develop and analyze solar project finance models
• Measure and evaluate changes in project risk over the different stages of development, and how these changes impact equity returns and asset valuation for potential sale

Solar Specific Operations Topics:

• Resource availability risk and economics
• Measuring annual and seasonal production from financial analysis perspective
• Degradation
• Alternative financing structures
  • Feed-in-Tariffs
  • Purchase Power Agreements (PPAs)
• Learn to evaluate trends in renewable energy cost of capital, operating costs, and resource efficiency

Project Finance Modeling Features:

• Understanding the implications, effects, and applications of various project finance tools, topics and conventions
• Debt modeling topics: debt sculpting, debt sizing, DSCR, DSRA, tenor sizing, re-financing
• Create flexible scenario and sensitivity analysis to evaluate resource risk
• Resolve all circularity issues while maintain model flexibility with Trivium Circularity Management
• Measure the effect of probabilistic risk assessment on the debt capacity of alternative renewable projects.

Agenda

Day 1: The Grammar

Key Topic: Definition of Terms, Renewable Costs, Levelized Cost of Energy

Overview of Terminology in Renewable Energy Project Finance through Review of Financial Models

• Renewable Energy Terms
• Project Finance Terms and Sponsor Objectives
• Economic Issues Associated with Renewable Energy
• General Contract Structure versus Conventional Energy
• Grid Parity
• Carrying Charges
• Feed-in Tariff Policy

Drivers of Value in Renewable Energy Projects through Review of Financial Model

• Resource Assessment
• Development Cost and Timing
• Electricity Pricing
• Capital Costs
• Taxes and Financing
• Operating Costs, Maintenance Costs and Availability

Exercise on Computing Grid Parity and Levelized Cost of Electricity

• Databases for Electricity Costs
• General Discussion of Cost Trends in Wind, Solar, Natural Gas and Other Technologies
• Review of IEA Cost Analysis for Various Types of Renewable and Non-Renewable Plants Including On-Shore and Off-Shore Wind, Solar PV, Solar Thermal, Geo-thermal, Wave Energy, Hydro and Biomass
• Natural Gas Prices by Region and Over Time
• Grid Parity with Different Capital Cost, Carrying Charge Rates and Natural Gas Prices

Key Topic: Overview of Project Finance, Cost of Capital, and Pricing Contracts for Renewable Energy

Economic and Financial Theory of Project Finance

• General Discussion of Risks for Renewable Projects
• Capacity Factor Risk (Solar, On-Shore Wind, Off-Shore Wind, Hydro)
• Construction Risk (Hydro and Off-Shore Wind versus Solar)
• Operation and Maintenance Risk
• Contract Risk
• Measurement of Risk using Traditional Finance Theory and WACC
• Review of Solar Manufacturers
• Theory of Cost of Capital, Beta and Equity Risk Premium Applied to Renewable Energy
• Contrast of Solar and Off-shore Wind from Traditional Cost of Capital and Free Cash Flow Perspective
• Debt Capacity and Project Finance Terms
• Debt Service Coverage Ratio Definition and Targets
• Effects of Debt Service Coverage Constraint versus Debt to Capital Constraint
• Debt Tenor, Alternative Repayment Structure, Average Life
• Credit Spreads and Target Credit Ratings in Project Finance
• Debt Service Reserve and Maintenance Reserve
• Covenants, Cash Flow Sweeps and Subordinated Debt

Financial Statement Analysis in Renewable Energy Project Finance

• Risks and Stages of Project
• Source and Use of Funds Statement before Commercial Operation
• Focus on Cash Flow and EBITDA
• Interpretation of Cash Flow Statement
• Reserve Accounts for Debt Service and Other Factors
• Computation of Equity Cash Flow and Free Cash Flow and IRR versus Return on Investment

Project Finance Model and Set-up for Valuation of Renewable Energy

• Setting-up Project Finance Model for Valuation
• Flexible Dates and Modelling Project Phases
• Assuring the Model is Accurate
• Structuring the Model with Operation and Financing Items
• Transparency in Model
• Project IRR to Screen Projects
• Equity IRR to Structure Projects and Minimum Required Equity IRR for Different Renewable Projects
• Equity IRR Complexities from Re-Financing, Alternative Financing, Tax Structuring, IRR measurement and Development Fees
• Resolving Circular References without Copy and Paste Macros arising from Funding and Sculpting

Mechanical Issues in Creating and Interpreting Project Finance Models

• Phases in Project Financing for Renewable Projects
• Sources and Uses Analysis in Models
• Importance of Debt Sizing, Debt Funding and Debt Repayment
• Fixed Asset Analysis
• Profit and Loss Statement and Tax Analysis
• Cash Flow Waterfall & Partnership Flip Structures

Model Complexities for Renewable Finance Projects – Valuation, Re-financing, Renewable Energy Pricing, Cash Flow Flips

• Mechanics and Rational for Alternative Incentive Schemes
• Benefits of Investment Schemes Relative to Feed-In Tariffs
• Effects of Incentives on the Overall Cost and Require Feed-in Tariffs of Different Renewable Projects
• Flips and Allocations of Cash Flow to Different Equity Investors
  • Interpretation of Risk and Return with Different Cash Flow Allocations
• Project Valuation Assuming Different Sale Dates and Risk Adjusted Discount Rates from Buyer Perspective as Risk of Project Changes from Signing Contracts, Working Through Mechanical Issues and Demonstrating Cash Flows from Historic Record.
• Incorporate Refinancing Assumptions in Financial Models through Adding Sources and Uses of Funds Analysis in Alternative Re-financing Periods and Evaluating Different Possible Features of Re-financing.

DAY 2: Application

Review of Costs, Capacity Factors, and Pricing Structures for Alternative Renewable Technologies and Construction of the Project Finance Model

• General Discussion of Solar PV and Solar Thermal
• General Discussion of Technology
• Demand and Supply and Changes in German Feed-in Tariffs
• Review of Solar Companies and Financial Issues
• Financial Performance of Manufacturers
• Balance of System Costs and Inverter Costs
• Performance Guarantees and Other Contract Terms
• Financial Analysis of Supplier: First Solar Case Study

Overview of Resource Assessment in Renewable Projects

• Resource Assessment of Wind – working with hourly wind speeds, Weibull Distributions and Statistical Analysis (P90, P50 etc.)
• Resource Assessment of Solar – Direct and Diffuse Radiation, Sunlight Angles and RetScreen.)
• Resource Assessment of Geothermal and Hydro
• Probability Distributions of Resources

Modelling Resource Distributions of Solar Power

• Data sources for Solar Irradiation by Hour over Multiple Years
• Computation of Production from Efficiency with Adjustments for Performance
• Statistical and Seasonal Distribution of Production Data in Different Locations
• Use of RetScreen for Simple Analysis
• Computation of P95, P90, P75 and P50 Statistics

Interpretation of Resource Assessment for Risk Analysis

• Mean Reversion of Resources
• Aspects of Probability Distribution other than Resources
• Use of Probabilities in Financial Analysis
• Contrast Among Different Risks

Risk Analysis of Renewable Energy

General Discussion of Risk in Renewable Energy Projects

• Discussion of Differences in the Nature of Risks for On-Shore Wind (Wind Resource), Off-Shore Wind (Maintenance and Life Expectation), Solar (Small Risks become Big with High Leverage), Hydro (Capacity Factor and Merchant Price Risk), Wave (Refurbishment Timing), Geothermal (Development Probability).
• Risk Matrix, Risk Classification and Risk Mitigation
• Risk Evaluation Using Break-Even and Sensitivity Analysis
• Risk Evaluation Using Scenario Analysis with Focus on the Manner in which Bankers Apply Downside Analysis
• Measurement of Risk Using Structured Master Scenario Page in Excel Model with Options for Adding Sensitivity Analysis to Defined Scenarios
• Risk Analysis Using Spider and Tornado Diagrams

Credit Analysis in Renewable Energy Project Finance

• Background on Probability of Default and Loss Given Default
• Definition and Calculation of DSCR
• Use of DSCR in Base (P50 Cases) and Downside (P90, P95 Cases) in Determining Debt Capacity
• Application of LLCR and PLCR

Contract Structuring in Renewable Energy Project Finance

• Importance of EPC Contract in Different Projects (Off-Shore Wind and Hydro)
• Importance of Performance Contracts in Solar Projects for Degradation
• O&M Contracts and Warranties
• Insurance
• Counter-party Risk in Different Projects

Course Information

Course: Wind Financial Analysis & Production Availability

Course Length: 2 days

Overview: This course is all-encompassing for wind energy project. We’ll walk you through the financing, the risk analysis, the resource availability, and everything else you need to know to successfully finance a wind project in the most efficient manner.

N.B. This course is geared towards an international audience and does not include US tax equity financing concepts. If you’re looking for tax equity training, contact us.

Agenda

Day 1: Structuring, Wind Project Finance and Simple Risk Analysis

Excel Background and Model Structure

• Excel techniques, functions, short-cuts and tools in project finance modeling
• Alternative risk measurement and financial modeling
• Spreadsheet layout style and conventions

Review of Structure of Actual Project Finance Models

• Discussion of different actual models
• Working with real models to add sensitivity analysis
• Understanding the structure of actual models
• Running pre-built scenarios in actual models
• Interpretation of different ratios in models

Structuring and Building a Project Finance Model

• Develop a general model layout
• Construct transparent model titles
• Evaluate titles for model details such as amortization of debt fees, deferred taxes, and minority interest
• Build model equations in segments
• Compute key model outputs
• Computation and basis for LLCR, PLCR and average debt life
• Alternative specifications of the debt service coverage ratio

Risk Analysis from Alternative Perspectives in Simple Models

• Economic value drivers in projects
• Sensitivity analysis and flexible graphs
• Break-even analysis with data tables, match and index functions in basic project finance model
• Effective scenario analysis with index and data table
• Extending scenario analysis to compute spider diagrams
• Creating sensitivity analysis from scenario analysis
• Adding Monte Carlo to models

Day 2: Advanced Risk Analysis, Debt Structuring and Cash Flow Waterfalls, Credit Enhancements

Risk Analysis with Existing Models

• Using graphs to find variables that influence outcomes
• Finding problems in models with sensitivity  analysis
• Adding scenario analysis to models without macros or circular reference problems
• Working with models that contain circular references
• Adding scenario analysis to models that include macros

Effective Presentation of Risk Analysis

• Use of Spinners, Drop Downs and Buttons without losing base case · Addition of custom case with flexible sensitivities from scenarios
• Creation of sensitivity cases derived from base case, downside case etc. · Presentation of sensitivity cases with graphs and charts

Debt Structure and Cash Flow Waterfall Exercises

• Debt sizing and capacity
• Debt structuring using alternative repayment techniques – level and amortizing
• Debt Sculpting using Solver and Macro
• Effects of debt tenor and debt structure on equity IRR and DSCR
• Cash flow sweeps and dividend lock-up
• Debt service reserves and re-financing
• Circularity macros

Risk Assessment and Valuation of Credit Enhancements

• Measurement of probability of default and loss given default from financial models
• Theory of risk benefits from sweeps, covenants and DSRA
• Measurement of benefits of covenants, cash flow sweeps and DSRA using break-even analysis
• Measurement of benefits of credit enhancements using scenario analysis
• Calculation of probability of default and loss given default with and without credit enhancements using Monte Carlo simulation
• Addition of Monte Carlo simulation in existing project finance models