1 / 26

Finance Lecture # 4

Finance Lecture # 4. Jan H. Jansen E-mail: jan.jansen@han.nl. Wind energy. Minor Wind Energy Project Management. Programme. DSCR. Debt Service Cover Ratio: CFADS / DS DS (Debt Service) Interest Instalment or Repayment of the loan (12 - 15 years) CFADS

peggy
Download Presentation

Finance Lecture # 4

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Finance Lecture # 4 Jan H. Jansen E-mail: jan.jansen@han.nl

  2. Wind energy

  3. Minor Wind Energy Project Management

  4. Programme

  5. DSCR • Debt Service Cover Ratio: CFADS / DS • DS (Debt Service) • Interest • Instalment or Repayment of the loan (12 - 15 years) • CFADS • Cash Flows Available for Debt Service • CFADS = Revenues – Costs – Taxes • Costs • O&M costs (Operations & Maintenance) • Insurance costs • Management & Concession Costs

  6. Recap lecture # 3

  7. Project Financials (1) • Investment amount (A) • Trade off’s: • Financial structure: • e = E : A • l = L : A • Currency Risks • Transaction Risk • Economic Risk • Translation Risk • Discount factor (d) • d = wacc + π + σ • Cash Out Flows • Cash In Flows

  8. Structure Excel model

  9. How to build an Excel model • Worksheet 1 (Project name) • Project name • Version & Date • Authors • Worksheet 2 (Results) • Investment amount • Economic life • Decision criteria • Worksheet 3 (Data) • Data • Assumptions • Worksheet 4 (COF) • Cash Outflows • Worksheet 5 (CIF) • Cash Inflows • Worksheet 6 (NCF) • Net Cash Flows

  10. Decision Criteria Capital Budgeting • Pay Back Period (PBP) • Return on Investment (ROI) • Net Present Value (NPV) • NPV Investment Ratio (NPV / INV) • Internal Rate of Return (IRR) • Break Even Time (BET)

  11. Investment case • Investment € 50,000,000 • Expected economic life: 10 years • Equity / Asset Ratio: 0,6 • Required ROE: 5% • Expected Interest rate: 3% • Expected Inflation: 2.5% • Risk mark up: 2.9% • Annual Revenues: € 10,000,000 • Increase electricity prices: 6% • Annual Maintenance Costs: € 2,000,000 • Increase maintenance costs: 4%

  12. Results

  13. Literature • Management Accounting for Decision Makers, Atrill cs • Management Accounting, Kaplan cs • Advanced Management Accounting, Kaplan cs • Cost Accounting, Horngren cs • Fundamentals of Corporate Finance, Ross cs • Fundamentals of Corporate Finance, Brealy cs • Multinational Business Finance, Eitman • Wind Energy (Fundamentals, Resource Analysis and Economics), Sathyajith • Wind turbines (Fundamentals, Technologies, Application, Economics), Hau • Principles of Project Finance, Yescombe

  14. Project Finance • A method of raising long-term debt financing for major projects through “financial engineering” based on lending against the cash flow generated by the project alone. • It depends on a detailed evaluation of a project’s construction, operating and revenue risk, and their allocation between investors, lenders, and other parties through contractual and other arrangements • Project Finance ≠ Financing Projects

  15. Features of Project Finance • Ring-fenced project (Separate Project Company) • New project / New Business • High Equity Debt Ratio • No guarantees form the Project Company (non-recourse finance) • Lenders rely on future cash flow for debt service payments (interest + repayment) • Main security for lenders: • Contracts • Licenses / ownership natural resources • Project has a finite life

  16. Forms of Projects • BOOT • Built-Own-Operate-Transfer • BOT • Built-Operate-Transfer • BTO • Built-Transfer-Operate • BOO • Built-Own-Operate

  17. Financial structure (leverage)

  18. Financial leverage effect on costs

  19. Why project finance? • High leverage • Tax benefits • Off-balance sheet financing • Borrowing capacity • Risk limitation • Risk spreading • Long-term finance • Enhanced credit • Unequal partnership

  20. Project Structure (1) Source : Project Finance, Yescombe

  21. Ring-fenced project Source : Project Finance, Yescombe

  22. Project Structure (2) Source: www.vestas.com

  23. Project Structure (3) Source: www..worldbank.org

  24. Wind Farm Finance Structure http://www.wind-energy-the-facts.org

  25. Project Risks

More Related