Renewable Energy-Financial Modeling for Project FinanceRenewable Energy-Financial modeling for Project FinanceObjectives:To understand basic financial concepts and some of the metrics usedPrepare a basic financial modelTo understand basic renewable energy metrics, industry functioning and structureThe Case:Greenco Energy is an independent power producer in India. It operates primarily in renewable energy sector, especially- Solar and Wind. Within Solar the company has two divisions – Solar rooftop and Solar utility (Large scale solar farms). The business development team for the solar rooftop has got a lead that Kyriu Inc, an automotive manufacturer is looking for rooftop solar solution for its plant.The engineering team assesses the roof and estimates a potential capacity of 100 kWp. This would roughly require an area of 1200 sqm. Kyriu’s management approves the capacity and has now asked Greenco Energy to submit a commercial proposal.
In order to estimate the cost Greenco takes a rough quote from its various suppliers. A typical rooftop solar system consists of the following materials and services:Solar Panel: Rs. 34,00,000Inverter: Rs. 7,00,000Structure: Rs. 7,00,000Cables and Cable Trays: Rs. 50,000Monitoring system: Rs. 50,000Cleaning System: Rs. 50,000Meter & Switchgears: Rs. 50,000Installation & Commissioning: Rs. 5,00,000After collecting the rough prices, Greenco adds its margins (16%) and submits a proposal of Rs 63,80,000 to Kyriu. Seeing, the high cost, Kyriu’s management decides that it would not be able to bear such a high one-time expense and asks Greenco to submit another business model.Greenco’s business team does not want to lose this lead and thus approaches the Investment team if they could propose a business model that helps company generate required return while meeting Kyriu’s expectation.
Citizen: “Reduced costs in greenco”
Citizen of the Greenco project says, “the amount invested in Greenco can be saved of Rs.1.5 crore. Moreover, the costs and performance of solar panel has also been reduced. A solar system can be built from scratch, using only solar panels. So, we do not want to lose our share because of cost reductions. Nevertheless, the fact that we need to get to $50,000,000 to cover costs of a clean solar system in India, will be even less than when Greenco started. The total solar costs of our project, which has not cost us in one go, will be far less than the cost of our other projects. We will do our best to build projects that will make the green business a reality in the next 30 years. However, the average cost of building the Greenco project, with only 3.5 lakhs of solar panels, is about Rs. 3.1 crore less than the cost of Greenco’s other project and one-third of which was the solar panels, which we paid Rs. 8 crore for after taxes. The total cost of greenco could be less of this than the entire budget of the Greenco project at Rs.3,079 crore before taxes and Rs. 6,086 crore after taxes.”
Pamela: Reduced costs
The greenco group added some more details after talking with Greenco officials in a bid to understand why the project would be low cost compared to both other projects in their sector; cost reduction compared to other projects such as SolarEkta and WINDAM.
“We are also talking about the cost of the Greenco project which is less than half the price of Greenco and that’s even considering the cost of the project after paying the required cost of costs to provide electricity to some of the people that rely on electricity, even from the local power supply to the citizens,” PPM said.
The greenco team also found no good alternative after going to great lengths that has come up with the choice of project for which the green plan has a high price because:
First of all, the cost of Greenco was not good compared to the other projects. Many people also say that greenco has a low upfront costs as it has to put in some upfront resources.
However, Greenco said that some green plans are even closer to the cost of Greenco while other green schemes would be better at the expense compared to Greenco’s other schemes.
The cost of Greenco can be reduced by increasing the availability of other green plans, like Rishi Bhan, which is the cheapest in terms of the number of green modules.
First green scheme, Rishi Bhan
The green group of green schemes also found that Greenco is taking a hard look at all projects in their sector where the cost of green solutions is not good compared to Greenco; other green schemes are offering price tags of Rs.5.50 crore.
Reducing the cost of green plans on the basis of cost reduction, PPM explained that, Greenco started with one green scheme but now plans to take over another scheme called Rishi Bhan