Analysis of Independent Power Projects

4 days 24-27 Jul 2017, Paris France 4,915.00 + VAT* Download brochure Add to basket
4 days 5-8 Dec 2017, London UK £3,995.00 + VAT* Download brochure Add to basket

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Overview

This intensive, hands-on course will provide a comprehensive analysis of issues associated with independent electric power projects ranging from economic analysis of PPA contracts to financial modelling of projects.


In working through analysis of projects, a mixture of case studies, lectures and analytical exercise will be used to evaluate electricity price forecasts, debt structuring, technology choice, cost of capital, and architecture of financial models.


The course will feature:


Understand the objectives, theory, public policy and nuances of risk allocation between investor and off-taker for availability, heat rate, commissioning delay, operating costs, fuel prices, construction expenditures and capacity factor.


Learn the importance of debt structuring in measuring project risk and measuring project value and the effect of different financing structures on PPA bidding strategies through computing required PPA prices in financial models to meet IRR and DSCR targets.


Create flexible and transparent financial models of independent power projects from A-Z that incorporate availability risk; heat rate risk, operating cost risks, financing structure, tax treatments, alternative pricing policies and other factors.


Prepare economic analysis that evaluates tradeoffs between penalty provisions and PPA costs such as increasing availability penalty relative to required operation and maintenance costs as well as evaluation of PPA tariffs relative to the long-run marginal cost of electricity.


Measure and evaluate changes in the risk of projects over different stages of the project and how equity returns and asset value change if purchases and sales occur at different phases of a project's life.


Learn practical tools to analyse details of power projects including efficient tools to work with supply and demand data; creating flexible scenario and sensitivity analysis to evaluate efficiency and availability risk, construction risk, O&M risk and debt structuring; developing techniques to resolve circular references related to funding debt and sculpting debt without copy and paste macros.


Work through implementation of risk allocation in PPA tariff design and evaluation of off-taker risk and off-taker financial analysis.


Teaching methodology


The course is delivered using a mixture of hands-on analytical exercises, case studies and lectures in order that participants can learn from each other as well as from the course leader. In addition to development of skills in the course, participants will receive a series DVD containing a range of relevant models, business cases, articles and documents for further reference.


 

As a participant in the course, you will create a variety of exercise including a project finance model from A to Z that includes working through economic assumptions, developing alternative construction scenarios, evaluating tariff components, constructing a cash flow waterfall and resolving painful circular references. The case studies are also used to demonstrate how break-even analysis, scenario analysis, tornado diagrams, time series equations and Monte Carlo simulation can be used to analyse risk with project finance models of independent power projects.


In creating analyses, some participants will be particularly interested in adding excel features such as VBA with macros, flexible graphs, alternative circularity resolution, vintage depreciation and indirect functions to their project finance models. To accommodate people who are interested in technical programming subjects, added sessions will be held after at the end of the first and second days of the course.

"The instructor was extremely knowledgeable and went out of his way to answer questions with examples" - delegate from Saudi Aramco

 

Instructors

We work with a series of expert instructors, please select the course location of interest to review the credentials of who will be delivering the programme.

Paris
Ed Bodmer
Ed has created innovative forward pricing, productivity measurement and investment valuation software for consulting clients throughout the United States. He has taught energy economics and finance throughout the world, and formulated significant government policy and corporate strategy in the U.S. 

His consulting clients include investment banks, commercial banks, research institutions and government agencies on a wide variety of complex valuation and advisory matters. He has constructed a unique framework for electricity price forecasting and valuation using production cost modelling techniques combined with option price theory and Monte Carlo simulation.

He is also an adjunct professor at leading University where he teaches courses in microeconomics. Along with his practical experience that covers a multitude of major advisory projects, he has taught specialised courses in financial modelling, electricity pricing, option valuation, mergers and acquisitions and contracting to investment banks, commercial banks, industrial corporations and electric utility companies.

He was formerly Vice President at the First National Bank of Chicago where he directed analysis of energy loans and also created financial modelling techniques used in advisory projects. He has used the models in providing expert testimony on subjects ranging from capital structure to investments in multi-billion dollar nuclear plants to complex valuation of new investments.

He received an MBA degree specialising in econometrics (with honours) from the University of Chicago and a BS degree in finance from the University of Illinois (with highest university honours). He has written many articles and is in the process of completing a textbook on valuation of electricity assets.
London
Christian Grütte

The instructor is an independent investment and financial advisor with more than ten years’ experience in the renewable energy sector. He advises on renewable energy strategies, business development and financing globally. He has successfully supported leading utilities, IPPs, developers and financial investors to build pipelines of renewable energy projects across international markets.

His specific experience includes the assessment of regulatory, technology and development risk in countries around the globe. Further, his focus is to evaluate and create the ability of renewable energy projects to be financed both from equity sponsors and debt lenders.

Christian is a recommended speaker at leading international renewable energy conferences and seminar trainer on renewable investment and financing topics to executives in Europe, the US, Chile, Mexico, South Africa, Dubai and Brazil.

He formed part of the Working Group ‘Financing the Energy Turnaround’ in Frankfurt and was one of the first members of the European Technology Platform for Wind Energy, as well as of EWEA, ACORE, LAWEA, EUBIA, ESHA and EGEC.

He holds an MSc in Industrial Engineering and Management from the Technical University of Berlin and currently serves as a lecturer in the Renewable Energy Finance Studies Program of the Frankfurt School of Finance and Management.

Venue

Paris

Centrally located hotel in Paris

This programme takes place on a non-residential basis at a hotel in central Paris. Non-residential course fees include training facilities, documentation, lunches and refreshments for the duration of the programme. Delegates are responsible for arranging their own accommodation, however, a list of convenient hotels (many at specially negotiated rates) is available upon registration.

London

Central London Hotel (energy)

All Euromoney Energy Training courses are held at four or five star venues in Central London, Zone 1. We strive to provide you with a training environment of the highest quality, to ensure that the whole learning experience exceeds your expectations.

Your training venue will be confirmed by one of our course administrators approximately 3-4 weeks before the course start date.

Related Courses

Inhouse


 

Do you have five or more people interested in attending this course? Do you want to tailor it to meet your company's exact requirements? If you'd like to do either of these, we can bring this course to your company's office. You could even save up to 50% on the cost of sending delegates to a public course.

To find out more about running this course in-house:





Our Tailored Learning Offering

If you want to run this course at a location convenient to you or if you want a completely customised learning solution, we can help.

We produce learning solutions that are completely unique to your business. We'll guide you through the whole process, from the initial consultancy to evaluating the success of the full learning experience. Our learning specialists ensure you get the maximum return on your training investment.



We can offer any of our public courses delivered at your office or we can devise completely tailored solutions:


Read more about our offering or complete a call back request to speak to a learning specialist.

 

Agenda

Agendas are localised, please select your preferred location.

Day 1

Risk Allocation and Economic Analysis of PPA Contracts

Risk allocation and PPA contracts

  • Fundamental objective of IPP/PPA model and notion of allocating risks to IPP that can be controlled
  • Nuanced issues of risk allocation associated with target heat rate, fuel price, maintenance outage and plant availability
  • Incorporation of different risks in multipart PPA tariffs
  • Capacity factor risk in renewable projects versus dispatchable plants

Measurement of PPA provisions and electricity economics

  • Notion that penalties and bonuses should reflect off-taker costs
  • Use of marginal cost analysis in measuring availability benefits and costs in different periods
  • Analysis of target heat rates in the context of marginal heat rate and average heat rate curves
  • Calculation levelized prices in PPA contracts
  • Effect of cost of capital on technology choice
  • Evaluation of long-term marginal cost and comparison of levelized PPA prices to long-run marginal cost

Currency risk and interest rate risk in IPP’s

  • Theory of purchasing power parity and indexing capacity payments
  • Volatility of exchange rates
  • Problems with indexing capacity charges from off-taker perspective
  • Alternatives for allocating exchange rate risk

Policy arguments for and against IPP’s

  • State owned systems and power outages, inefficient plants, high losses
  • Vertically owned systems, regulatory costs, nuclear power in the U.S.
  • Merchant power systems, California crisis, merchant meltdown and price increases
  • Purchase power contracts, Philippines, Pakistan, Indonesia

Case study of IPP’s in the Philippines and India

  • Context of power shortages
  • Structure of PPA contracts
  • Selected plant analysis and review of financial models
  • Postscript in Philippines
  • Contract structure, risk insurance and PPA agreements for the Dabhol plant
  • Evaluation of the level of price that avoids disputes through computing long-run marginal cost of electricity from off-taker perspective

Day 2

Project Finance Terms and IPP Transaction Structure

Theory and structure of project finance in context of IPP’s

  • Overview of selected project finance terminology
  • Importance of phases in risk analysis, accounting and modelling project finance
  • Theory of using project finance in investment decisions versus traditional project financial analysis using NPV and WACC
  • Role of contracts and integration of contracts in project finance
  • Target DSCR, debt tenor and required IRR in different markets
  • Use of export credit in power finance

Operating analysis in project finance model with PPA contract

  • Importance of cost of capital in electricity generation
  • Modelling prices and costs in operating section – A,B,C, and D components for coverage of fuel cost, variable O&M cost, fixed O&M cost and capital recovery
  • Calculation of project timing and phases with switches
  • Modelling capacity charges and energy charges with target heat rates, target availability and operation and maintenance expenses
  • Computation of actual generation, actual fuel costs and actual operation and maintenance expenses
  • Calculations of s-curve with ability to model delay in construction
  • Computation of levelized cost with alternative assumptions

Day 3

Project finance modelling of debt structure of IPP with and without PPA contract

  • Architecture of project finance models with comprehensive debt structure
  • Review of actual project finance models in different regions of the world
  • Programming sources and uses of funds statement during the construction period
  • Programming debt structuring with sculpting in project finance model
  • Computation of cash flow, waterfall, tax payments and financial statements
  • Equity IRR with different debt structure in PPA case – level versus annuity versus debt sculpting
  • Computation of debt capacity and IRR with alternative repayment structures – direct and indirect effect

Nuances in structuring debt and modelling project value

  • Effects of debt service coverage constraint versus debt to capital constraint
  • Problems with IRR statistics in evaluating projects and re-investment of dividends
  • Resolving circular references without copy and paste macros arising from funding and sculpting
  • Computation of project value assuming different sale dates and risk adjusted discount rates from buyer perspective as risk of project changes from signing contracts, working through mechanical issues and demonstrating cash flows from historic record
  • Incorporate refinancing assumptions in financial models through adding sources and uses of funds analysis in alternative re-financing periods and evaluating different possible features of re-financing
  • Cash flow sweeps merchant projects
  • Debt service reserves and cash trap covenants

Day 4

Off-taker perspective in model and calculation of tariffs

  • Optimisation of both debt capacity and PPA tariff using solver
  • Effect of PPA on capital structure of off-taker
  • Effect of PPA on cost of capital and debt capacity in project finance model
  • Cost of PPA with and without capital structure penalty
  • Effect of PPA on technology choice
  • Risk analysis of off-taker

Economic analysis of PPA prices relative to merchant prices

  • Review of merchant prices in different markets
  • Simulation of short-run and long-run marginal costs
  • Carrying charge rates for PPA projects versus merchant projects
  • Profitability of merchant plants and computation of implied capital capacity payment per kW

Economic analysis of selected provisions in PPA agreements

  • Delay provisions and liquidated damages
  • Availability tests and penalties
  • Termination clauses and compensation
  • Political risk insurance
  • Other provisions

Documents and finance sources

  • Work through PPA provisions and implementation of penalties, bonuses, liquated damages and other factors
  • Coordination of PPA with other EPC, O&M and loan agreement
  • Default and other provisions in loan agreements
  • Equity support agreement
  • Interest rate swaps in project finance
  • Bonds versus commercial banks
  • Insurance and international financial institutions
  • Credit enhancements and security

Course summary and close

Day 1

Risk Allocation and Economic Analysis of PPA Contracts

Risk allocation and PPA contracts

  • Fundamental objective of IPP/PPA model and notion of allocating risks to IPP that can be controlled
  • Nuanced issues of risk allocation associated with target heat rate, fuel price, maintenance outage and plant availability
  • Incorporation of different risks in multipart PPA tariffs
  • Capacity factor risk in renewable projects versus dispatchable plants

Measurement of PPA provisions and electricity economics

  • Notion that penalties and bonuses should reflect off-taker costs
  • Use of marginal cost analysis in measuring availability benefits and costs in different periods
  • Analysis of target heat rates in the context of marginal heat rate and average heat rate curves
  • Calculation levelized prices in PPA contracts
  • Effect of cost of capital on technology choice
  • Evaluation of long-term marginal cost and comparison of levelized PPA prices to long-run marginal cost

Currency risk and interest rate risk in IPP’s

  • Theory of purchasing power parity and indexing capacity payments
  • Volatility of exchange rates
  • Problems with indexing capacity charges from off-taker perspective
  • Alternatives for allocating exchange rate risk

Policy arguments for and against IPP’s

  • State owned systems and power outages, inefficient plants, high losses
  • Vertically owned systems, regulatory costs, nuclear power in the U.S.
  • Merchant power systems, California crisis, merchant meltdown and price increases
  • Purchase power contracts, Philippines, Pakistan, Indonesia

Case study of IPP’s in the Philippines and India

  • Context of power shortages
  • Structure of PPA contracts
  • Selected plant analysis and review of financial models
  • Postscript in Philippines
  • Contract structure, risk insurance and PPA agreements for the Dabhol plant
  • Evaluation of the level of price that avoids disputes through computing long-run marginal cost of electricity from off-taker perspective

Day 2

Project Finance Terms and IPP Transaction Structure

Theory and structure of project finance in context of IPP’s

  • Overview of selected project finance terminology
  • Importance of phases in risk analysis, accounting and modelling project finance
  • Theory of using project finance in investment decisions versus traditional project financial analysis using NPV and WACC
  • Role of contracts and integration of contracts in project finance
  • Target DSCR, debt tenor and required IRR in different markets
  • Use of export credit in power finance

Operating analysis in project finance model with PPA contract

  • Importance of cost of capital in electricity generation
  • Modelling prices and costs in operating section – A,B,C, and D components for coverage of fuel cost, variable O&M cost, fixed O&M cost and capital recovery
  • Calculation of project timing and phases with switches
  • Modelling capacity charges and energy charges with target heat rates, target availability and operation and maintenance expenses
  • Computation of actual generation, actual fuel costs and actual operation and maintenance expenses
  • Calculations of s-curve with ability to model delay in construction
  • Computation of levelized cost with alternative assumptions

Day 3

Project finance modelling of debt structure of IPP with and without PPA contract

  • Architecture of project finance models with comprehensive debt structure
  • Review of actual project finance models in different regions of the world
  • Programming sources and uses of funds statement during the construction period
  • Programming debt structuring with sculpting in project finance model
  • Computation of cash flow, waterfall, tax payments and financial statements
  • Equity IRR with different debt structure in PPA case – level versus annuity versus debt sculpting
  • Computation of debt capacity and IRR with alternative repayment structures – direct and indirect effect

Nuances in structuring debt and modelling project value

  • Effects of debt service coverage constraint versus debt to capital constraint
  • Problems with IRR statistics in evaluating projects and re-investment of dividends
  • Resolving circular references without copy and paste macros arising from funding and sculpting
  • Computation of project value assuming different sale dates and risk adjusted discount rates from buyer perspective as risk of project changes from signing contracts, working through mechanical issues and demonstrating cash flows from historic record
  • Incorporate refinancing assumptions in financial models through adding sources and uses of funds analysis in alternative re-financing periods and evaluating different possible features of re-financing
  • Cash flow sweeps merchant projects
  • Debt service reserves and cash trap covenants

Day 4

Off-taker perspective in model and calculation of tariffs

  • Optimisation of both debt capacity and PPA tariff using solver
  • Effect of PPA on capital structure of off-taker
  • Effect of PPA on cost of capital and debt capacity in project finance model
  • Cost of PPA with and without capital structure penalty
  • Effect of PPA on technology choice
  • Risk analysis of off-taker

Economic analysis of PPA prices relative to merchant prices

  • Review of merchant prices in different markets
  • Simulation of short-run and long-run marginal costs
  • Carrying charge rates for PPA projects versus merchant projects
  • Profitability of merchant plants and computation of implied capital capacity payment per kW

Economic analysis of selected provisions in PPA agreements

  • Delay provisions and liquidated damages
  • Availability tests and penalties
  • Termination clauses and compensation
  • Political risk insurance
  • Other provisions

Documents and finance sources

  • Work through PPA provisions and implementation of penalties, bonuses, liquated damages and other factors
  • Coordination of PPA with other EPC, O&M and loan agreement
  • Default and other provisions in loan agreements
  • Equity support agreement
  • Interest rate swaps in project finance
  • Bonds versus commercial banks
  • Insurance and international financial institutions
  • Credit enhancements and security

Course summary and close

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