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 or not the Clean Energy and Infrastructure ("CEI") team wants to pursue a new investment opportunity called Green Field Solar ("GFS"). Unfortunately for you, there is no wireless on this flight and you can't find your usual model on your laptop and so you need to build a quick model using only the few assumptions you can remember. Here's what you know: - Green Field Solar is a 15MW (Megawatt) solar photovoltaic project in Paradise, USA. It is a single-site, ground-mounted solar array that will provide electrical energy to Paradise College under a long term contract. Paradise College is located next to the project, so the energy customer is on-site and this is a net-metered PV project. - Capacity Factor: 20\%. GFS is located in Paradis, USA, where there is plenty of sunshine. This means that the plant is effectively operating at full capacity for 20% of the 8,760 hours in ayear. - Construction Cost: An engineering firm has proposed a cost of $3.00 per Watt to constructthe full 15MW. They have requested a full 12 months (1/1/2112/31/21) to build GFS. - Soft costs: $1.00 per Watt. Soft costs and construction costs are the only upfront capital expenditures required for GFS. - Federal incentives: the project will be ITC eligible ( 26%).100% of construction costs and 80% of soft costs are eligible for federal incentives. - Timing: If approved by the CEI Investment Commitfee, your fund will invest the total capital required from January 1, 2021. The project will start operating at full capacity on January 1, 2022. - Lifetime: The project will operate at full capacity for 20 years with 0.5% degradation in output annually. There are no decommissioning costs and there is no residual or terminal value after 20 years. Including the construction period of 12 months, there are 21 full years involved in this investment. - Operating costs: the same engineering firm that is building the project will provide theoperations and maintenance ("O\&M") services for $20,000 per installed MW of capacity, escalated at 2% p.a. - Land Lease: Land will be leased from a local owner for 20 years at a cost of $100,000 p.a., escalated at 1% annually for the first 10 years only. For years 11 to 20 , it is fixed at the year 10 cost. Land lease and O\&M are the only ongoing costs associated with GFS. - Energy sales: Paradise College will purchase 100% of the power from the project for $120 per MWh (Megawatt-hour) through a 20 year PPA (Power Purchase Agreement). - Renewable Energy Credit (REC) sales: GFS generates one Paradise REC ("P-REC") per MWh of energy produced. There is a contract with the local utility to sell the P-RECs for 5 yearsat $250 each. After which there is no contact (and debt will only be sized insofar as there is a contract). The program lasts for 12 years, and our best assumption for PRECs is $100 per MWh. Assume a compliance buyer will purchase 100% of the P-RECs until the end of year 12 , when the P-REC program expires. - Debt: Assume debt with a Debt Service Coverage Ratio (DSCR) of 1.3x NOI (EBITDA) for 15 years, sized to the PPA and contracted PRECs. The interest rate for the debt will be 5.0% (assume annual payments). Assume no bridge or construction loans for the project. - Tax Rate: Assume the effective tax rate for the project is 21%. Clarifications - There are no additional costs or expenses besides those described above - No terminal value after 20 years of operation - Please build an annual model only - Include depreciation and depreciation schedule - Please break out debt payments into principal and interest - Cash flow based only (i.e. 3 statements are not required) - Feel free to use any approach you are comfortable with and consider professional Format Please use only three Excel worksheets: - Sheet 1 - Assumptions: All assumptions, controls and inputs are to be contained on this tab. - Sheet 2 - Calculations: All operational calculations and cash flows - Sheot 3 - Outputs: Selected outputs and answers to questions below (including charts) Quostions 1. Please calculate the unlevered IRR and cash yields (Years 1-5 average and project life). 2. Please summarize key cash flows in a simple annual table: revenues, expenses, net cash flow. 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 or not the Clean Energy and Infrastructure ("CEI") team wants to pursue a new investment opportunity called Green Field Solar ("GFS"). Unfortunately for you, there is no wireless on this flight and you can't find your usual model on your laptop and so you need to build a quick model using only the few assumptions you can remember. Here's what you know: - Green Field Solar is a 15MW (Megawatt) solar photovoltaic project in Paradise, USA. It is a single-site, ground-mounted solar array that will provide electrical energy to Paradise College under a long term contract. Paradise College is located next to the project, so the energy customer is on-site and this is a net-metered PV project. - Capacity Factor: 20\%. GFS is located in Paradis, USA, where there is plenty of sunshine. This means that the plant is effectively operating at full capacity for 20% of the 8,760 hours in ayear. - Construction Cost: An engineering firm has proposed a cost of $3.00 per Watt to constructthe full 15MW. They have requested a full 12 months (1/1/2112/31/21) to build GFS. - Soft costs: $1.00 per Watt. Soft costs and construction costs are the only upfront capital expenditures required for GFS. - Federal incentives: the project will be ITC eligible ( 26%).100% of construction costs and 80% of soft costs are eligible for federal incentives. - Timing: If approved by the CEI Investment Commitfee, your fund will invest the total capital required from January 1, 2021. The project will start operating at full capacity on January 1, 2022. - Lifetime: The project will operate at full capacity for 20 years with 0.5% degradation in output annually. There are no decommissioning costs and there is no residual or terminal value after 20 years. Including the construction period of 12 months, there are 21 full years involved in this investment. - Operating costs: the same engineering firm that is building the project will provide theoperations and maintenance ("O\&M") services for $20,000 per installed MW of capacity, escalated at 2% p.a. - Land Lease: Land will be leased from a local owner for 20 years at a cost of $100,000 p.a., escalated at 1% annually for the first 10 years only. For years 11 to 20 , it is fixed at the year 10 cost. Land lease and O\&M are the only ongoing costs associated with GFS. - Energy sales: Paradise College will purchase 100% of the power from the project for $120 per MWh (Megawatt-hour) through a 20 year PPA (Power Purchase Agreement). - Renewable Energy Credit (REC) sales: GFS generates one Paradise REC ("P-REC") per MWh of energy produced. There is a contract with the local utility to sell the P-RECs for 5 yearsat $250 each. After which there is no contact (and debt will only be sized insofar as there is a contract). The program lasts for 12 years, and our best assumption for PRECs is $100 per MWh. Assume a compliance buyer will purchase 100% of the P-RECs until the end of year 12 , when the P-REC program expires. - Debt: Assume debt with a Debt Service Coverage Ratio (DSCR) of 1.3x NOI (EBITDA) for 15 years, sized to the PPA and contracted PRECs. The interest rate for the debt will be 5.0% (assume annual payments). Assume no bridge or construction loans for the project. - Tax Rate: Assume the effective tax rate for the project is 21%. Clarifications - There are no additional costs or expenses besides those described above - No terminal value after 20 years of operation - Please build an annual model only - Include depreciation and depreciation schedule - Please break out debt payments into principal and interest - Cash flow based only (i.e. 3 statements are not required) - Feel free to use any approach you are comfortable with and consider professional Format Please use only three Excel worksheets: - Sheet 1 - Assumptions: All assumptions, controls and inputs are to be contained on this tab. - Sheet 2 - Calculations: All operational calculations and cash flows - Sheot 3 - Outputs: Selected outputs and answers to questions below (including charts) Quostions 1. Please calculate the unlevered IRR and cash yields (Years 1-5 average and project life). 2. Please summarize key cash flows in a simple annual table: revenues, expenses, net cash flow