Introducing Financial Modeling and the Key Inputs and Outputs
摘要
In general, all long-term infrastructure projects are designed and structured the same way: using discounted cash flow (DCF) models. This is because they must consider the long-term nature of infrastructure projects and thus be able to project the revenues and costs to the horizon corresponding to the lifetime of the equipment to be installed. Renewable energy projects belong to infrastructure projects, but they respond to specific market conditions and technical peculiarities. Usually, promoters either have their own simplified financial model used by different managers for quick decision-making, and once a project is mature enough, they work with the lender’s model or contract a professional modeler. The modelers, however, are not engaged to collect the aforementioned market and project-specific conditions, they are there to model using the developer’s or bank’s assumptions. Therefore, it is paramount to enable a valuable contribution to building financial models, to have an extensive understanding of the different input parameters such as all macroeconomic assumptions (inflation etc.), projected construction costs, operation costs and optimally weighted capital stack (equity, debt, repayment schedule). With these inputs, even a simple model would allow reliable calculation of outputs such as possible future cash flow (revenues, operating costs, tax payments, dividends distribution etc.) and the respective metrics such as Levelized Cost of Energy (LCoE), Internal Rate of Return (IRR) and Net Present Value (NPV). The assumptions will be then confronted with minimum lender’s ratios (DSCR, debt-to-equity ratios etc.) and will be iteratively changed until they reach the financial structure with satisfying ratios. The focus here is on the model’s inputs since modeling is a complex area of work that requires a more extensive explanation.