How to run the Advanced Project Finance Models from OMT (Renewable Energy and Non-RE)
Your energy and power expert and consultant on project development and project finance modeling has prepared a short guide for running the demo versions that are available by clicking on the links in some of the articles in this blog and profile.
FOR RENEWABLE ENERGY PROJECTS:
1) Save to a case file name (to preserve original copy), then convert the model from a Philippine Peso (PhP) to US Dollar (USD) model by changing the exchange rate (44.00 PhP/USD) to the desired local rate (e.g. 10 XXX/USD) where XXX is your local currency. Then do a global search and replace of all ‘PhP’ to ‘XXX’ to all the various worksheets or tabs of the model. Then save again in another local currency case file name. You are now ready to proceed changing the other inputs.
2) Update the depreciation period (20 years), operating period (25 years), construction period (60 months = 5 years including pre-dev), base years for FIT or tariff, CAPEX, OPEX and commercial operation year.
3) Define the target EPC cost or all-in capital cost $/kW, fixed O&M $/kW/year, variable O&M $/MWh, G&A cost 000 $/year, local debt share (e.g. 60% local and 40% foreign components), debt capital and equity capital (70% and 30%), equity IRR target or discounting rate (14% p.a.).
4) Update the violet cell and blue cell font inputs. Avoid changing the red font cells (flags, switches). Define the inputs for days receivable, payables and inventory.
3) Calibrate the model to meet desired net capacity factor, all-in capital cost or unit capital cost per kW, fixed O&M, variable O&M, G&A cost, set contingency share 60% LC, then calibrate share of local components (60% by varying equipment cost % LC). You do this using goal seek on certain cell variances that are set to zero by varying an input cell.
4) Define the cost of debt (local and foreign): upfront fees, commitment fees, interest, loan term, grace period, debt reserve months (principal and interest put in escrow account).
5) Define the tax regimen in a table inside the sensitivity worksheet (income tax holiday or ITH, income tax rate after ITH, property tax rate and valuation level, local business tax rate, gov’t share rate, ER 1-94 contribution, withholding tax on foreign interest, gross receipts tax on local interest, IPP royalty, DOC stamp rate and PEZA tax rate if used).
6) Define reference exchange rate when feed-in-tariff (FIT) rate was approved and forward exchange rates when the project will commence operation, CPI, local escalation and foreign escalation for OPEX and CAPEX items. This will allow you to model impact of delaying a project – escalation on O&M and capital cost items from their base years.
FOR NON-RENEWABLE ENERGY POWER PLANTS:
When modeling thermal (fossil-fueled power plants like oil, gas, coal, geothermal), you have to provide inputs for GHV, plant heat rate, cost of fuel and density for liquid fuels.
1) The cells that need to be converged are usually in green cells. These cells are variances that are set to zero by varying an input cell or target (using goal seek function of Excel).
2) A table inside the inputs and assumptions worksheet also provides the capital cost breakdown from the EPC Contractor to calculate the all-in cost per kW which is used to calibrate the Construction model to arrive at the same all-in capital cost. This table also provides the O&M costs which the OMT model needs to follow by way of calibrating its inputs. There are variance cells in green that needs to be set to zero such as net capacity factor, all-in capital cost, fixed O&M, variable O&M, G&A, and annual generation. This makes this template model very flexible as it allows it to model various configurations and practices to arrive at the same results in terms of costs and performance.
3) Once you have updated the inputs and targets and calibrated the model to meet such inputs or targets, the next step is either to find the first year tariff needed to meet 12% p.a. returns (project or equity) or to set the NPV (project or equity) to zero at the given discount rate, or given the tariff, what is the NPV, IRR and PAYBACK for equity returns (30% equity and 70% debt), as well as project returns (100% equity, 0% debt).
4) You may view the tariff breakdown sheet, or do sensitivity runs by changing some inputs and copy pasting the values to a column in the sensitivity sheet.
5) You may view the construction period sheet to see the build-up of the all-in capital cost to include the cost of financing. This makes the template model flexible as it can adapt to any EPC Contractor format in order to arrive at the same all-in capital cost (in 000$ or $/kW) and breakdown into depreciable and non-depreciable costs. Thus, the annual depreciation is estimated and the net book value is projected over time.
6) You may view the operation period sheet to see the calculations for capacity, capacity degradation, gross and net generation, plant heat rate (if thermal power plant using fossil fuels), revenue (capacity fee and energy fee, or as a single total fee), fixed and variable O&M costs, other costs items, balance sheet items, depreciation schedule and loan amortization schedule for both local debt and foreign debt.
7) You may view the financials sheet to see the summary reports: income statement, retained earnings and capital, cash flow statement, balance sheet, equity internal rate of return and project internal rate of return calculations to see the NPV, IRR and PAYBACK periods.
8) Also found in the financials sheet are other minor reports such as: Levelized price and Levelized cost breakdown, per kWh and % share of the revenue pie or tariff.
9) Also found in the financials sheet are the Debt Service Cover Ratio (DSCR) and Benefits to Cost (B/C) Ratio.
10) Lastly at the end of the financials sheet are the various Financial Ratios: Liquidity Ratios, Solvency Ratios, Efficiency Ratios, Profitability Ratios, and Market Prospects Ratios.
11) The last worksheet is the Asset Base Tariff sheet showing the year-by-ear evolution of the costs and levelized tariff using the Asset Base Methodology and the pre-tax WACC as discounting factor.
12) The inputs & assumptions worksheet also summarizes the major inputs and assumptions as well a feedbacks the major results so that you can see how the project model behaves under various sensitivity runs.
13) Use the Sensitivity worksheet to copy paste value the results of each sensitivity case and label each case for posterity. This is very useful in preparing your feasibility study as you analyze various cases and scenarios.
14) You may save each major case run in a separate file name as you wish so you can come back to them and review and modify the inputs to see its impact on project results.
You may want to take a look into this complete line of project finance models shown below (click on file links to download the demo models) that are based on one model template so that the results are purely the outcome of the technical and economic features of the technology, and not on varying modeling techniques. See sample inputs & assumptions worksheet below:
Sample Project Finance Model
Here is a sample project finance model for a biomass thermal power plant that can be customized for your specific need: (Advanced regulator model)
The same model above is also presented in just one worksheet (tab) so you would be able to understand better the structure of a project finance model: (OMT Energy Enterprises model)
A sample non-thermal power plant (no fuel GHV and no fuel cost) can also be downloaded:
A sample liquid fossil thermal power plant (with fuel GHV, fuel density and fuel cost) is also available:
Email me if you need customization:
You may order on-line any project finance model of any renewable, conventional, fossil, nuclear, combined heat and power, and energy storage power generation technologies by visiting this website:
Or please visit this blog for any power generation technology article:
The energy technology expert and financial modeling expert
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