Introduction

We designed this exercise to test simple modeling and Excel skills. We would like to

emphasize that we do not intend to consume many hours of the candidate$$s time.

Rather, we prefer a focus on simple, clear, concise, efficient and logical modeling.

Clean formatting and presentation of results are important. There is no $$template$$ for

this exercise $$ this document and MS Excel is all that you will need.

The Situation

You are on a plane flying to a meeting with your boss and have the good fortune of

sitting next to her. For the meeting, she must know whether the Arevon Investment

team wants to pursue an investment opportunity called Blue Horseshoe Solar $($BHS$).$

Unfortunately, there is no wireless on this flight and you brought a personal laptop

without a template. You need to build a quick model from scratch using only the few

assumptions available. Here is what you know:

$$ Blue Horseshoe Solar is a $250$MWac $($Megawatt$-$Alternating Current$)$ solar photovoltaic project in

Paradise, USA. It is a single$-$site, ground$-$mounted solar array that will provide electrical energy

to Anacott Steel under a long$-$term contract. Because Anacott Steel has a plant located next to

the project site, the energy delivery point is at the project$$s substation.

$$ Production: BHS is located in Paradise, USA, where there is plenty of sunshine. As we will build

the plant with the latest PV modules, the ratio of MWdc to MWac is $1\mathrm{.}25$x and the annual

production assessment is $2,250$ MWh$/$MWdc $($net of availability and electrical losses$).$

$$ Construction Cost: An engineering firm has proposed a cost of $$1\mathrm{.}05$ per Wdc to construct the

full $250$MWac plant $($including substation and balance of system$).$ They have requested a full $12$

months to build BHS$.$ Payment terms call for $10\%$ upfront with balance paid in equal monthly

milestones.

$$ Development Fee: $$0\mathrm{.}05$ per Wdc$,$ to be at the Commercial Operations Date $($COD$).$

$$ Timing: If approved by the Arevon Investment Committee, your fund will fully acquire BHS on

December $31,2023.$

Lifetime: The project will operate for $35$ years. You know that plants of this type degrade at

$0\mathrm{.}5\%$ in output per year. There are no decommissioning costs.

$$ Operating costs: the same engineering firm that is building the project will provide the

operations and maintenance $($O&M$)$ services for $$3\mathrm{.}50$ per installed kWdc of capacity,

escalated at $2\%$ p$.$a$.$

$$ Land Lease: The project leases its land from a local owner for $35$ years at a cost of $$1,000,000$

p$.$a$.,$ escalated at $1\%$ annually.

$$ Energy sales: Anacott Steel will purchase $100\%$ of the power from the project for $$40$ per MWh

$($Megawatt$-$hour$)$ through a $35-$year Power Purchase Agreement $($PPA$).$

$$ Terminal Value: Please assume a terminal value equal to $10\%$ of total capital expenditures.

Clarifications

$$ There are no additional costs or expenses besides those described above

$$ Please build a quarterly model.

$$ Cash flow based only $3$ statements are not required

$$ Feel free to use any approach you are comfortable with and consider professional

Return Metrics & Sensitivities

Return Metrics

$-$ Unlevered pre$-$tax IRR

$-$ Levered pre$-$tax IRR

$-$ Levered pre$-$tax average cash yields $(5-$years, $10-$years, $20-$years, each from COD$)$

Sensitivities

$-$ What is the impact on returns if payment of the development fee was at the start of

construction?

$-$ What would be the impact to returns from adding a $2\%$ annual escalator to the PPA price?

$-$ What would be the impact to returns if land lease costs were USD $2,000,000$ in year $1$ versus

USD $1,000,000?$