Renewable Project Valuation - am I correct?

Hi WSO, just wanted to check if I'm thinking about renewables valuation correctly. Mainly meant to be a quick and dirty answer in an interview if talking about valuation, and can also act as a bit of a skeleton to frame more detailed answers on.

Please lmk if I'm thinking about anything the wrong way: 

Take the asset’s capacity and multiply by the capacity factor and 8,760 (24 * 365) to determine generation in MWh.

If the asset is contracted, apply the PPA price for the duration of the agreement, and apply a merchant curve for the remaining period (i.e. the merchant tail).

If you are solving for the LCOE, you can solve for it after the general structure is built up.

On opex – typically O&M costs can be modelled based on the O&M contract available – otherwise consider a median of O&M costs of and adjust based on the specific characteristics of the project (e.g. a sponsor funding the project may have in-house O&M contractor that can lead to slightly improved costs)

Also factor in transmission costs into Opex – make an assumption based on historical transmission prices (?)

With EBITDA (Revenue less Opex) – need to determine the interest and depreciation components.

For Interest – build debt schedules based on the different tranches of debt used to fund the project; simple schedule that represents: Opening Balance – Debt Service (Interest Expense + Principal Payment). Debt service is used to consider DSCR / LLCR, but in the valuation case it also needs to decompose between interest and principal payments. This can be circular so a macro can be used or use an assumption that interest is charged on opening balance.

For depreciation – build a schedule based on the asset’s depreciation; typically MACRS. MACRS effectively states that you accelerate depreciation over the economic life, having a larger depreciation amount (and subsequently larger tax write-off) in the near-term and the reverse towards the end of the project’s life.

Then taxable income (for write-off purposes) is EBITDA – depreciation – interest expense. The tax benefit is your taxable income * tax rate.

Finally for post-tax cash flows (to equity holders), determine it as EBITDA – debt service + tax benefit as depreciation is non-cash.

If you were solving for the LCOE, you can solve for this figure where you set the equity IRR (determined by the post-tax cash flows, where the capital outlay is the equity % of the capital cost) equal to your target IRR.