Hi,
Is there a damn solar modeling test with a solution available somewhere? (Definitely happy to check something close such as wind)
About to take a 3-hour one for a solar investor/dev but I'm in REPE atm so need to practice. Impossible to find a model with a solution, found some materials online but definitely not 3-hour test...
Thanks in advance! Happy to share several REPE tests for those who want to trade...
Is this for a MF?
No, Investment Associate role in London for a Developer/Investor doing mostly solar (Asia, US, Western Europe). Role would cover m&a too (they recently acquired a Dutch solar firm). Looks like a great gig with a nice intellectual challenge!
I am hiring for a role similar to this... I give applicants a similar model test (DCF, PF, 3 statement kind of thing, but for wind). Not willing to share my test, but happy to "mark" / review your outputs. DM me if interested.
In general, you should include the following features as a minimum:
- Revenues: Generation (MW Capacity * Hours in Period * P50 solar yield * degredation factor) * offtake price (£ / MWh) (sometimes you might have a % of generation under PPA / CFD and the rest as merchant).
- OPEX: usually fixed + variable
- CAPEX
- Funding Uses: Include Interest During Construction & financing fees in your uses.
- Funding sources: Usually you need to build debt sizing calcs. Max Debt quantum = Min ( max gearing % , sum( CFADS / Min DSCRx - Interest ) over the debt tenor ). If you do it properly you will likely need macro to break circularity, but can always manual copy-paste to save time and then come back to macro at the end.
- Acconting & tax: main thing is depreciation account and amortization of financing fees / IDC. Remember levered tax is a seperate calc to unlevered due to interest. Usually due to time constrainsts no need to model tax losses, and can just assmume Capital Allowances = Accounting dep.
- Full cash cascaid / Waterfall
- Outputs: levered and unlevered IRR, CF / P&L / BS
Thank you very much for this! I've ended the process. After careful consideration I will stay focus on REPE. I'm sure this post will be useful for potential other candidates!
Mind if I DM you to ask a few questions about the space? The context here is that I've been doing research into the space recently and am seeing that pricing for these assets can vary fairly widely market by market and also project by project. Unlike with other assets where you can value an investment based off of a multiple or cap rate on earnings, this space seems to be fundamentals driven. Additionally, with incentives/depreciation benefits the focus is less on IRR - is this true?
I've spoken to numerous developers who sell solar projects and have been unable to tell me the IRR that their buyers require to transact. Again, not an expert in the space and have just been poking around to try to get educated as the demand story for electric energy is pretty compelling. I'm curious if what I have seen is an anomaly or the norm in the space right now. Also curious, if there are any investors in the space who look at the value of the cash flows and isolate the benefits from incentives and depreciation from their return calculation. Coming at this from the perspective of REPE investor and am looking at the investment landscape relative to REPE.
Keen to hear other takes on this as well but sharing my take, hopefully you'll find it helpful.
Valuing solar/ wind projects at the asset level definitely varies across different markets. I caveat this by recognizing markets as emerging markets vs developed, and even then, within Asia for example, Taiwan renewables would be priced differently to Japan / South Korea, and similarly India is to Philippines, Vietnam etc. despite how the former could be seen as "developed" and the later as "emerging" market.
The drivers for this variance come down to the granularity of how you asses the underlying assets. What stage of development are they? Are the projects greenfield development, have they reached certain milestones like achieving PPA contracts / financing, or are they brownfield operating projects. Each market would have its own nuance to the revenue structure / financing conditions / permitting timelines etc. and that would then have the cascading effect of impacting returns from a risk-reward perspective.
For example, Japan's got FiP rates and Taiwan's got FiT and these would be different from the reverse auction of Indian utility-scale tenders. Permitting also influences the certainty / pricing of the assets. You'd expect a lower return on assets that are follow are more regulated / formalized permitting process giving you some comfort that you would either hit the go or no-go milestones before putting more equity at stake.
From a multiples perspective - I think this is more prevalent within Europe and they'd go at it with a $/MW but also assessed if they're a development / operating asset. I'm not entirely sure if investors would assess assets differently by striping away the benefits of incentives etc, hoping someone with experience here to chime in!
Mind sharing what the cash waterfall looks like? If acquiring an operational asset that, for simplicity, has no new construction capex and so no new equity/debt required what does CFADS look like? Then is debt just used for acquisition and sits on Target BS/CF and calculate purchase price just using NPV and target IRR?
Thanks!
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