Financial Modeling for Utility-Scale Solar-Wind-Biomass Power in SEA.pdf

USAID Clean Power Asia

1. 1
Financial Modeling for Utility-Scale Solar,
Wind and Biomass Power in Southeast Asia
USAID Clean Power Asia
PHOTO CREDIT: HTTPS://PXHERE.COM/EN/PHOTO/1043193
Prepared for Webinar on April 29, 2020
Suchai Buranavalahok
Renewable Energy Financial Advisor
Joost Siteur
Investment Mobilization Lead

2. 2
USAID Clean Power Asia aims to increase deployment
in ‘grid-connected’ renewable energy in Asia
5 years: June 2016 –June 2021
Regional clean energy program
Focus on Cambodia, Lao PDR,
Thailand, and Vietnam
Goals:
15 laws/policies/regulations
$750 M USD investment
mobilization
500 MW of installed RE
3.5 M tCO2e reduction
Implemented by Abt Associates
and partners
Funded by USAID (United States
Agency for International
Development)

3. 3
Mobilizing investment: Supporting developers, investors and
lenders in RE project development and financing
Tools & Guidelines
Investment guidelines,
templates for Power
Purchase Agreements,
standard financial models
and other tools to support
investment decision-making
and project development
Capacity Building
Training to developers and
lenders on project finance,
cash flow analysis and the
evaluation of RE projects,
with a focus on utility-
scale solar and wind
Financial Advisory
Tailored advice on business
models, financial analysis,
energy procurement,
financing structures,
partnerships, contracts and
potential sources of
financing, both equity and
debt

4. 4
Project finance common structure for long-term debt
Key characteristics:
•Non-or limited recourse
•Lending against conservative
cash flow projections
•Deep analysis of construction,
operating and revenue risks
•Restrictions on cash to
project owners, contracts
with warranties and penalties,
and insurance
•Prioritized cash flow to
operations, debt service,
investors and other parties
Project finance structure

5. Construction phase Operations phase
months years
5
Lending entirely based on future cash flows
Cash outflows
Cash inflows
Debt
(300,000,000)
(200,000,000)
(100,000,000)
-
100,000,000
200,000,000
300,000,000
(40,000,000)
(30,000,000)
(20,000,000)
(10,000,000)
-
10,000,000
20,000,000
30,000,000
40,000,000

6. 6
Financial model: Crucial tool in project assessment

7. 7
Financial Model Components

8. •Assumption inputs to be provided by a user
•Check for model’s integrity and errors
•Check for calculation results
8
Dashboard: Main interface for inputs and results

9. 9
Country Data: Country-specific assumptions
•Worksheet contains several input parameters particular to each
country
•Can be adjusted, depending on specific situations, changes in regulations
or market circumstances

10. 10
Timing: Affects cash flows and debt service
Project finance models incorporate multiple timing flags to keep track of key
events (e.g., start of construction, start of commercial operations, and major
maintenance) and analyze effects of any changes.

11. •Payment milestones by period
•Debt vs. Equity allocation profile
•Use of funds = Source of funds
11
Use and Source
Project
costs
(100%)
Debt
(70%)
Equity
(30%)
-15
-10
-5
0
5
10
15
1 2 3 4 5 6
Equity
Debt
Project cost
Equity back-ended
$M
month
-15
-10
-5
0
5
10
15
1 2 3 4 5 6
Equity
Debt
Project cost
Equity front-ended
$M
month
Use of funds Source of funds
-15
-10
-5
0
5
10
15
1 2 3 4 5 6
Equity
Debt
Project cost
Pro-rata$M
month
70% 70% 70%
70% 70% 70%
30% 30% 30% 30% 30% 30%
D/E = 70/30
Note: The D/E ratio of 70/30 is for illustrative purposes only.

12. 12
Revenue and Cost
•Solar radiation / Wind data
•Seasonality / Uncertainty
•Capacity factor / Parasitic load /
Degradation factor
•Tariff (fixed vs floated)
•Fuel cost
•Operation & maintenance cost
•Major maintenance /
Refurbishment cost

13. 13
Probability Av. Annual
Generation
(GWh)
P50 71.18
P75 60.50
P90 53.38
-
0.01
0.02
0.03
0.04
0.05
30 40 50 60 70 80 90 100 110
P50
P75
P90
Net energy production (GWh/yr)
Uncertainty
•Applicable to solar and wind projects, not biomass
•Probability scenarios predict possible energy yield by collecting long-term
resource data (e.g., solar irradiation, wind speeds)
•Statistical methods used to predict errors, to establish probability distribution and
predict range of generation
•Probability includes seasonal variation as it usually uses annual data
Example of probability scenarios

14. •Useful life / Asset life
•Hard cost / Soft cost / Financing cost
•Tax incentives (Preferential tax rate, Tax holiday, Tax exemption)
14
Depreciation and Tax

15. 15
Debt
Debt sculpting aligns debt service with cash flow patterns, basing the
repayment in each period on a target DSCR.
0.00x
0.50x
1.00x
1.50x
2.00x
2.50x
3.00x
0.00
1.00
2.00
3.00
4.00
5.00
6.00
12345678910111213141516171819202122232425262728
Millions
CFADS Principal repayment
Interest payment DSCR
Debt Sculpting
0.00x
0.50x
1.00x
1.50x
2.00x
2.50x
3.00x
0.00
1.00
2.00
3.00
4.00
5.00
6.00
12345678910111213141516171819202122232425262728
Millions
CFADS Principal repayment
Interest payment DSCR
Flat Repayment
•DSCR fluctuates throughout tenor
•Higher default risk in certain periods
•Less preferred by lenders
•DSCR constant throughout tenor
•Lower default risk
•Preferred by lenders

16. Debt sizing based on cash flow available for debt service (CFADS) in each
repayment period
16
How to do Debt Sculpting
Debt Service Coverage Ratio
(DSCR)
Cash Flow Availablefor Debt Service (CFADS)
Debt Service
=
Debt Service=
CFADS
DSCR
Principal=
CFADS
DSCR
-Interest
Principal + Interest=
CFADS
DSCR

17. 17
Debt Service Coverage Ratio (DSCR)
•One key factor to assess financial
risk is forecasted debt service
coverage ratio or DSCR. Higher
the risk, higher DSCR should be for
more cushion on downside risk.
•Minimum DSCR may be set in
lender’s risk policy or according to
project finance rating methodology
provided by S&P, Moody’s and Fitch
Ratings.
•According to Fitch Ratings,
minimum DSCR of 1.2x is required
for investment-grade solar projects,
vs. 1.3x for wind and biomass*.Complexity
High B
BBB
AA
Low
Low HighDSCR
Note: This is for illustrative purposes, many risk factors must be
considered in conjunction in order to define project rating.
*Source:
•https://www.fitchratings.com/research/infrastructure-project-finance/renewable-energy-project-rating-criteria-25-03-2020
•https://www.fitchratings.com/research/infrastructure-project-finance/thermal-power-project-rating-criteria-24-03-2020

18. •Income statement
•Balance sheet
•Cash flow statement
18
Financial Statements

19. Cash Flow Waterfall
Cash Flow Available for Debt Service
or CFADS is the most important line for a
banking transaction model as it drives debt
repayment calculations by considering:
•Operating Cash Flow
•Funding from Sponsor(s) if any
•Operation CAPEX
•Working capital adjustment
•Tax
19
•O&M
•Insurance
•Taxes
Project Expenses
•Interest payment
•Principal payment
•Debt Service Reserve
•Major Maintenance
Reserve
•Dividends
Debt EquityReserve Accounts
Cash Flow Available for
Debt Service (CFADS)
Cash Flow Available for
Reserve Accounts
Cash Flow Available
for Distribution
Revenue
•Cash flow waterfall is a representation of cash flow statement rearranged to show
priority of each cash inflow and outflow. Preferred by banks in project finance
transactions to ensure liquidity and minimize risks.

20. •Total project cost
•Debt amount VS Equity amount
•Minimum DSCR
•Average DSCR
•Project IRR
•Equity IRR
•Effective Tenor
20
Summary Results

21. •Construction drawdown = 100%
•Use of funds = Source of funds
•Debt fully repaid
•Effective tenor = Desired tenor
•Balance sheet balances
•Ending cash from Cash Flow
Waterfall = FS Cash Flow
Statement
•Minimum DSCR lower than Target
DSCR
21
Integrity Checks

22. 22
Mr. Scott Bartos
USAID Regional Development Mission for Asia
AtheneeTower, 25th Floor
63 Wireless Road
Patumwan, Bangkok 10330
Tel: [phone]
Email: [email protected]
USAID CLEAN POWER ASIA
Ms. Dana Kenney
USAID Clean Power Asia
Abdulrahim Place, Suite 501
990 Rama IV Road
Bangrak, Bangkok 10500
Tel: [phone]
Email: [email protected]
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