Task: Your company wants to analyze the opportunity to invest in a Wind Farm of 38.4MW capacity in Spain. Your task as an analyst is to develop a financial model in order to determine whether the investment would create value for the company. Concretely, you are asked to:
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Prepare the Financial Statements: Cash Flow statement, Profit and Loss account and Balance Sheet
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Calculate the Equity NPV and IRR at 01/01/2023, using the Dividend Discount Model (DDM) methodology.
Please note that neither the NPV nor the IRR can be calculated by using the built-in formula’s in Excel.
User Guide to Financial Model
The
‘Input’
worksheet is the sheet with all the inputs
The
‘Construction’
worksheet contains all computations related to the uses and sources of funds during the construction period (on a monthly basis).
The ‘Operation’ worksheet contains all computations concerning the Revenues, OPEX, Depreciation and Debt Servicing during operating period (on a semester basis).
The
‘Tax’
worksheet is used for the tax computation.
The
‘FinStats’
worksheet is an output sheet containing the financial statements (cash flow statement , profit and loss statement and balance sheet).
The
‘Valuation’
worksheet is the sheet for the calculation of the NPV and IRR.
The cells marked in orange in the attached Financial Model need to be linked to the correct worksheet or need to be filled with a formula/value. All other cells should not be modified.
Project Timing
·
Commercial Operations Date (“COD”) = 1-Jan-2025
·
Construction duration = 1.5 years
·
Operating life = 25 years from COD
Revenues
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Capacity = 38.4 MW
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Wind Turbines Generator (WTG): the 19 turbines of this farm could be operated 2102hours a year at their full load (“Full Load Equivalent Operating Hours”)
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Fixed flat PPA (i.e. contract with the authorities) on 100% of the output during the first 20 years = 74.6 EUR/MWh
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Spot price on 100% of the output during the remaining years. Yearly price given in Excel file
·
Plant availability = given in Excel sheet
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Revenues from Guarantees of Origin[1]
(GO) at 1EUR/MWh produced
Debt Sizing & Repayment Considerations
·
Initial Debt ratio = 85% (equity = 15%). Consider an average D/D+E = 42.5% over the project lifetime.
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Tenor = 20 years after construction
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Principal Repayments = 40 equal semi-annual repayments starting after COD
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Upfront fee = 1.3%
·
Interest margin above Risk Free Rate and Country Risk Premium = 130 bps
Capex
·
Capex = EUR 54.5 million
·
CAPEX is spent equally over construction period, financed by both debt and equity
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Accounting Depreciation is on a straight-line basis over 23 years
OPEX
·
WTG O&M costs: (equivalent to 45,300 €/wind turbine/year)
o
Fixed fee : 10450EUR/WTG/year
o
Variable O&M
fee: 8.5EUR/MWh
·
Administration and financial services: 20000EUR p.a.
·
Land lease: 250000EUR p.a.
·
Property tax: 218000EUR p.a.
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Insurance: 0.30% of capex p.a.
These costs will be escalated at given escalation rate thereafter.
Taxes
·
Corporate
tax
rate = 25%
·
Tax Depreciation at a rate of 15% per annum, over a horizon of 18 years
General
·
Escalation/indexation = 2% per annum
·
Accounts receivables = 20 days of all revenues
·
Accounts payables = 35 days of all costs
EXIT Value
Assume as an EXIT value that the asset will operate an additional 5 years, where the cash flow to shareholder during year 25 grows at a rate equal to the compounded annual growth rate of the EBITDA between year 22 and 25.
Cost of Equity
·
Risk Free Rate = 2%
·
Country Risk premium: 0.25%
·
Market Risk Premium = 6.5%
·
Unlevered Beta = 0.40
[1]
The Guarantees of Origin (GO) mechanism is a system for the tracking of energy production from renewable sources. It ensures that end consumers can verify the origin of the electricity that they consume. GOs thus provide an opportunity for individuals and companies to actively participate in the energy transition.