Construction Capex Costs
- 01:38
Construction Capex Costs in renewable energy project finance.
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Project finance Renewable EnergyTranscript
Typically the capital expenditure cost estimates are given to you from an external source, engineers, surveyors, subject matter experts who have knowledge of the sort of capital expenditure that's required and can estimate with some reliability, the degree of cost that will be incurred. We need to ensure the model that we create is flexible, so we need to capture those costs from the subject matter expert and model for a potential change of start date and potential cost overruns. The cost overruns are relatively simple to model. What we need to do is include in our assumptions a percentage that we can add to the base costs that we are given. So we end up with a formula that is the base cost times by 1 plus that percentage, what we call a sensitivity percentage, and we add that to all of the capital costs in all of the years in which they are incurred. So we can easily build in what happens if there is a 10% cost overrun or a 20% cost overrun. We also need to have flexibility around changing the start dates. Essentially, what we want to model is exactly the same CapEx only delayed by one year or two years, for example, and we can do this using a lookup formula or an index match formula.