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Module5 Financial Analysis

The document discusses financial analysis and modeling for solar photovoltaic projects. It covers key financial indicators like debt service coverage ratio and internal rate of return used in models. Project financing is usually done through non-recourse loans based on projected cash flows. The financial model is used to demonstrate market opportunity, business model, path to profitability, investment requirements, and facilitate valuation. The primary aim of project developers is to secure low interest bank loans with minimal risk premiums added based on safety, reliability and durability of the project.

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James K. Bitok
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Download as PDF, TXT or read online on Scribd
79 views

Module5 Financial Analysis

The document discusses financial analysis and modeling for solar photovoltaic projects. It covers key financial indicators like debt service coverage ratio and internal rate of return used in models. Project financing is usually done through non-recourse loans based on projected cash flows. The financial model is used to demonstrate market opportunity, business model, path to profitability, investment requirements, and facilitate valuation. The primary aim of project developers is to secure low interest bank loans with minimal risk premiums added based on safety, reliability and durability of the project.

Uploaded by

James K. Bitok
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Financial Analysis

Module 1 : Solar
Technology Basics

Module 2: Solar Photo Voltaic


Module Technologies
Module 3: Designing Solar PV
Systems ( Rooftops)
Module 4: Designing Solar PV
Systems ( Utility Scale)
Module 5:
Financial Analysis

Module 6: DPR (Detailed Project


Report) & EPC

Module 7: The present Solar


industry scenario and the future
Project Financing and Loans
 Project Finance is long term financing of infrastructure and industrial
projects based on projected cash flows of the project rather than
balance sheet of the project sponsor.
 The loans are most commonly non-recourse loans, which are
secured by the project assets and paid entirely from project cash
flow, rather than from the general assets or creditworthiness of the
project sponsors, a decision in part supported by financial modeling,
the process by which a firm constructs a financial representation of
some, or all, aspects of the firm or given security.
 The model is usually characterized by performing calculations, and
makes recommendations based on that information. The model may
also summarize particular events for the end user and provide
direction regarding possible actions or alternatives.
Financial Indicators Used
in a Model

1. Debt Service Coverage ratio

2. Internal Rate of Return


Debt Service Coverage ratio

In corporate finance, it is the amount of cash flow


available to meet annual interest and principal payments
on debt, including sinking fund payments. In general, it is
calculated by:
Net Operating Income
DSCR =
Total Debt Service
Internal Rate of Return (IRR)
The discount rate often used in capital budgeting that
makes the net present value of all cash flows from a
particular project equal to zero. Generally speaking, the
higher a project's internal rate of return, the more
desirable it is to undertake the project.
Financial Model
Financial models essentially serve five purposes:

– to demonstrate the size of the market opportunity


– to explain the business model
– to show the path to profitability
– to quantify the investment requirement
– to facilitate valuation of the business
Financial Analysis Outcome
 Project investment is believed to be acceptable only if the
internal rate of return (IRR) is more than the established
minimum rate of return on capital cost.
 This is normally in contrast with the net present value (NPV) of the
project, which is a value indicator for the investment.
 Average Debt Service Coverage Ratio (Average DSCR) represents
the debt serviceability of the project over the life of debt period.
 Higher values of this represent higher capacity to repay service
debt; whereas Minimum DSCR represents the minimum debt
serviceability of the project over the life of debt period.
Primary Aim of Project Developers
Securing low interest bank loan with no premium adders
• Obsolete
(irrespective of
Safety degradation rate)
Failures
• 100% risk premium
adder
Failures &
Losses: 3 • Under-performance
risk (>1%/year
Reliability degradation)
premium Failures
adders on • 1%-100% risk
the loan premium adder
interest
• Better-performance
(<1%/year
Durability degradation)
Loss
• 0% risk premium
adder
Levelized cost of Energy (LCOE)

Performance Safety, Reliability & Durability

h
Net Cost/ kW
Thank You!!
Passionate About Solar ?
Feel Free To Get In Touch
[email protected]
011-41605551

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