Case Study Introduction
- 02:23
Renewable energy project model Case Study introduction.
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Glossary
Project finance Renewable EnergyTranscript
We are now going to introduce the case study that we're going to build into a model. We're going to build a generic model of a renewable energy project, so this model could potentially be used for a solar farm or a wind farm, or indeed any number of different types of technologies. We're going to assume a project that's going to be built in two overlapping phases, and the first one will be switched on while the second one is still being completed. In total, there will be 330 megawatts of capacity, and the entire project will be built over a three year period. The initial estimated capital expenditure is going to be one and a half million dollars per megawatt of capacity. Half of that will be funded with shareholders equity and half with debt. We'll find later that's a fairly conservative split of how the funding might be financed. The debt part will be split into three different tranches with different interest rates and different repayment terms. The project will have a 20 year power purchase agreement, which guarantees a fixed price adjusted for inflation. This would be very similar to the Contracts for Difference type regime that operates in the United Kingdom, where although market prices go up or down the contract for difference compensates the electricity generating company for prices below the agreed price level and causes them to pay into the system when the price is above a certain pre-agreed level. So they effectively get a fixed price. We'll start that price before inflation at 50 pounds per megawatt hour, and we will gradually build this model up. It will get more and more complex as we progress, but we'll do it in small steps.