Solar Power Plant

Financial Modeling Primer

 Table of Contents

Page

A Section 1: Industry Primer 3

A1 Energy & Solar Power Sector Overview 4

A2 Solar Power Plant Components and Development Process 8

A3 Project Costs and Investment Sources 11

A4 Operating Revenue and Cost Drivers 14

B Section 2: Financial Modeling Primer 17

B1 Model Map 18

B2 User Inputs 20

B3 Workings and Schedules 26

B4 Model Output 36

2
A Section 1: Industry Primer

3
A1 Energy & Solar Power Sector Overview

A2 Solar Power Plant Components and Development Process

A3 Project Costs and Investment Sources

A4 Operating Revenue and Cost Drivers

4
 Energy Sector Overview

Sources of Energy

Non Renewable Renewable

Oil Solar

Natural Gas Wind

Coal Hydro-electric

Nuclear Geo-thermal

Wood / Bio fuel Bio-mass

5
 Solar Power concept and evolution

Concept Evolution

Generation of electricity using sunlight

700 BC Magnifying glass to start fire

1839 Edmond Becquerel discovers the Photo Electric Effect

Sun

Albert Einstein publishes groundbreaking paper on

1905
Photo Electric Effect winning Nobel Prize in 1921

1954 Invention of the first practical silicon solar cell

Solar Cell

Several technology breakthroughs

Today Providing ~1% of total global electricity consumption

Electricity

6
 Global Solar Power Map

Solar Power capacities are concentrated mostly in Europe, US, China and India

Source: Global Market Outlook For Solar Power / 2015 2019, SolarPower Europe

7
A1 Energy & Solar Power Sector Overview

A2 Solar Power Plant Components and Development Process

A3 Project Costs and Investment Sources

A4 Operating Revenue and Cost Drivers

8
 Solar Power Plant

Solar Farm (Modules) Plant Controlling Station

Sun
Grid

Transformer &
Inverter
Switchgear

AC DC

9
 Development Process

1 2 3 4 5 6
Site Selection Feasibility Study Financial Closure Pre-Construction Construction Commissioning

Land / soil details Technical Debt Funding Approvals Site Preparation Licensing
Feasibility
Solar Resources Equity Funding Designs Materials Supply Grid connectivity
Financial
Regulations Feasibility Financial closure Selection of EPC Excavation / Testing
& other vendors infrastructure
Accessibility / Cost / Benefit Handover
Connectivity Project Timeline Mounting /
Risks Mitigation Installation
Geotechnicals strategy
Civil Works

Project Management

10
A1 Energy & Solar Power Sector Overview

A2 Solar Power Plant Components and Development Process

A3 Project Costs and Investment Sources

A4 Operating Revenue and Cost Drivers

11
 Project Cost Components

Land Cost Land Purchase Regulatory Costs

2
Grid Connection,
Mounting Structure /
Equipment Module Invertor Installation &
Frames
Commissioning

Civil Works Civil Structures Transmission Lines

Other Costs Project Management Administrative

12
 Investment Sources

Promoter Project Owner, energy companies

Sponsor

Strategic Sponsor Developer, utility companies

Equity

Private Equity Infrastructure funds, PE funds, insurance, pension funds

Investor

Public Equity YeildCo listed on US/London stock exchanges

PROJECT
COST
Commercial Banks Banks & financing companies

Recourse

Development Banks Regional & global development agencies

Debt

Bonds Energy bonds quoted / unquoted

Non Recourse

Corporate Finance Energy bonds

13
A1 Energy & Solar Power Sector Overview

A2 Solar Power Plant Components and Development Process

A3 Project Costs and Investment Sources

A4 Operating Revenue and Cost Drivers

14
 Revenue drivers & considerations

1 2 3

Sale of Electricity Energy Credits Auxiliary Consumption

Supplies to the plant itself /

Trading of SREC
related entities

Government Public Sector Electricity Distribution Companies

Merchants Corporates

PPA Tariff Duration of contract

15
 Operating Costs of a Solar Power Plant

Operations &
Solar Farm maintenance, repair, utility costs
Maintenance

Administrative Staff, administrative expenses and miscellaneous expenses

Invertor Replacement Significant component for replacement of inverter components

Insurance Cost Asset cover, third party liability and other insurance premiums

16
B Section 2: Financial Modeling Primer

17
B1 Model Map

B2 User Inputs

B3 Workings and Schedules

B4 Model Output

18
 Model Map

Title Contents Dashboard Global

Title tab Table of contents Graphical Outputs Model wide parameters

Working Calculation Tabs

Rev

Operating Revenue Calculations

WC Output Tabs

Working Capital Calculations

Exp
Model Assumptions Ratios
Operating Costs Calculations

Inputs Tax Financials

Tax Calculations Returns Sensitivities

ProjCost

Project Costs Calculations

Capex

Capital Expenditure

Funding

Capital Structure and Funding Schedules

19
B1 Model Map

B2 User Inputs

B3 Workings and Schedules

B4 Model Output

20
 General Inputs

User input for

project start date

Select the Scenario Enter general assumptions of capacity, performance and utilization factors
from dropdown

21
 Project Cost Inputs

Enter land price, area and regulatory costs

Enter the cost of the Equipment based on quotations

Enter the cost of Civil Works based on quotations

Enter the estimates of Pre-operating Expenses

Enter the estimates of Maintenance Capex

22
 Project Cost Inputs

Enter the payment schedule

Enter the payment schedule, inflation & depreciation rates

Enter the payment schedule, inflation & depreciation rates

Enter the payment schedule, inflation & depreciation rates

23
 Operating Inputs

Enter % Government and % Merchant Share of Sales

Enter Government / Merchant Tariff and its growth rate

Enter O&M costs & growth rate as per contract / quote

Enter administrative costs & growth rate

Enter inverter replacement costs & growth rate

Enter insurance costs & growth rate

24
 Other Inputs

Enter the average debtor and creditor days

Enter the tax rate of the country

Enter the expected capital structure

Enter terms of debt funding as per term sheets with banks

Enter the details of short term debt terms with banks

Enter the expected dividend payout ratio

Enter the statutory reserve requirements

25
B1 Model Map

B2 User Inputs

B3 Workings and Schedules

B4 Model Output

26
 ProjCost

I
J
K
A
B DxI
C JxK
3
AxB
AxBxC
1
L
M
N
D
DxL i
E DxM ii
F N X (1 + 2 + 3 + i + ii)
G 4
H

DxE
DxF 5
DxG 6
DxH
2 1+2+3+4+5+6
Interest on the loan during the construction
period (source tab: Funding

Component of the project cost due to increase in

prices of input resources (source tab: Capex)

27
 Rev

A
B
C
D
E
B x E grown annually to C x E in 10 years
C x E grown annually to D x E in 15 years
Start at B x E reduce by degradation factors
Capacity Utilization Factor x A x 365 x 24

F
G
H F grown @ G

I
J
K I grown @ J

1 Annual Generation x Government Tariff

2 Annual Generation x Merchant Tariff
1+2

28
 Exp

A
B
C
1 A x B grown @ C

D
E
2 D grown @ E

F
G

H
3 F x G grown @ H

I
J
K

L
4 I x J grown @ L every K years

1+2+3+4

29
 WC

A
1
2

Previous periods closing balance

2
Debtor BEG +Revenue in Period Closing Balance
2/1xA

B
3
4

Previous periods closing balance

4
Debtor BEG +Revenue in Period Closing Balance
4/3xB

30
 Capex

A
B
AxB
C
1 A x B grown @ C

Cumulative

D
Year number
2 Equal to cost at end of life (D)

3 Last year ending balance

4 1
5 2
3+4-5

E
6 3
7
8 6/Ex7

9 Last year ending balance

10 1
11 8
9 + 10 - 11

31
 Funding

1 From Capex

3 A Ax1

4 B Remaining limit
5+6

5 Minimum of 3 & 4
6 Debt Interest Capitalized

7 2-5

32
 Funding

1a
1b

A
2 1a + ?

Ax2

3 Interest for construction years only

Interest Paid post construction

4 Previous periods closing balance

5 3
6 Total interest during construction / B
4+5-6

C
7 D 1/D
8 C/7

9 11

10 8, except for last year when it is 9

11 Previous periods closing balance

12 1a + 1b
13 10
11 + 12 - 13

33
 Funding

3 Previous periods closing balance

4 1
5 2, if any
6 3+4-5

7 From Financials

8 A Ax7

B Bx6

9 8, such that 10 < Target Balance

10 Previous periods closing balance

11 9

10 + 11

34
 Funding

A
1 1
A-1 The macro code
pastes the values
2 From Financials in 3 which is
3 used for the
below schedules
4 3
5 If 3<0, raise equal amount of credit facility
The copying and
3 pasting continues
6 Full Cash Sweep till the sum of
B x average row 2 sum of
B row 3 becomes 0
of 4 & 7

7 Previous periods closing balance

8 5
9 6
7+8-9

Each time the user Sub copy_paste_macro()

changes the inputs to the
model or makes a change
in the model, the user
should click on this box
which runs the macro and
estimates any revolving
credit facility required to
meet near term cash
shortfalls
Check = difference of sum of 2 and 3
Copy = data cells of 2
Paste = data cells of 3
While-Wend loop is used to paste each data cell
of 2 into 3 till they become equal and hence
Check becomes 0
Name of the macro (sub) is copy_paste_macro
While Sheet11.Range(Check").Value <> 0
Sheet11.Range(Copy").Copy
Sheet11.Range(Paste").PasteSpecial xlPasteValues
Application.CalculateFull
Wend
End Sub

35
 Built In Macro

Objective of The objective of the macro is to ensure that any negative cash shortfall during the life of the project
the Macro is attending to by raising short term overdraft through a revolving credit facility

Algorithm of 1. The macro checks the cash balance as per the balance sheet.
the macro
2. It copies the values into a new row

3. Revolving credit facility during any negative cash balance year is taken equal to that negative amount

4. Now, the interest on the revolving credit facility leads to additional negative cash balance

5. Repeat Step 1 to four till the sum of the cash balances as per the balance sheet is equal to the new row where the macro is
copying and pasting the cash balance

Coding of 1. The macro is coded using the VBA script

the macro
2. The while wend loop is used to recursively copy the contents of row number 2 (defined as Copy) to row number 3
(defined as Copy) . The naming is done using Name Manager in the Formulas Tab under Defined Names

3. The Red box titled Click to run macro is lined to the macro (right click and then Assign Macro

36
Activate the Developer Tab

1. Go to File

2. Click Options

3. Go To Customize Ribbon

4. Check the Developer

Option (as highlighted on
the left)

37
B1 Model Map

B2 User Inputs

B3 Workings and Schedules

B4 Model Output

38
 Output Tabs

1 2 3 4 5
Financials Ratios Returns Sensitivities Dashboard

Income Statement Operating Ratios Project Returns Construction Linked Graphs

Revenue Growth, Scenarios
Balance Sheet EBITDA Margin, Investor Returns Project Costs
Net Profit Margin Two Factor Sensitivities Funding Structure
Cash Flow Statement Payback Periods Tariff vs. Project Revenues
Credit Ratios Costs Net Profit
Debt to Equity Total Assets
Debt Service Singe Factor Net Debt
Coverage Sensitivities Project Cash Flows
Interest Coverage Tariff Investor Cash Flows
Capacity Utilization
Liquidity Ratios Operating Costs
Current Ratio Project Costs
Quick Ratio Debt Interest Rate
Cash Ratio Tax Rate

Du Pont Analysis

39
 Financials

From Rev
From Exp

From Capex
From Funding

From Funding
From Funding

From Tax

From Inputs

Profit Margin
From Funding

2 Previous Balance
3 1
2+3

40
Financials

From Capex
From WC
From Cash Flows
From Funding

From WC
From Funding
From Funding

From Funding
From Funding
From Income Statement

41
 Financials

From Income Statement

From Income Statement

From Income Statement
From Balance Sheet
From Balance Sheet

From Capex

From Funding
From Funding
From Funding

From Income Statement

From Funding
From Funding
1

2 Previous Balance
3 1
2+3

From Funding
From Funding

42
 Ratios

Annual Revenue Growth

Operating Profit / Operating Revenues
Net Profit / Operating Revenue

Debt Balance / Total Equity

Operating Profit / (Debt Interest + Repayment)
PBIT / Debt Interest

Current Assets / Current Liabilities

Cash + Receivables / Current Liabilities
Cash / Current Liabilities

Net Profit / Operating Revenue

Operating Revenues / Total Assets
Total Assets / Total Equity

43
 Returns

Cash Flow Available for

Debt Service
No Terminal Value
Project IRR indicates the returns to the project irrespective of the capital structure

Equity IRR indicates the returns to the equity investors after the debtors have been fully repaid

Project Payback Period is the number of years it will take to cover up the total project investment

Equity Payback Period is the number of years it will take to cover up the equity investors investment

The Internal Rate of Return is calculated using the excel function =IRR(range of cashflows)

44
 Scenario Analysis and Sensitivities

The model has three scenarios :

Construction Period = 1 years and no cost escalations in the Project Cost

Optimistic All debt raised during the first year and interest capitalized only during the first year

Revenues and debt repayment start from second year onwards

Construction Period = 2 years and cost escalations in Year 2 increases the Project Cost

Base All debt raised during the first two years and interest capitalized during the first two years

Revenues and debt repayment start from third year onwards

Construction Period = 3 years and cost escalations in Year 2 & 3 increases the Project Cost

Pessimistic All debt raised during the first three years and interest capitalized during the first three year

Revenues and debt repayment start from fourth year onwards

45
 Sensitivities

User selects the desired scenario in the tab Inputs

Total Project Cost corresponding to the scenario

The project and equity returns are summarized here

Using Data Tables, the change in

Project IRR is summarized in the
sensitivity tables where the rows
and columns correspond to the
change in the underlying factors

46
 Sensitivities

Using Data Tables, the change in Project IRR is summarized in the sensitivity tables where the rows correspond to the change in the underlying factors

47
 Data Tables

The sensitivities are run using Data Tables:

4 Click on Data Tab on the top
1 Create the table selected below, linking the top left cell to the Equity IRR cell in sheet Returns
2 Punch the range of % increases / decreases on first row and first column of the table 5 Select What-if-Analysis
3 Select the Table
6 Click on Data Table

7 Select the variables for the row and column

input cells
Cell G45

The input parameters are put equal to zero and linked to

their corresponding input cells

For e.g. below is a snapshot of how the sensitivity

parameter is linked to the corresponding input cell

48