Introduction
This page includes resources for advanced project finance theory and analysis courses. The advanced course addresses complex and nuanced issues in project finance including advanced debt structuring, alternative contract alternatives, risk analysis, and consolidation of projects into a fund. The course is more flexible than the foundation course and includes more theory and/or detailed modelling and/or detailed case studies. For some sessions, the issue of consolidating projects to funds is addressed which includes reconciling measures of performance with accounting statistics and IRR statistics as well as evaluation of publically traded funds.
Resources for the course are linked to the blue buttons. The resources include power slides, files with excel models, files with excel databases on valuation and returns, files with examples of debt agreements and other contracts and examples of risk analysis in project finance. In the course we have discussion of how to value different types of funds of projects or corporations relative to single projects that underly the corporation (I illustrate this using a family structure). I argue that studying advanced project finance is foundation and a way to understand all of finance because it is founded on essential building blocks.
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Power Point Slides for the Course
The files attached to the buttons below are main power point slides that discuss various issues in the course. The first file includes the general subjects for the course which provides a guide for various subjects. The file attached to the second button includes power point slides associated with contracts in project finance that drive the risk and the valuation of projects.
The button below includes the power point slides that work through issues in the case. The power point slides discuss various nuanced issues related to evaluation of risk and return alternatives to IRR, DSCR, re-financing, liquidated damages, financial structuring and credit support. It may be helpful for participants in the course to review slides for the foundations course as well.
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The button below includes the power point slides that work through issues in the case. The power point slides discuss various nuanced issues related to evaluation of risk and return alternatives to IRR, DSCR, re-financing, liquidated damages, financial structuring and credit support. It may be helpful for participants in the course to review slides for the foundations course as well.
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Power Point Slides for Purchased Power Contracts and Offtake Agreements with Merchant Power
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Introductory Files
As an introduction to the course where we discuss funds, I have included some files that extract data from stable companies, growth companies, renewable energy funds and venture capital funds. The idea of providing this background is so that participants can unders differenced between financial analysis in project finance and financial analysis in corporate finance.
The first file used to introduce advanced project finance issues is not a project finance course. This is a file that contains routines to extract stock prices and financial statements. Using the stock prices and valuation the value of companies can derived from drivers of value that include the rate of return, the cost of capital and the growth rate. can be used to evaluate the price to book ratio and the price to earnings ratio. The formulas work well if companies have stable returns and stable growth. The file to gather data is attached to the button below. This file can be used to evaluate project finance projects that have stable cash flow.
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The second file used in introducing things is a file that allows you to create many different project finance models in progressive periods (for example one project in 2027, one in 2028 etc.). The separate projects are valued and the financial statements are computed and put in different pages. Once the different pages are computed with financial statements for each separate project, the financial statements are consolidated. The consolidated financial statements are used to present various different valuation ratios such as price to book value and enterprise value to EBITDA. The file with the consolidated project finance model file is attached to the button below.
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The second file are used to demonstrate companies associated with data centers and start-ups. The third file includes companies in
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The fourth and the fifth files include data for two types of funds. The first is for renewable energy funds and the second file is for venture capital funds
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The next file includes background analysis for evaluation required IRRs and returns using stock market data and economic data
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Excel File with Extraction of Stock Indicies, Bonds, Inflation and Other Economic Time Series
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Analysis of IRR and DSCR
Discussion of more detailed issues including how and why to use the IRR and DSCR are discussed in the second excerpt attached to the button below.
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Case on Debt Structuring Number 1 - Exercise on Monte Carlo where some of the data is filled
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Financial Model Files
In the advanced project finance course I refer to some financial modelling files to demonstrate the nuanced risk and return, contract and public policy issues. The files are designed so that partipants can focus on nuanced issues of measuring return with alternatives to IRR and risk with LLCR, PLCR and probability of default. There where will be a some practice excel formulas but the models will be primarily related to thinking about analysis — debt structuring, credit risk analysis and understanding the perspective of equity investors.
The first three files below are excel files with some excel exercises designed to allow you to understand the nucances of IRR (as the growth rate of cash flow) and debt structuring to illustrate the skeleton of any project finance analysis, nuances of DSCR, LLCR and PLCR and application of cash sweeps in a cash flow waterfall. In the first model you create a basic financial analysis to compute project IRR and equity IRR. This file is used to illustrate various ideas related to measuring risk and return and issues such as the project IRR versus the equity IRR. It is also used to demonstrate debt sizing and debt structuring issues. In the second file more advanced issues are discussed including illustrating the mean reversion and volatlity and their relationship with DSCR, LLCR and PLCR.
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In addition to the excel file used to work through mechanical issues assoicated with project finance, I have included financial models that are used to quantify nuances of the policy, and risk issues associated selected cases. The first case study is the same as the case for the foundations course, but the case is used to evaluate different issues including problems with measuring risk and return. The first modelling case study file with financial models uses a model of the Petrozuata project in Venezuela. My notes on these cases are discussed in the power point slides.
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The second case for the advanced course addresses issues with development costs, corporate financing versus project financing of off-shore wind projects, details of financial structring and, not least political risk issues. I have included a fairly detailes financial model of an off-shore wind project to demonstrate the effects of debt structuring when different constraints are in place. This is the case of Orsted in Denmark which faced dramatic risks when investing in off-shore wind projects in the U.S. The case questions how to achieve verification of risks from lenders and other renewable energy issues.
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The the final case discussed in the Foundations course is for the famous Eurotunnel project. The case prompts questions of what kind of risks should be supported by the government in favour of encouraging public policy (like taking the train) and what kind of risks should be taken by private sponsors. As with the other cases, you are encouraged to ask what could have been done differently with hindsight to avoid the problems that occured. These issues involved question of contract structures (the construction contract), the ownership structure and allocation of traffic risk.
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Case Study Files
The files below include some back-up for the case studies. These files include data for the production of wind for Orsted projects; a Standard and Poor’s write-up of the Ras Laffan project; Excel files for the Dahbol project and the initial offering memorandum for the Eurotunnel project. This file is used to introduce the Ras Laffan case with analysis of commodity prices. You are supposed to look for volatility and mean reversion in the prices and make a judgement as to what is acceptable.
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This file contains the pre-sale report for Ras Laffan which was used as a credit write-up and discussed the risks of the project. The idea of this report is just to skim through the discussion of risks and look at the presentation of the financial model.
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This file is the financial model for Ras Laffan with alternative oil prices. You are to use this file to evaluate the cost structure of the project and to compute the break-even oil prices by yourself. When you compute the break-even price, you need to subtract the transport cost to derive the cost realized by the project. In formula terms: Worldwide Gas – Transport Cost = Gas to Project. This can be computed with a simple oil to gas ratio of about 6 bbl per MMBTU. This means if the oil price is 60 then the gas price is 10. If the trasport cost is 3 then the net gas to Ras Laffan is 7.
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The button below is for the Dahbol case. You are to compute a couple of IRRs and use the data to evaluate the key risk of the project which could not be easily mitiagated. This excel file comes straight from the HBS case study where provision of the contracts were published.
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Excel File with Data from the HBS Dabhol Electricity Plant Case with PPA and Capital Costs
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The file below has the exercise for Eurotunnel. You can evaluate the construction risk and the traffic risk, both of which were not properly mitigated and both of which were difficult to accept in project finance.
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The file below has the initial offering memo for Eurotunnel which describes the construction contracts and the traffic projections. The file is ancient from the 1980’s but you can see some of the ideas that we would now think are crazy. The ideas include taking traffic risk, having the EPC contractor own a majority of the project during the signing of the contracts, having an IPO structure …
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Offering Memo for Initial Public Stock Offering of Eurotunnel Project before Financial Close
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The file below is back-up data in an excel file for Orsted. This file was only availble after the large write-off for the Ocean Wind project. Before the write-off it was not possible to see detailed data on a project by project basis. There is still limited data on the performance of individual projects.
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Term Sheet
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The file attached to the button below is a file that illustrates different financial issues that are used in the remainder of the course. The file attached to the first button is an example term sheet. If you work through the document and understand the language it would be a good thing to do.
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PDF File with Term Sheet for Loan Agreement that Illustrates Various Financial Structuring Items
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Credit Analysis
The file attached to the button below is an example of how lenders assess risks of a project. The file attached to the button below is meant to demonatrate how lenders can have more background on a project than developers because of the history of how they assess projects. They have databases, experience with other projects, they hire experts, they have consistent ways to evaluate risk and so forth.
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Example of Analysis of Solar Project with Independent Engineer and Sensitivity Analysis
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Once the ideas of risk allocation to encourage efficiency and social objectives are established, contracts apply the ideas. To discuss how the objectives translate to contract language, actual contracts are reviewed. The discussion of contrat structure uses examples of contracts that are public or disguised. The button attached to the PPA contract below has both and output based contract and a capacity based contract in the context of a battery plus solar project. The contracts raise risk allocation issues.
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Monte Carlo
One of the exercises from the class demonstrates risk issues with volatility and mean reversion. The idea is to show how project finance is about managing risk over long-term periods. You can use the probability of default with the DSCR and the probability of loss with the PLCR. You can see the probability of default and probability of loss with different DSCR Ratios. The idea of this file is to enter different levels of volatility and mean reversion and then determine what DSCR will result in a reasonable probability of default and probability of loss. You can look at the macros in the file that are used to create a Monte Carlo simulation.
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The file below is an excel file that reconciles project finance with corporate finance.
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Excel File with Projects Consolidating to Portfolio Demonstrating Returns and Financial Ratios
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Background Reading
There are four Chapters of my book related to this course which can be used as pre-course or post-course readings. The chapters include a chapter on levelised cost that describes what is underneath the assessment of prices and the calculation of bid prices. The first chapter, chapter 19 discusses alternative policies including availability payment versus oputput and merchant projects. A second chapter (chapter 20) discusses different issues in contracts such as liquidated damages not directly related to price. A third chapter addresses the quesion of levelised price of electricity which drives contracts for difference and the evaluation of whether projects make sense (Chapter 11). Finally, the issue of project financiang in general terms is included (Chapter 16). The third and fourth chapters work through different contract issues. Other chapters of the book are shown in the screenshot below.
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Chapter 19 from Book on Re-thinking Finance: Contracts in Project Finance that Set Price
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As part of my new book on re-thinking finance I have a section devoted to project finance. A couple of the introductory chapters to explaining project finance and the foundations of investment and financial analysis are presented below along with a video that summarises the chapters.
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Chapter 20 from Book on Re-thinking Finance: Non-Price Provisions in Project Finance Contracts
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Merchant Price Data
The third file we will use for the course is a file with European Prices from 2019 (pre-pandemic) to 2024 (after the large spikes from gas prices). This is an excel file that demonstrates how to work with data and to make flexible presentations demonstrating the effect of increased renewable energy on hourly prices.You can go to the link https://ember-energy.org/data/european-wholesale-electricity-price-data/ and get hourly data on merchant prices in europe that is very valuable. This can be used with a website that has hourly renewable energy https://www.renewables.ninja/#/country
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Analysis of Spanish Merchant Prices over Time with Renewable Energy and Negative Prices
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Excel File with Hourly Prices in Europe from 2019 to 2024 used to Evaluate Renewable Energy Effects
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I have included some files that are introduced to illustrate some tricky issues with measuring performance and value. The first file consolidates projects into a fund. This is attached to the file below.
Sometimes we discuss merchant prices for electricity in the course. For contries in Europe the best source of data that does not cost you anything is: .
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Analysis of Spanish Merchant Prices over Time with Renewable Energy and Negative Prices
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Financial Analysis of Different Companies (Investors and O&M Companies) participating in PPP/PFI
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The fourth file is an exercise file with various calculations related to the corporate PPA inclu