Financial Analysis

Module 1 : Solar Technology Basics

Module 2: Solar Photo Voltaic Module Technologies

Module 3: Designing Solar PV Systems ( Rooftops)

Module 4: Designing Solar PV Systems ( Utility Scale)

Module 5: Financial Analysis

Module 6: DPR (Detailed Project Report) & EPC

Module 7: The present Solar industry scenario and the future

Project Financing and Loans

Project Finance is long term financing of infrastructure and industrial projects based on projected cash flows of the project rather than balance sheet of the project sponsor.

The loans are most commonly non-recourse loans, which are secured by the project assets and paid entirely from project cash flow, rather than from the general assets or creditworthiness of the project sponsors, a decision in part supported by financial modeling, the process by which a firm constructs a financial representation of some, or all, aspects of the firm or given security.

The model is usually characterized by performing calculations, and makes recommendations based on that information. The model may also summarize particular events for the end user and provide direction regarding possible actions or alternatives.

Financial Indicators Used in a Model

1. Debt Service Coverage ratio

2. Internal Rate of Return

Debt Service Coverage ratio

In corporate finance, it is the amount of cash flow available to meet annual interest and principal payments on debt, including sinking fund payments. In general, it is calculated by:

DSCR = Net Operating Income Total Debt Service

Internal Rate of Return (IRR)

The discount rate often used in capital budgeting that makes the net present value of all cash flows from a particular project equal to zero. Generally speaking, the higher a project's internal rate of return, the more desirable it is to undertake the project.

Financial ModelFinancial models essentially serve five purposes:

– to demonstrate the size of the market opportunity – to explain the business model – to show the path to profitability – to quantify the investment requirement – to facilitate valuation of the business

Financial Analysis Outcome

Project investment is believed to be acceptable only if the internal rate of return (IRR) is more than the established minimum rate of return on capital cost.

This is normally in contrast with the net present value (NPV) of the project, which is a value indicator for the investment.

Average Debt Service Coverage Ratio (Average DSCR) represents the debt serviceability of the project over the life of debt period.

Higher values of this represent higher capacity to repay service debt; whereas Minimum DSCR represents the minimum debt serviceability of the project over the life of debt period.

Primary Aim of Project DevelopersSecuring low interest bank loan with no premium adders

Safety Failure

s

•Obsolete (irrespective of degradation rate)•100% risk premium adderReliabil

ity Failures

•Under-performance (>1%/year degradation)•1%-100% risk premium adderDurab

ility Loss

•Better-performance (<1%/year degradation)•0% risk premium adder

Failures & Losses: 3

risk premium adders on the loan interest

Levelized cost of Energy (LCOE)

Material cost (Rs): Materials and process cost per unit area. Device quality (kW): Efficiency of the materials.

Packaging/ Design Quality: Safety failures over time. Manufacturing quality: Reliability failure over time (under-performance, >1%/year degradation). Material quality: Durability/ Degradation loss over time (better-performance, <1%/year degradation).

LCOE = Net Cost/ kWh

Safety, Reliability & Durability

Performance

Net Cost/ kWh

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