Energy/Renewables Modeling Test Help
Hi everyone,
I need some assistance on an upcoming modeling test for a boutique. I have access to a modeling test for a natural gas plant (very simple with fixed O&M and variable O&M escalating with inflation, capacity revenues and energy revenues and a debt sizing section)
However, I have no experience with renewables modeling and don't want to be caught off-guard as this is a 4 hour timed test. I don't know how to model a tax equity partnership, for example. Or things that might be specific to wind/solar assets.
I was wondering if anyone had models available to share, or any other tip as this is my first modeling test. Really want to/need to do well! And beyond that I'm really curious to see renewables models.
Kouhwaii, sorry there are no responses yet. Maybe one of these topics can point you in the right direction:
More suggestions...
I hope those threads give you a bit more insight.
Wind/Solar deals have a production scenario toggle for different production levels. (P50/90/99). TE modeling is a bit tricky. Generally, prior to achieving a target IRR (6-8%), the TE investor gets 99% of all tax credits. Depends on whether it’s an ITC/PTC structure as well. If ITC, I think 40% of the project’s cost to build is recognized in the first year of the project’s service. Accelerated depreciation of the project over 12? years is also taken in the form of tax credits. Generally, the TE investors get some portion of the income as cash distributions, which are senior to any back leverage debt repayments that occur. So before calculating debt sizing make sure to account for that to calculate CFADS. After the flip occurs, the TE investors gets 1% of the tax credits and I think the cash distributions amount shrinks as well. Hope someone more experienced can add on or correct me if I’m wrong on anything. If you have any other questions, I can do my best to answer.
Thank you for your response!
Ah okay so the different production levels are toggled cases - make sense.
I've personally read the structures in detail that you mentioned (Renewable Energy Finance by Santosh Raikar is a really good book that outlines these stuff if anyones stumbles upon the thread and is curious)
I'm just curious how it would be "handled" on a model, as I've not seen it. I feel like that's how I really understand the economics just by working on it. The example model I had is a gas-fired assets so doesn't really model for tax benefits and those cash distribution differences. I've also solely worked on gas-fired assets in my internship.
If not too much of an ask, could I PM you personally to ask about the model test if anything comes up?
Feel free to PM. I can do my best to help if I'm free. I would love to send you a model so you can see how it works, but unfortunately all models we use are confidential. Ed Bodmer has some really good resources in regards to modeling tax equity structures that I think would help tie it together for you practically.
Interning at a bank in the sector.
Whether it’s TE or else, pay attention to these details: flags (you will generally have construction and operating flags + TE flags in case), CFADS waterfall (learn how to get there), DSCR (used for debt sizing).
Also, TE structure varies from TE investor to TE investors, but the classic one is 99% income allocation before flip and then 5% after (it’s the minimum required).
If you get asked, mention the buyout option. You’ll get extra points.
By the buyout option, are you referring to the sponsor buying the TE investors equity at/after the flip date at fair market value? That depends on how they structure the partnership as well correct?
By the CFADS waterfall you would be referring to revenue - fixed O&M - variable O&M - Capex/MM - interest - taxes (just restating to see if I'm wrong anywhere, but I assume a simple model test wouldn't go beyond these items?)
Just curious, what is the use of an operating flag - again the models I've looked at were projects already up and running so although there was an operating flag - there wasn't much use to it if that makes sense.
Thank you so much for your response, I hope I'll get to work at a place where I can be comfortable with models etc. as you seem to be! feel as if I've learned nowhere near enough at the boutique I'm currently interning at :(
edit: also curious if you had any resources you reviewed during your internship for your modeling/industry knowledge that you thought were helpful
I’ll try to be short:
Side note: you are not required to be proficient in modelling since TE is such a nieche and complicate space that they will give you extensive training. Focus on the basics and show them what you know and that you are proficient with the concepts.
As for resources, I read the industry outlook from Deloitte and then something by banks in the space. They usual it do a quarterly report.
Hope everything is clear. If not, I can add more color to anything you wanted more information on. Happy to help :)
Omnis quia dicta rem delectus. Debitis accusamus nulla animi saepe voluptas.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...