Debt Sizing on hybrid renewable project (generation + firming)
Hi all,
Looking for some advice on a hybrid debt sizing exercise for a project that has generation (E.g: wind/solar) with a battery (firming).
I'm curious to see what experience others have had in this exercise, particularly in the way they approach the debt sizing on a hybrid basis.
Would you size it based on the hybrid lens (aggregating the revenues and cost and take the whole CFADs) or size it individually on two technologies (with their respective convenance ratios and terms) such that you'd get two debt quantums and then aggregate (assuming it also goes into one facility)?
If the latter - not sure how it feeds into the debt size macro and overall circularity issues it may run into.
Would appreciate some advice / guidance!
Depends how the generators are connected to the grid and the revenue contracts in place. Easiest case is the wind and solar inject to the grid as-gen subject to a firm utility PPA, and the battery also has its own interconnection subject to a utility tolling agreement. If the gen is DC-coupled with battery or some other more complicated setup then yes the revenues and resulting debt sizing get spicier.
Thank you. Let’s assume it is the latter in the sense we may need to size debt on each technology but still raise one facility.
I hear this way you’d size debt respecting to the asset’s cfads and then aggregate the debt quantum and repayment profile. So it’ll ideally meet individual technologies’ dscr requirements and then perhaps a hollistic one as part of a “hybrid or portfolio view”.
I just fear that this is incredibly circular given it’s one facility and hits the CFW together, and you’ll need some proxy facility to identify the amounts for the BESS side as part of illustration
This quickly becomes a wholesale market exercise you can't solve in Excel. Even excluding battery charging from the grid, you have to decide whether each electron from wind/PV goes to the battery or to the grid. Not easy. Easiest proxy I can think of is some portion of each day's wind/PV (roughly the capacity of the battery) that otherwise would have been sold at low nodal price (or economically curtailed altogether) charges the battery for $0 cost and sold later at an evening/morning ramp premium. This could just be a crude grossup of whatever merchant revenues you think your wind/PV would capture in the market sans battery. From a debt sizing perspective I don't see a rationale for sizing on a per-technology basis, this is really one complicated system producing one cashflow, so should be one loan.
del
I would size on an aggregate basis with total CFADS coming from both wind / batteries. Appreciate this is likely for a sell-side hence why no bank feedback has been given on this, but debt sizing on BESS (especially if non-operational) depends on the bank club you are going after and they can be aggressive (may require high DSCR coverage as fully merchant revenues). It also depends on the SPV structure - if you have one entity which holds both the BESS and generation assets then I don't see the reason for having 2 separate debt stacks. The most the banks can say is that they do not account for the forecasted revenues of the BESS asset i.e. sizing gets lowered.
Thank you.
It seems this is the consensus across most replies. Best to treat it as a singular 'project', even though has two technologies. But essentially taking the combined CFADs, but segregating the DSCRs based on their respective contracting / merchant revenue streams to get a blended DSCR. But still using the one CFADs to inform the one facility and debt servicing.
No bank feedback since a lot of commercial / operational parameters are still being tested, until things are much more bedded down.
Agree with your last statement - it's mostly caring about the wind since it is more critical, and the BESS is like a support layer overlaid, which may or may not get included and then just affects your sizing or gearing.
Two separate debt stacks would imply you're probably just having two isolated projects at this point. And another comment did say lenders can't really differentiate merchant from either the BESS or wind, so the combined CFAD makes sense (or at least just caring what comes from the node and multiplied by pricing).
Math wise : E.g: If Gen is 50% PPA, 50% merchant, and the BESS is fully merchant, then it's still the one 'pair' of DSCRS:
--> 1.30x for contracted Gen (50%), and 2.00x for 50% PV and the BESS merchant. But overall, there is still only one combined CFAD to inform the debt facility and debt service?
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