This page demonstrates the modelling of tax equity financing. A case study is used to work through technical excel structuring issues and conceptual issues in tax equity transactions. The case study is based on a crazy case study given to an intern that included a set of inputs that includes corporate PPA’s, development costs, fair market value write-ups, allocation of income and cash flow to tax equity and sponsor partners; tax equity bridge loans; merchant price assumptions and back leverage from P50 and P99. To cover all of the issues I have made a series of videos that are structured according to the structure of the model. In this case, a level tax equity financing in the context of a solar project with a fixed flip date is used. The model is quarterly and the model uses the case of a solar project with a corporate PPA. The files attached to the buttons below include various versions of the model that are used in the videos. The base model that had some bad financing practices is attached to the button below.
Excel File with Tax Equity Exercise Including Tax Equity Bridge Loan and Back Leverage in Quarterly Model with Corporate PPA
The second file is the file that was created from the videos and includes a three statement model and analysis of development fees is included in the file below. This file shows how valuation is driven by probability analysis rather than cost of capital estimates before reaching the financial close.
Excel File 2 with Tax Equity Including Tax Equity Bridge Loan and Back Leverage in Quarterly Model with Corporate PPA
Part 1 and Part 2: Operating Analysis
The operating analysis includes assumptions on the solar output with seasonal variation and a monthly S-Curve. This is summed to quarterly periods using the SUMIF function which is one of the big three that should be used — LOOKUP, INDEX and SUMIF. The first part also works through how to use the GENERIC MACRO file to format the model.
The first part also includes discussion on corporate PPA’s that include merchant power risk. The corporate PPA’s can be contracts for differences or swap contracts. The difference between swap contracts and contracts for differences involve the basis for quantities.