Reverse project finance model for negotiation of Power Purchase Agreement (PPA)

Note: This is an example of work done by Warut B., either contracted directly with the client, collaborated with or subcontracted through other firm. Information presented here has been carefully selected or edited for confidentiality.

Background

  • An infrastructure development and investment company is in negotiation with Ministry of Energy of an ASEAN country on a Power Purchase Agreement (PPA) of a wind power project
  • The company plans to conduct a working session with the ministry officials to discuss scope of work, tax incentives that government will provide, and electricity purchase price
  • The company plans to demonstrate that each of the topics being discussed are inter-related, and a level of financial return to the firm is required to make the project viable
  • The company requires assistance to develop a project finance model for the working session

Role and methodology

  • Traditional project finance model would have financial returns as outputs. However, the company requires to conduct the session by inputting a required financial return, negotiated scope of work and incentives, then determine the electricity purchase price to propose to the ministry
  • VBA code is used to enable the reverse flow of inputs and outputs
  • Dashboard is constructed to be user-friendly, as well as to visualize the proposed electricity purchase prices as per different cases of government’s provisions

Project outcome

  • A project finance model that carries these characteristics:
    • Reverse modeling (input: required return, output: electricity price)
    • Accurate
    • Responsive (short calculation time)
    • Comprehensive, visualized & user-friendly dashboard