Manuscript - Financing Modeling of Renewable Energy Projects

KPI of Renewable Projects - 4
6. Valuation Considerations
• Economic analysis of capital investments whose value is directly or indirectly related
to volatile energy prices
• Contract with Independent power producers (energy charge versus capacity charge;
no volume risk)
• Importance of cost of capital and risk measurement for capital intensive technologies
• Statistical assessment of resources
• Risk analysis of long-term investments
• Contract structures to manage and transfer risk including Feed-in tariffs, PPA tariffs,
EPC contacts, maintenance contracts, availability and power curve guarantees
• In valuing projects that have an operating history, the risks and required return are
less because there is less dependence on uncertain consulting studies. DCF models
of equity or free cash flow can be used in valuing exiting projects with some of the
following considerations:
• Models should extend for the life of the project as growth rates are zero and the
projects do not produce cash flow after retirement.
• Equity cash flow can be used as investors normally consider a required rate of
return from 7% to 12%.
• The discount rate declines after the project has about four years of operating
history because of lower uncertainty in the capacity factor.
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