Wind project Financial model
Hi Everyone,
I would please need some help. I would like to know if some of you have experience in renewables (especially wind) projects/assets valuation using DCF approach.
Can any one provide me with some general guidance? or a wind valuation model example that could give me the chance to get more familiar with that type of valuation?
Thanks very much,
Y.
Hard to say, very general question. Is this project levered or unlevered? Is there tax equity on the project? Either of which would make it very complicated.
General guidance on a wind operating model (unlevered, no TE)
Select typical Capex Assumptions: - Turbines - BOP - Land lease - Development fee - Financing Fees
Select typical OpEx Assumptions: - O&M - Contingency - Site taxes - Scheduling - Asset Management - Transmission charges - Insurance
Other assumptions - Project life or how long you project cash flows (typically 25-35 years) - Availability (wind turbine manufacturers will have warranties for this, typically 97-97%) - Curtailment - NCF (wind studies are needed to find capacity factor. Totally depends on region. For example, PJM project could be 32% while a ERCOT project could be 45%) - Terminal value? (Typically none)
What are your cash flows? 1) CF from power generation. Key considerations - who is your offtake? (PPA, hedge, merchant?), PPA is easy, it's a stated $/MWh for 100% of your generation. Merchant is simple too, but just using market prices. Hedges are tricky and depend on what you're hedging at (P50 v P90). Nameplate capacity of turbines x hours in a year x net capacity factor = power generation * $ MW/h 2) RECs - typically bundled into PPAs 3) Capacity payments - you don't always see these. Not necessary to know as buyers may not ascribe value to them 4) PTC tax credit - based on production
What is your discount rate? - Let's say 7.75-8.00% with a 100bp premium for a hedged project and a 200bp premium for a merchant project
I'm missing a lot but this is the basics.
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