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On-shore Wind farm Simple Cashflow Model Example in Norway

Updated: Apr 11, 2022



What is a Cash Flow?


The cash flow model is a valuation method used to estimate the value of an investment based on its expected future cash flows. Cash flow model analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future. This applies to the decisions of investors in companies or securities, such as acquiring a company or buying a stock, and for business owners and managers looking to make capital budgeting or operating expenditures decisions.


info from Investopedia

 

Cash flow Model Assumptions


General, Technical and Financial assumptions considered in this cash flow model example are listed below in Tables 1 to 3.​


General Assumptions

Assumption

Value

Unit

Description

Currency - Euro

EUR

Whilst the legal currency in Norway is the Kroner, all financial values shown herein are given in EUR unless stated otherwise.

Inflation rate

2.0

%

Norway 2026 Projected inflation rate is assumed at 2% as found in (Statista, 2021).

Taxation

22

%

​Norway 2026 Projected inflation rate is assumed at 2% as found in (Statista, 2021)

WTGs life expectancy

16.5

Years

The WTGs expectancy of 16.5 years is assumed for the purpose of determining asset depreciation of the WTGs

Table 1 - General assumptions of the base cash flow model



Technical Assumptions ​​​

Assumption

Value

Unit

Description

Annual energy production

750,000

MWh/annum

Annual energy production assumed for the base cash flow model is:

P50 - 750,000 MWh/annum

Annual energy production assumed for the purpose of sensitivity analysis is:

P60 - 725,000 MWh/annum &

P50 - 750,000 MWh/annum

Long term power purchase contract (PPA) with Norway-based industrial groups and/or utilities

52.5

EUR/MWh

A PPA possible value agreed is ranging between EUR45.00/MWh to EUR60.00/MWh

An average value of EUR52.5/MWh was chosen to allow a sensitivity test to be carried out later in this report.

Wind turbine yearly performance decline

1.57

%/annum

As found by Byrne et al., performance deterioration is nonlinear as years pass by but an estimate average of 1.57% is accounted for this cashflow (Byrne, et al., 2020)

Table 2 - Technical assumptions of the base cash flow model



Financial Assumptions

Assumption

Value

Unit

Description

​Construction costs

300,000,000

Construction of WTGs foundations, maintenance facilities, transmission facilities, etc.

Pre – development costs

15,000,000

As per Deloitte, site feasibility studies account for 3-7% (Deloitte, 2014). For this base model a 5% of the construction cost was assumed as pre-development costs which total to €15million. Procurement and financial advisory services are also included.

Operating and Maintenance (O&M) costs

35.7

EUR/kW/annum

The O&M costs are calculated based on Norway average value of 35.7 EUR/kW as given in the IRENA Renewable power generation costs in 2020 report (IRENA, 2020). O&M costs are automatically calculated based on the energy production of P50 or P60 as selected in cashflow model spreadsheet.

Decommissioning cost

NOT INCLUDED

N/A

Since the cashflow model is carried for a period of 20 years and a total operational period of 16.5 years (before the decommissioning of WTGs) decommissioning costs are not included in this cashflow model.

Financing structure

75D/25E

ratio

A gearing ratio of 75% was selected, found reasonable as indicated in (Blaiklock, 2014). It could be considered a conservative gearing ratio, however as it is used for the base model, further adjustment is possible in further analysis of the cashflow bankability.


Also as found in the financing and investment trends of Wind Europe, since 2013, 90% of onshore wind farm projects were based on project finance which suggests the technology maturity and represents a safe investment to debt providers (Wind Europe, 2020)

Debt service – Commercial bank

50

% Of total capital

A 50-50 Commercial to Development bank debt service is assumed for the base model, with grace period and repayment schedule being aligned for both banks

Debt service – Development bank

50

% Of total capital

>>

Interest rate -Commercial bank

3.5

%

Standard interest rate as provided in the project brief. However, in a real-life situation this rate would potentially increase slightly in the upcoming years

Interest rate -Development bank

2.0

%

>>

Loan tenor