When we're building our renewable energy model, one of our key numbers is going to be our revenue, and that depends on how much electricity is actually produced. We can work out the total capacity of our facility, but looking at how much power each unit within the project can generate. So for example, we might have 50 wind turbines in a wind farm. Each of those say generates 8 megawatts worth of electricity. Well, if you multiply 50 by 8, then you have 400 megawatts total capacity. For the project to get off the ground. There would usually be a power purchase agreement, PPA, where someone has agreed to buy whatever this 400 megawatt facility can generate once it's built in the future. We need to look at that power purchase agreement, PPA, and look at the pricing. Is there a firm price already built into the agreement? Maybe what's agreed is as simply a formula to be able to determine the price in the future. Maybe with reference to market prices, of course there might be multiple prices. So for example, you could have a peak price and an off peak price. We also need to look into the agreement to see how long is it for, at what point does it expire, and is there a facility to renew the agreement for a further period at the end of the initial contract. There are many types of power purchase agreement. Each agreement is a bespoke tailored contract between the supplier, the renewable energy generator, and a customer who wants to buy power. The aim of the agreement is to achieve security of supply to the customer. They need to buy power and they're looking for a guaranteed source of supply over a long-term arrangement. It's also aiming to provide security of revenue to the supplier that they can be sure that the power they generate has a customer who is able and willing to pay. It also aims to provide security of cash flow so that the lenders to the project can be assured that sufficient cash flow will be available to service the debt. Under a power purchase agreement. If the customer, the person we call the offtaker, doesn't wish to buy power at some stage in the future for a temporary or even long-term period, they may be forced to buy it at the contracted price, which is what we call a take or pay arrangement, or at the least the agreement might be that the customer covers the fixed costs. That is the operating costs that do not change if the producer stops producing power. These will be costs like for example, insurance. They may also cover the costs of debt service. The idea is that if the customer no longer wishes to buy power for a period of time, then at least they cover the fixed cost of operation and the obligations that the project company has to repay its debt and pay the interest on the debt during that period. It may be that the producer continues to produce power, but just sells it on the open market instead of to the off taking party. In that case, there may be clauses in the power purchase agreement that say that any losses between the market price and the contractor price that the offtaker agreed would be covered by the offtaker. When the renewable energy project is built, it will not start producing at 100% of capacity right from day one. It will gradually ramp up. So for our 50 wind turbine wind farm, we would switch on each turbine one at a time in sequence and gradually ramp up each of those turbines to its full capacity. So we need an assumption of how much capacity is going to be built and how it ramps up, and therefore how much power will be generated in each year. We also need an assumption about how much that power will be sold for at what price, so it becomes volume produced and price per unit. Multiply the two of them and we end up with our revenue number.

Once we are in a revenue earning period, then we'll also have some operating costs. Some costs will be fixed. That is they don't rise or fall directly with the amount of volume involved. That doesn't mean they are 100% entirely fixed because they still go up with inflation. They just don't automatically rise and fall with volume produced. Variable costs though do rise or fall as production rises or falls. The sort of costs that might be fixed would, for example, be insurance staff costs, management costs, maybe the cost of the connection to the national grid, whereas a variable cost might be something like fuel. If you have a renewable energy project where you need to buy some feedstock to be able to generate power. If you do have that sort of renewable energy project, generally these would be biomass projects, possibly landfill gas projects where we need to purchase the fuel to be burnt and therefore that would incur a cost. We need to model that cost. We need an assumption of how much fuel will be consumed per unit of power produced. We need to assume it's not 100% efficient. The fuel consumption might be higher than the original engineering assumption for perfect conditions because the plant will not be 100% efficient. Adjusting for that, we would have a fuel consumption rate per hour as adjusted for how inefficient the plant might be. Then we need to understand how much each unit of fuel will cost. Multiply that by the number of hours the unit is operating. If you have free feedstock such as wind for a wind farm or sunlight in the case of a solar project, then we can assume there's no cost to buying the fuel. But there will be variability for a solar powered plant. The sun doesn't shine all of the time or for a wind farm, wind speeds will not be consistent. They might either be high or low and too high and too low for a wind farm to operate effectively.