Why do developers and engineers need to understand project finance models?

Anyone making project development, design and investment decisions must understand models to make smart choices and spend their time wisely.

‘Matt – great news!’ our lead project developer yelled as he ran into our office.

In the midst of a particularly challenging stretch, I needed some. Of late, it seemed like every project in our pipeline was facing one roadblock or another: long interconnection queues, antagonistic local councils, weak PPA pricing, the works. It felt like ages since our last financing. At long last, might there be some light in the darkness?

My ever-enthusiastic colleague grabbed a chair and plopped down beside me. ‘I’ve just spoken with the landowner for [Project X], and they’ve agreed to lower the lease rate by ten per cent! Let’s update the model and see how it looks.’

My heart sunk. As an associate living in the model every day, I didn’t know exactly how much this would help, but I knew it wouldn’t be enough. A few keystrokes and the two of us had our answer – a whole one basis point increase in return.

The disappointment on my colleague’s face was apparent. He’d spent weeks renegotiating that lease rate. Surely it had to have more of an impact than that!

But the project’s lease expense was already a small fraction of total cash flow. Lowering it simply didn’t move the needle much. In fact, we would have been better off leasing *more* land – even with an increase in cost – in order to allow for greater row spacing of the panels, which would have increased expected energy generation and had a much larger positive impact on cash flows.

I didn’t have the heart to tell him, but he could’ve saved a lot of time if he’d just asked me first – or even better, if he’d understood the model better himself.

Developers, engineers, accountants and even C-suite executives don’t need to know every detail of their project finance models, but they make decisions every day that impact them. Without a fundamental understanding of model drivers and relationships – knowing ‘what matters most’ – how can they make informed choices in contract negotiations or even decide where to direct their time and focus to add the most value?

Does this sound like a familiar story for your team or organisation? Check out Pivotal180’s upcoming livestreamed project finance modelling courses, starting soon. Designed to familiarise anyone from analysts to senior decision-makers with the knowledge and skills to build, analyse and communicate clearly about project finance models:

• Intro to Project Finance Modelling
• Renewable Energy Project Finance Modelling

Course participants will learn how risk is allocated between lenders and sponsors, understand the structure and drivers of project finance transactions, and gain the necessary skills to run and evaluate operational or financing scenarios required to identify the most substantial risks and opportunities for any deal.

Find all of our upcoming Australian courses, including Advanced Debt and Battery Storage programmes, Here. and Explore all of our courses here. Come model with us!

Contact [email protected] for more info and pricing.