How do you value a powerplant in the development phase?
Let's say I'm developing a greenfield natural gas-fired powerplant. A lot of things can go wrong during the project development phase like not being able to secure permits or an interconnection agreement, binary events which can result in a complete loss on investment without any recovery. How would a third-party investor value the project during the development phase to account for such risks, if it was offered an opportunity to invest during development? Are you supposed to probability weight the cashflows?
a few things that come to mind
1) primary counterparties and their creditworthiness (established utility vs small cap refiner as an example)
2) existing midstream infrastructure
3) commodity prices
4) depending on jurisdiction, any carbon credit / trading programs that would impact generation economics
Thanks, though I'm more interested in understanding the math behind the valuation as opposed to the factors that would influence it. If I have a vision for a project from day 1 with no development progress, but is going to give me an IRR of 20% if fully de-risked, how do I value this?
bump
Add a development fee onto the project, say 15% of total project costs. Figure out what the market would value a comparable asset for at COD and back into that IRR, make your IRR higher than that.
I'm not sure there's a hard science or template way to factor in all of the various risks that can lead a project to fail. As far as Ive seen, you just need to have some market sense and gut feeling and go from there.
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