Financial Analysis
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This document discusses project financing and financial analysis for solar photovoltaic projects. It covers key topics like: - Project finance through non-recourse loans secured by project assets and paid from cash flows, rather than sponsor balance sheets. - Financial modeling to construct representations of aspects of the project and make recommendations. - Key financial indicators used in models like Debt Service Coverage Ratio and Internal Rate of Return. - How financial models serve purposes like demonstrating market opportunity, business model, path to profitability, investment needs, and facilitating valuation. - Primary aims of project developers to secure low interest bank loans without risk premiums added based on project safety, reliability and durability.
Financial Analysis
- 2. Module 1 : Solar Technology Basics Module 2: Solar Photo Voltaic Module Technologies Module 3: Designing Solar PV Systems ( Rooftops) Module 4: Designing Solar PV Systems ( Utility Scale) Module 5: Financial Analysis Module 6: DPR (Detailed Project Report) & EPC Module 7: The present Solar industry scenario and the future
- 3. Project Financing and Loans Project Finance is long term financing of infrastructure and industrial projects based on projected cash flows of the project rather than balance sheet of the project sponsor. The loans are most commonly non-recourse loans, which are secured by the project assets and paid entirely from project cash flow, rather than from the general assets or creditworthiness of the project sponsors, a decision in part supported by financial modeling, the process by which a firm constructs a financial representation of some, or all, aspects of the firm or given security. The model is usually characterized by performing calculations, and makes recommendations based on that information. The model may also summarize particular events for the end user and provide direction regarding possible actions or alternatives.
- 4. Financial Indicators Used in a Model 1. Debt Service Coverage ratio 2. Internal Rate of Return
- 5. Debt Service Coverage ratio In corporate finance, it is the amount of cash flow available to meet annual interest and principal payments on debt, including sinking fund payments. In general, it is calculated by: DSCR = Net Operating Income Total Debt Service
- 6. Internal Rate of Return (IRR) The discount rate often used in capital budgeting that makes the net present value of all cash flows from a particular project equal to zero. Generally speaking, the higher a project's internal rate of return, the more desirable it is to undertake the project.
- 7. Financial Model Financial models essentially serve five purposes: – to demonstrate the size of the market opportunity – to explain the business model – to show the path to profitability – to quantify the investment requirement – to facilitate valuation of the business
- 8. Financial Analysis Outcome Project investment is believed to be acceptable only if the internal rate of return (IRR) is more than the established minimum rate of return on capital cost. This is normally in contrast with the net present value (NPV) of the project, which is a value indicator for the investment. Average Debt Service Coverage Ratio (Average DSCR) represents the debt serviceability of the project over the life of debt period. Higher values of this represent higher capacity to repay service debt; whereas Minimum DSCR represents the minimum debt serviceability of the project over the life of debt period.
- 9. Primary Aim of Project Developers Securing low interest bank loan with no premium adders Safety Failures • Obsolete (irrespective of degradation rate) • 100% risk premium adder Reliability Failures • Under-performance (>1%/year degradation) • 1%-100% risk premium adder Durability Loss • Better-performance (<1%/year degradation) • 0% risk premium adder Failures & Losses: 3 risk premium adders on the loan interest
- 10. Levelized cost of Energy (LCOE) Safety, Reliability & DurabilityPerformance Net Cost/ kW h
- 11. Passionate About Solar ? Feel Free To Get In Touch contact@sunrator.com 011-41605551 Thank You!!