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Course details

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Finance & Contract Analysis for Independent Power Projects (IPPs)

Thrive with comprehensive knowledge of financial modelling projects
  • This intensive, hands-on course will provide a comprehensive analysis of issues associated with independent electric power projects ranging from economic analysis of PPA contracts to financial modelling of projects.


    In working through analysis of projects, a mixture of case studies, lectures and analytical exercise will be used to evaluate electricity price forecasts, debt structuring, technology choice, cost of capital, and architecture of financial models.


    The course will feature:


    Understand the objectives, theory, public policy and nuances of risk allocation between investor and off-taker for availability, heat rate, commissioning delay, operating costs, fuel prices, construction expenditures and capacity factor.


    Learn the importance of debt structuring in measuring project risk and measuring project value and the effect of different financing structures on PPA bidding strategies through computing required PPA prices in financial models to meet IRR and DSCR targets.


    Create flexible and transparent financial models of independent power projects from A-Z that incorporate availability risk; heat rate risk, operating cost risks, financing structure, tax treatments, alternative pricing policies and other factors.


    Prepare economic analysis that evaluates tradeoffs between penalty provisions and PPA costs such as increasing availability penalty relative to required operation and maintenance costs as well as evaluation of PPA tariffs relative to the long-run marginal cost of electricity.


    Measure and evaluate changes in the risk of projects over different stages of the project and how equity returns and asset value change if purchases and sales occur at different phases of a project's life.


    Learn practical tools to analyse details of power projects including efficient tools to work with supply and demand data; creating flexible scenario and sensitivity analysis to evaluate efficiency and availability risk, construction risk, O&M risk and debt structuring; developing techniques to resolve circular references related to funding debt and sculpting debt without copy and paste macros.


    Work through implementation of risk allocation in PPA tariff design and evaluation of off-taker risk and off-taker financial analysis.


    Teaching methodology


    The course is delivered using a mixture of hands-on analytical exercises, case studies and lectures in order that participants can learn from each other as well as from the course leader. In addition to development of skills in the course, participants will receive a series DVD containing a range of relevant models, business cases, articles and documents for further reference.



    As a participant in the course, you will create a variety of exercise including a project finance model from A to Z that includes working through economic assumptions, developing alternative construction scenarios, evaluating tariff components, constructing a cash flow waterfall and resolving painful circular references. The case studies are also used to demonstrate how break-even analysis, scenario analysis, tornado diagrams, time series equations and Monte Carlo simulation can be used to analyse risk with project finance models of independent power projects.


    In creating analyses, some participants will be particularly interested in adding excel features such as VBA with macros, flexible graphs, alternative circularity resolution, vintage depreciation and indirect functions to their project finance models. To accommodate people who are interested in technical programming subjects, added sessions will be held after at the end of the first and second days of the course.

    "The instructor was extremely knowledgeable and went out of his way to answer questions with examples" - delegate from Saudi Aramco
  • Day 1

    Risk Allocation and Economic Analysis of PPA Contracts
    Risk Allocation and PPA Contracts

    • Notion of allocating risks to IPP that can be controlled
    • Nuanced issues of risk allocation associated with target heat rate, fuel price, maintenance outage and plant availability
    • Incorporation of different risks in multipart PPA tariffs
    • Capacity factor risk in renewable projects versus dispatchable plants
    Measurement of PPA Provisions and Electricity Economics
    • Notion that penalties and bonuses should reflect offtaker costs
    • Use of marginal cost analysis in measuring availability benefits and costs in different periods
    • Analysis of target heat rates in the context of marginal heat rate and average heat rate curves
    • Calculation levelized prices in PPA contracts
    • Evaluation of long-term marginal cost and comparison of levelized PPA prices to long-run marginal cost
    Currency Risk and Interest Rate Risk in IPP’s
    • Theory of purchasing power parity and indexing capacity payments
    • Volatility of exchange rates
    • Problems with indexing capacity charges from offtaker perspective
    • Alternatives for allocating exchange rate risk
    Policy Arguments For and Against IPP’s
    • State owned systems and power outages, inefficient plants, high losses
    • Vertically owned systems, regulatory costs, nuclear power in the U.S.
    • Merchant power systems, California crisis, merchant meltdown and price increases
    • Purchase power contracts, Philippines, Pakistan, Indonesia
    Case Study of IPP’s in the Philippines and India
    • Context of Power Shortages
    • Structure of PPA Contracts
    • Selected plant analysis and review of financial models
    • Postscript in Philippines
    • Contract structure, risk insurance and PPA agreements for the Dabhol plant
    • Case studies of recent power plants in India
    • Evaluation of the level of price that avoids disputes 

    Day 2

    Project Finance Terms and IPP Transaction Structure
    Theory and Structure of Project Finance in Context of IPP’s

    • Overview of Selected Project Finance Terminology
    • Importance of Phases in Risk Analysis, Accounting and Modelling Project Finance
    • Theory of Using Project Finance in Investment Decisions versus Traditional Project Financial Analysis using NPV and WACC
    • Role of Contracts and Integration of Contracts in Project Finance
    • Risk Analysis in Project Finance
    • Use of Debt Capacity to Measure Risk
    • Target DSCR, Debt Tenor and Required IRR in Different Markets
    • Use of Export Credit in Power Finance
    Operating Analysis in Project Finance Model with PPA Contract
    • Importance of Cost of Capital in Electricity Generation
    • Construction of Model with Alternative Plant Inputs
    • Effect of Cost of Capital on Technology Choice
    • Calculation of Project Timing and Phases with Switches
    • Modelling Capacity Charges and Energy Charges with
    • Target Heat Rates, Target Availability and Operation and Maintenance Expenses
    • Computation of Actual Generation, Actual Fuel Costs and
    • Actual Operation and Maintenance Expenses
    • Calculations of S-curve with Ability to Model Delay in Construction
    • Computation of Levelized Cost with Alternative Assumptions

    Day 3

    Debt Structure of IPP with and without PPA Contract
    • Architecture of Project Finance Models with Comprehensive Debt Structure
    • Review of Actual Project Finance Models in Different Regions of the World
    • Programming Sources and uses of funds statement during the construction period
    • Programming Debt Structuring with Sculpting in Project Finance Model
    • Computation of Cash Flow, Waterfall, Tax Payments and Financial Statements
    • Equity IRR with Different Debt Structure in PPA Case: Level versus Annuity versus Debt Sculpting
    • Computation of Debt Capacity and IRR with Alternative Repayment Structures: Direct and Indirect Effect
    Nuances in Structuring Debt and Modelling Projects
    • Problems with IRR and Re-investment of Dividends
    • Cash Flow Sweeps Merchant Projects
    • Debt Service Reserves and Cash Trap Covenants
    • Alternative measurements of DSCR

    Day 4

    Off-taker Perspective in Model and Calculation of Tariffs
    • Modelling prices and costs in operating section – A,B,C, and D components for coverage of fuel cost, variable O&M cost, fixed O&M cost and capital recovery
    • Optimization of both debt capacity and PPA tariff using Solver
    • Effect of PPA on Capital Structure of Off-taker
    • Effect of PPA on Cost of Capital and Debt Capacity in Project Finance Model
    • Cost of PPA with and without Capital Structure Penalty
    • Effect of PPA on Technology Choice
    • Risk Analysis of Off-taker
    Economic Analysis of PPA Prices Relative to Merchant Prices
    • Review of Merchant Prices in Different Markets
    • Simulation of Short-run and Long-run Marginal Costs
    • Carrying charge rates for PPA projects versus merchant projects
    • Profitability of merchant plants and computation of implied capital capacity payment per kW
    Non-Price Provisions in PPA Agreements
    • Delay Provisions and Liquidated Damages
    • Availability Tests and Penalties
    • Termination Clauses and Compensation
    • Political Risk Insurance
    • Other Provisions
    Documents and Finance Sources
    • Coordination of PPA with Other EPC, O&M and Loan Agreement
    • Default and other Provisions in Loan Agreements
    • Equity support agreement
    • Interest rate swaps in project finance
    • Bonds versus Commercial Banks
    • Insurance and International Financial Institutions
    • Credit Enhancements and Security

  • Our Tailored Learning Offering

    Do you have five or more people interested in attending this course? Do you want to tailor it to meet your company’s exact requirements? If you’d like to do either of these, we can bring this course to your company’s office. You could even save up to 50% on the cost of sending delegates to a public course and dramatically increase your ROI.

    If you want to run this course at a location convenient to you or if you want a completely customised learning solution, we can help.

    We produce learning solutions that are completely unique to your business. We’ll guide you through the whole process, from the initial consultancy to evaluating the success of the full learning experience. Our learning specialists ensure you get the maximum return on your training investment.

  • We have a combined experience of over 60 years providing learning solutions to the world’s major organisations and are privileged to have contributed to their success. We view our clients as partners and focus on understanding the needs of each organisation we work with to tailor learning solutions to specific requirements.

    We are proud of our record of customer satisfaction. Here is why you should choose us to help you achieve your goals and accelerate your career:

    • Quality – our clients consistently rate our performance ‘excellent’ or ‘outstanding’. Our average overall score awarded to us by our clients is nine out of ten.
    • Track record – we have delivered training solutions for 95% of worlds’ top 100 banks and have trained over 250,000 professionals.
    • Knowledge – our 150 strong team of industry specialist trainers are world leading financial leaders and commentators, ensuring our knowledge base is second to none.
    • Reliability – if we promise it, we deliver it. We have delivered over 20,000 events both in person and online, using simultaneous translation to delegates from over 180 countries.
    • Recognition – we are accredited by the British Accreditation Council and the CPD Certification Service. In an independent review by Feefo we scored 96% on service and 95% on product
This course can be run as an In-house or Tailored Learning programme

Instructor

  • Ed Bodmer

    Biography

    Ed has created innovative forward pricing, productivity measurement and investment valuation software for consulting clients throughout the United States. He has taught energy economics and finance throughout the world, and formulated significant government policy and corporate strategy in the U.S. His consulting clients include investment banks, commercial banks, research institutions and government agencies on a wide variety of complex valuation and advisory matters. He has constructed a unique framework for electricity price forecasting and valuation using production cost modelling techniques combined with option price theory and Monte Carlo simulation. He is also an adjunct professor at leading University where he teaches courses in microeconomics. Along with his practical experience that covers a multitude of major advisory projects, he has taught specialised courses in financial modelling, electricity pricing, option valuation, mergers and acquisitions and contracting to investment banks, commercial banks, industrial corporations and electric utility companies. He was formerly Vice President at the First National Bank of Chicago where he directed analysis of energy loans and also created financial modelling techniques used in advisory projects. He has used the models in providing expert testimony on subjects ranging from capital structure to investments in multi-billion dollar nuclear plants to complex valuation of new investments. He received an MBA degree specialising in econometrics (with honours) from the University of Chicago and a BS degree in finance from the University of Illinois (with highest university honours). He has written many articles and is in the process of completing a textbook on valuation of electricity assets.

Venue

London Marriott County Hall

This course will take place at the prestigious London Marriott County Hall Hotel.

We strive to provide you with a training environment of the highest quality, to ensure that the whole learning experience exceeds your expectations.

Delegates are responsible for arranging their own accommodation. We have detailed our most frequently used training destinations in London on this map.

If you need help booking accommodation for your visit to our training courses, please contact accommodation@euromoney.com and our accommodation partner Helms Briscoe will help you get the best rate possible.