Financial Analysis of Storage and Renewable Energy
Battery storage - the next big thing?
This program is eligible for 18 CE credit hours as granted by CFA Society VBA Netherlands
The Financial Analysis of Storage and Renewable Energy program will address a variety of contract and loan structuring issues associated with wind and solar energy projects as well as battery storage. The program is designed to investigate how various project finance techniques and contract structures can be used to achieve competitive power prices while maintaining a satisfactory equity return.
The program will begin by discussing distinctive project finance features of facilities that depend on wind, hydro or solar resources. Subsequent sessions will address the theory underlying liquidated damages for delay, and performance as well as design of other incentives that is inherent in different contract structures. Nuanced project finance issues associated with structuring debt for renewable projects will be discussed, including under what conditions the DSCR drives debt capacity and when the debt to capital ratio is instrumental.
The program will be taught with a combination of theoretical discussions, term sheet review and focused financial models.
How you will benefit
Understand the theoretical issues with computing LCOE and the importance of cost of capital for renewable and storage projects
Learn the differences in contract structures for renewable projects and dispatchable projects and how a single price structure can distort incentives for efficient construction and operation
Understand storage and cost characteristics of alternative batteries and how different structures work in alternative markets
Gain an understanding of financing components that influence the bid price required to meet a required rate of return on equity and can result in relatively low prices with reasonable returns
Understand the importance of debt sizing constraints and what strategies are relevant when the debt to capital constraint applies relative to when the debt service coverage ratio drives the debt size
Learn how to compute P50, P90 and P99 for different projects driven by resource risk
Understand the difference between mean reverting resource variation and estimation mistakes that do not correct as the basis for 1-year P90 and 10-year P90
Learn under what conditions debt sculpting can affect returns and how synthetic sculpting can be used to increase returns when the DSCR constraint applies
Understand the theory of credit spreads, variable rate debt and interest rates in different currencies and compute the implied probability of default that in inherent in credit spreads
Learn how to evaluate the costs to equity investors and the benefits to lenders for various credit enhancements including DSRA accounts, cash flow sweeps and covenants
Teaching style covering theory and practice
We have developed a unique teaching style whereby theory is covered as well as practice. Teaching approaches include:
Having participants perform all the practical exercises rather than the instructor
Minimizing the use of PowerPoint slides and maximizing the discussion behind each concept
Reserving time for group case studies to reinforce theory and practice
Providing resources for future learning and knowledge retention
Highly interactive and hands-on teaching style
Selection of case studies demonstrating potential errors and analysis and theory
Unique resources for further learning and retaining knowledge
An essential part of the program is the provision of vast materials that can be used to re-enforce the concepts discussed during the workshop and to allow participants to engage in further study. Materials include:
Many featured models in electric power that fully resolve circular references, rigorous structuring, customized scenario analysis and other features
Hundreds of focused exercises highlighting a variety of advanced financial issues
Frameworks for unique presentation of data and risk analysis including Monte Carlo Simulation
Methods for extracting crucial data for financial and energy analysis with transparent macros that automatically update information
Unique tools to convert PDF files, format spreadsheets and enhance efficiency
Collection of comprehensive case studies, financial articles, contracts and models
A laptop computer, equipped with Microsoft Excel, is required for this program. It is necessary that participants bring their own laptop, or if requested, a laptop can be provided at an additional charge.
Financial Analysis of Storage and Renewable Energy is a three-day program, divided into eight modules in total. The outline below presents teaching objectives, lectures and case work in each of the different modules.
Review of wind, solar and battery cost trends through LCOE analysis
- Capital intensity of Solar, Wind and Hydro compared to other technologies
- Understanding of levelized cost of energy (LCOE) mathematics
- Benchmarking fixed and variable O&M costs for solar, wind and hydro projects
- Theory of carrying costs applied to convert one-time costs to time-period costs; review of solar cost trends
- Illustration of project finance features in relation to the LCOE of wind, solar and hydro projects
Analysis of battery costs and configurations through island and merchant price analysis
- Cost analysis of solar versus diesel; compute the optimal sizing of solar capacity
- Value of solar and wind energy in different merchant markets around the world
- Trade-offs between storage time per cycle, capital costs, operating life, etc.
- Economics of different battery configurations in merchant electricity markets
- Evaluate the economics of batteries and compute the optimal amount of solar and battery capacity
Structuring project contracts for solar and wind
- Fundamental difference between classic PPA contracts and single price structures
- Risk allocation matrices and use of the DSCR, LLCR and PLCR to determine acceptable resource risks
- Problem of liquidated damage incentives and of setting incentives for performance ratio in Solar project
Debt sizing and development cost analysis for renewable energy- Difference in sizing debt; debt-to-capital ratio relative to the DSCR
- How development fees, owner costs, development costs, etc. affect returns
- How can development fees be computed as a function of development costs
- How differences in 1-year and 10-year P50, P90 and P99 can affect the debt capacity (using wind farm example)
- Project IRR, debt tenure, tax rate and interest rates that influence whether the debt to capital constraint applies
Understanding resource analysis for wind, hydro and solar projects- Analysis of resource data that varies over time for irradiation, wind speeds and hydro volumes
- Difference in variation due directly to resource variation
- Case study: evaluating P50, P90 and P99 on one-year basis and long-term basis for series of wind farms
Structuring of wind, solar and hydro repayments- Importance of the debt tenure relative to other debt parameters and problems
- Use of geometry to maximize debt
- Theory of sculpting and constant risk over the life of a project
- Evaluation of cases with synthetic sculpting
Credit spreads and equity returns for sustainable energy in different countries
- Credit spreads, debt IRR and all-in interest cost
- Computation of implied default probability: different credit spreads, debt tenors & loss given default parameters
- Comparison of country risk estimates with required credit spreads
- Different currencies and interest rates and hedging variable rates relative to fixed rates
- Alternative ways of measuring the required return on equity
- Alternative structures that incorporate some interest rate risk with caps and floors; natural hedging
Credit enhancements for different types of renewable projects- Review of various added provisions that are included in loan agreements
- Covenants and cash sweeps
- Measurement of the negative effects on the equity IRR of a project
- Mechanics of cash sweep with different triggers and theory (e.g. hydro but not solar because of volatility)
- Credit enhancements: the difference between analysis with the DSCR, LLCR and PLCR
- Economics of Maintenance Reserve Accounts for inverters and other equipment
- Effects of major maintenance on tax expense and DSCR
Who should attend
Financial Analysis of Storage and Renewable Energy is recommended for project developers, government agencies, consultants and contractors evaluating the benefits of adopting renewable energy technology. Project financing professionals and managers and directors intending to invest in the renewable energy sector will also benefit.
The program is taught in an interactive, hands-on style, and the participants will conduct all practical exercises.
Edward Bodmer teaches a number of modeling courses and is a consultant who specializes in financial analysis and modeling. He is a former banker and has taught courses for major corporations and financial institutions around the world for many years. Visit his website to see some samples of models:
www.edbodmer.com. He received an MBA specializing in econometrics (with honors) from the University of Chicago and a BSc in Finance from the University of Illinois (with highest university honors).
Dates & fees
Dates to be advised
Contact us to be informed of dates as soon as they are available
> Program fee includes all study materials, books and software that are required for the program as well as daily luncheons.
Program fee is exempt from VAT for clients located in the Netherlands. For other EU and Non-EU clients, VAT may be due by client and will not be charged by AIF. Fees may be subject to change.
86% of the attendees in the April 2018 session would recommend the Negotiation Dynamics program to their colleagues.
"Essential knowledge for anyone working on renewable energy projects."
"Definitely broadens knowledge for 'generalist' asset managers."
Kempen Capital Management