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Introduction to Finance
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 2
Part I: Introduction to Finance
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 3
Part I: Introduction to Finance
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 4
Part I: Introduction to Finance
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 6
Part I: Introduction to Finance
Insert Inputs
Add Formulae
Extend Formulae
NPV tells us what $5,000 invested today is worth if we receive $750 for two years, and $1,000 thereafter at a 10% discount rate
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 7
Part I: Introduction to Finance
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 8
Part I: Introduction to Finance
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 9
Part I: Introduction to Finance
Insert Inputs
Calculate
Add Formulae
Why is XIRR() different?
The result tells us that the project’s IRR is 11.5%. This means that if our discount rate were 11.5% rather than 10.0% in the prior NPV
example, then our resultant NPV would have been 0 instead of 325 (try it for yourself)
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 11
Part I: Introduction to Finance
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 12
Part I: Introduction to Finance
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Part I: Introduction to Finance
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Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 14
Part I: Introduction to Finance
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 15
Part I: Introduction to Finance
A Debt Service Coverage Ratio of 1.25x means that for every $1 of debt, there is $1.25 of project cash flows available to service debt
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 16
Part I: Introduction to Finance
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 17
Part II: Introduction to Excel
Introduction to Excel
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 18
Part II: Introduction to Excel
–Model Structure
–Colour Formatting
–Cell Names, Range Names, Arrays
–Other
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 19
Part II: Introduction to Excel
Model Structure
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 20
Part II: Introduction to Excel
Think about your model structure from the get-go, as doing so can significantly simplify the modelling exercise
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 21
Part II: Introduction to Excel
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 22
Part II: Introduction to Excel
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 23
Part II: Introduction to Excel
Colour Formatting
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 24
Part II: Introduction to Excel
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 25
Part II: Introduction to Excel
Source: Gross, Daniel. “F&ES 635b / MGT 683 Renewable Energy Project Finance Modeling.” Class lecture, Session 4: Variability and Sensitivity
Analysis Best Practices in Modeling from Yale University, April 4, 2016.
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 26
Part II: Introduction to Excel
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 27
Part II: Introduction to Excel
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 28
Part II: Introduction to Excel
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 29
Part II: Introduction to Excel
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 30
Part II: Introduction to Excel
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Part II: Introduction to Excel
Other
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 32
Part II: Introduction to Excel
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 33
Part II: Introduction to Excel
Other (2/4)
Use the same formulae across an entire row. This practice
makes it easier to audit or modify the model
Use the same column for the same period (across tabs and
within tabs)
Create new tabs if you intend to introduce periodicity into
your model (e.g. a separate quarterly income statement tab
versus a summary annual income statement tab)
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Part II: Introduction to Excel
Other (3/4)
Use consistent number formatting
– Units specified in the model (separate column)
– Inputs, calculations and outputs must be expressed in consistent
units e.g. $000, $MM, $/MWh
– Ensure negative numbers stand out from positive numbers e.g.
($11,135,745) vs. $1,021,841
Never embed hard-coded numbers in formulae; instead
store them as separate inputs in assumptions (inputs) tab:
– Poor practice: {=annual_output_series*ppa_price*(1+2%)^1}
– Best practice: {=annual_output_series*ppa_price*ppa_escalator}
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 35
Part II: Introduction to Excel
Renewable Energy Project Finance| Excel and Finance Bootcamp | Yale University 36
Part II: Introduction to Excel
Demo
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Part III: Questions and Answers
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