PA-NPSP - Off-Grid Financial Modeling Bootcamp - Module 1

Off-grid Clean Energy
Financial Modeling
Bootcamp
May 19 – June 16, 2022
Power Africa Nigeria Power Sector Program
7/11/2022 1
Opening Remarks and Introduction
7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 2

Opening Remarks
Andrew Smith
Deputy Chief of Party, Gas Supply and On-Grid Generation Lead,
USAID Power Africa Nigeria Power Sector Program

Instructor Introductions
Kathy Julik-Heine Tinyan Ogiehor Eme Kponu Mary Allen Emmanuel Olugbile
Lead Instructor Course Advisor Course Advisor Course Manager Zoom / IT Support
Off-grid Energy Lead Healthcare Electrification Off-grid Energy Advisor Off-grid Energy Advisor IT Lead
USAID Nigeria Power and Mini-grid Lead USAID Nigeria Power USAID Nigeria Power USAID Nigeria Power
Sector Program USAID Nigeria Power Sector Program Sector Program Sector Program
Sector Program

Agenda for Today
Course Introduction and Opening Remarks | 20 mins
Introduction to Off-grid Energy Finance | 20 mins
Building a Financial Model | 70 mins
Financial Modeling Best Practices | 5 mins
Homework and Next Week’s Course | 5 mins

Course Objectives
• Gain new financial modelling skills

in Excel through the development of an
off-grid clean energy finance model
• Understand the logic, mechanics, and
outputs of each underlying component
of the project finance model
• Learn key project finance concepts
for application to solar mini-grid project
analysis and fundraising
• Improve financial fluency for engaging
with off-grid clean energy investors

Course Schedule
Introduction
to Off-grid Financial
Building and
Asset Capital Metrics,
Energy Navigating
Depreciation Financing Sensitivity
Finance, the Core
and Tax and Debt Analysis, and
Building an Financial
Considerations Sizing Course
Operating Statements
Model Conclusion
May 19, 2022 May 26, 2022 June 2, 2022 June 9, 2022 June 16, 2022

Module Structure and Resources
Review homework from the prior

Additional Resources
module and answer any questions
 Participant Manual
Introduce key concepts which will be  Course module recordings*
covered in the course module
 Course module slides*
Walk through model components,  Illustrative project finance
schedules, and calculations model
 CPI Excel formulas manual
Review Excel best practices
 Additional financial model
applicable to course module content
templates
Discuss homework assignment for
*Circulated at the conclusion of
the coming week each module.

Participant Expectations
Attend all course modules consisting of 10 hours of lectures delivered over a five-
week period
Complete and submit weekly financial modeling assignments in Excel to practice

topics covered in the lecture (estimated 2-3 hours self-study per week)
Participants should follow along with the module in their own excel file to apply the
practical recommendations for building a financial model
Submit/Vote for questions in the Conversation App in MS Teams which the instructor
will address in Office Hours, Tuesdays 2pm – 3pm WAT
Participants can submit up to 3 questions with their homework submissions and

the Lead Instructor will select several for review at the start of class

Course Certificate
Participants will have the opportunity to receive a Course Certificate
upon meeting minimum participation requirements (see below).
To obtain a Course Certificate, a participant must meet the following

graduation requirements:
Attend and actively participate in all 5

11 course modules
2 Arrive on time to each module (not

more than 5 minutes late)
3 Complete and submit of all homework

assignments by stated deadline

Course Mechanics
• All the modules will be recorded and shared as they are available at the
end of each week
• All participants will be muted throughout the webinar, unless
nominated speak by course managers during designated Q&A periods
• Please feel free to submit questions into the Q&A in the tool bar at
the bottom of your screen at any time
• Do not share your unique Zoom link with anyone outside of the May
2022 Cohort
• Questions regarding webinar logistics can be directed to Emmanuel Olugbile
in the Q&A or at eolugbile@powerafrica-npsp.org

Module #1: Introduction to Off-grid Energy
Finance, Building an Operating Model
May 19, 2022

Power Africa Nigeria Power Sector Program

Class Poll

Poll: Who is in
the room?
How many
years have you
been working
in the off-grid
clean energy
sector in
Nigeria?

Poll: Who is in
the room?
What is your
function in
your
organization?

Poll: Who is in
the room?
How familiar
are you with
Microsoft
Excel?

Poll: Who is in
the room?
What is the
purpose of
Excel?

Poll: Who is in
the room?
What is your
level of
familiarity
with off-grid
clean energy
project
finance
concepts?

Poll (answer in
the Q&A)
What are
you most
excited about
for this
course?

Overview of Topics for Day
Introduction to off-grid clean energy finance (concepts!)
Excel fundamentals and financial model orientation
Operating model inputs and core cashflows schedules
7/11/2022 20
Introduction to Off-grid Energy Finance

Why Off-grid Clean Energy Finance?
HIGH UPFRONT COST: Energy infrastructure projects have

high upfront costs incurred at a single point in time and revenues
which are generated in small amounts over long periods of time
NEED FOR INVESTMENT: This necessitates individuals or

firms to invest funds up front for the promise of a stream of
cashflows over the life of the energy asset
COST OF INVESTMENT: That upfront investment comes at a

cost – either an interest rate paid on debt (typically cheaper but
harder to obtain), or a return paid on equity financing (ownership)

Why Project Finance?
RINGFENCED RISK: Establishes contractual structures that ringfence

risk to the specific project or portfolio of projects, reducing the risk of
1 financial “contagion” between the existing projects or corporation’s assets
and the new opportunity.
ASSET BACKED: Allows an entity to raise finance for a new project,

2 secured against project assets and future revenues or cash flows rather than
an existing corporate balance sheet or assets.

Key Project Finance Terms
Special Purpose Vehicle. A special purpose vehicle (SPV) is a subsidiary created by a company to reduce financial risk which includes a
set of specified assets from the parent company’s balance sheet (e.g., a solar mini-grid!).
Recourse. Recourse is the lender's legal right to collect the borrower's pledged collateral if the borrower does not pay their debt
obligation. Project finance limits recourse to the project.
Debt. Debt is financing for your project which you pay back over a set period of time (e.g., a loan or mortgage). Debt is the most senior
form of capital (e.g., it is paid back first) and is typically the cheapest form of capital. For this reason, it can be difficult to obtain.
Equity. Equity is ownership in the project or company. In an off-grid clean energy finance project, returns on equity are the profits of the
project after all costs, tax, debt, and interest have been paid.
Leverage. Leverage refers to the use of borrowing funds or debt to amplify returns from an investment in a company or project. The
percentage of the project backed or funded by debt is the “leverage.”
Capital Expenditures. Capital expenditures (CAPEX) are the costs of physical infrastructure or equipment. In energy projects, these are
typically highest up front with the acquisition and assembly of generation or distribution assets.
Operating Expenditures. Operating expenditures (OPEX) are the costs the project incurs in operations. These may include
management, operator, and technician salaries, collection fees, or other non-equipment costs incurred over the life of the project.
Schedules. In financial models, a schedule is a series of calculations that occurs at a set “periodicity” (e.g., annually) over a prescribed
period of time. In an off-grid energy financial model this might be the 15 instances of annual revenue over 15 years.
Cashflows. Cashflow is the movement of cash in and out of a project. All financial modeling and financial statements are comprised of
different schedules of cashflows over the life of the project which inform the operations and financial health of the asset.
7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp
Corporate Finance vs. Project Finance
Dimension Corporate Finance Project Finance
Financing Vehicle Multi-purpose firm or corporation Special purpose vehicle (e.g., SPV)
Recourse Recourse to corporate ownership Recourse limited to project assets
Capital Returns Indefinite / until exit Finite-time horizon = project life
Transactions Costs Relatively low and standardized Relatively high, legal/contract costs
Leverage Ratio Varies from sector to sector Sized to optimize equity returns
Basis for Credit Overall financial health of corporate Technical and economic feasibility of
Evaluation entity or guarantor entity the project
Source: Raikar, Santosh, & Seabron Adamson. 2020. Renewable Energy Finance: Theory and Practice. Academic Press.

Why Financial Modeling?
Forecast Cashflows: Models project cashflows over the life

1 of the project using a range of assumptions.
Assess Financial Health: Allows users to analyze project

2 inputs, outputs and better understand financial health and risk.
Support Investment Decisions: Demonstrates the ability

3 (or inability) of the project to repay debt and generate returns.
Create Financial Statements: Provides key inputs to any

4 financial discussion or due diligence process.

Impact of Financial Modeling
Enhances management’s Communicates a clear Helps investors evaluate

understanding of the understanding of the aspects of the business as an
business model business model’s financial investment opportunity
implications
Shows how various inputs Validates management’s Shows likely performance of

impact a company’s financial expansion plan, showing a business over a specified
performance feasibility and profitability period
Project vs. Portfolio
Project Portfolio
Project 1
Project 1 Project 2
Project Portfolio
F/S F/S
Project 3
Project 4

Orienting to Financial Modeling and Excel

Microsoft Excel
Definition: Microsoft Excel is the Sample Dashboard
industry leading spreadsheet software Generated in Excel
program, a powerful data visualization
and analysis tool.
How it works: It enables users to

format, organize and calculate data in
worksheets that can be analyzed and
linked into a single workbook.
Check out the Corporate
Functionality: Its uses include Finance Institute Excel manual
collection and verification of data, data for a complete walkthrough
analysis, accounting and budgeting, of Excel shortcuts, and basic
project management, among others. and advanced formulas.
Core Components of Financial Model
ASSUMPTIONS CALCULATIONS ANALYSIS OUTPUTS
Project inputs which drive Revenue, cost, and financing Financial statements and Key calculations which
revenue, costs, and cashflow calculations over metrics which present present financial potential
financing. the life of the project financial health and risk of the project
Inputs Tab Operating Model Tab Financial Statements Tab Dashboard Tab

Financial Statements Overview
The three financial statements most commonly used to present financial data:
Income Balance Cash Flow

Statement Sheet Statement
• Illustrates the profitability • Shows the project or • Begins with net income
of the project or company company’s assets and and is adjusted for non-
funding from liabilities and cash expenses and non-
• Begins with the revenue equity cash income
line and after subtracting
various expenses, arrives • Snapshot of a specified • Reconciles the beginning
at net income point in time such as the of period and end of
end of the quarter / year period cash balance by
• Covers a specified period showing net cash flow
(quarter or a year)

5-minute Break

Building a Financial Model

Financial Model Components
Tab Functions
Model guidance
Outputs / analysis
Assumptions
Reporting
Calculations
35
Financial Model Components
Title of Model Company Income Revenues

Model Author Information Statement Costs
Version Control Value Drivers Cash Flow Consumption
Outputs Statement
Revenue
Sensitivity Balance Sheet
OPEX
Analysis Debt Schedule
Book
Depreciation
Timing
Legend Blank Work Tax Blank Work
CAPEX
Additional Sheet for Depreciation Sheet for
Consumption
Guidance & Calculations Ongoing CAPEX Calculations
Revenue
Definitions OPEX Tax
Names & Lists Depreciation Financing
Tax
Macro -
economics
Financing
36
Model Inputs
Timing is a critical functionality CAPEX are funds used to Consumption Is the use of
in the financial model linked to acquire or maintain assets such as goods and services by customers,
specific timing of events. property, technology, or equipment. such as kilowatts per hour.
Depreciation is an
OPEX is an expense a business
Revenue is the money accounting method used to
incurs through its normal business
generated from normal operations. allocate the cost of a
operations.
physical asset over its useful life.
Let’s check
Macroeconomics are the it out in the
Taxes are mandatory Financing is the breakdown of
contributions collected by
economic conditions like inflation
funding from equity and debt to
FM!
or currency depreciation that
governments. cover the cost of the project.
impact project profitability.

Capital Expenditures
Concept Definition Core Components in the Model

Capital expenditures (CAPEX) are funds used by 1. CAPEX for component parts
a company to acquire, upgrade, and maintain 2. CAPEX for customer connections
physical assets such as property, plants, buildings,
technology, or equipment. 3. Project development costs
Calculations Let’s check

it out in the
CAPEX = Sum of (Component Part Unit Cost * No. of Units or Size) FM!
Customer Connection CAPEX = Number of Total New Customers * Connection Cost/Customer
Project Development Costs = Sum of Project Development Costs

Periods and Timing
Core Components in the Model
Concept Definition
1. Inflation escalator
Timing is a critical functionality in the financial
2. Depreciation rate
model linked to specific timing of events. Certain
formulas called flags help orient the model in 3. Construction flag
time. Macroeconomic factors sensitive to timing 4. Operations flag
can also be scheduled. 5. Operations period count

Inflation Escalator = Prior Period Inflation multiplied by 1 plus the General Cost Inflation National Rateit out in the
Depreciation Rate = Prior Period Depreciation multiplied by 1 plus Depreciation of NGN/USD FM!
Construction Flag = If the Current Period End Date is less than the Construction End Date, multiply by 1
Operations Flag = If the Current Period Start Date is greater than the Operations Period Start Date and the
Current Period End Date is less than or equal to the Operations Period End Date, then multiply by 1
Operations Period Count = Sum of all Operations Flags to Date
Key Elements for Building an Operating Model
Operating
Revenue Minus Equals EBITDA
Expenditures
Fixed
Charges Overhead
Connection
Revenue Costs
Site
Tariff
Operational
Costs

Revenue

Revenue is the income that the project earns 1. Total Revenue
through tariffs, fees, and fixed charges. It is the
2. Total Revenue net VAT
top line amount prior to removing the cost of
operating (OPEX). 3. Tariff, Connection Fee, and Fixed
Charges Revenue

Total Revenue = Tariff Revenue + Connection Fee Revenue + Fixed Charges Revenue it out in the
Total Revenue Net VAT = Total Revenue / 1 + Value Added Tax (VAT) FM!
Tariff Revenue = Annual Consumption * Tariff (inflation adjusted) * Technical/Performance Adjustment
Connection Fee Revenue = Total New Customer Connections * Connection Fee
Fixed Charges Revenue = Fixed Charge (inflation adjusted) * Number of Customers
Operating Expenditures

An operating expenditures or OPEX is an 1. Generator O&M
expense a business incurs through its normal 2. Diesel Fuel
business operations.These expenses are usually 3. Collection Fees
divided into variable and overhead expenses. 4. Other Operating Expenditures

Variable Expenses it out in the
FM!
Generator O&M = Cost of Generator O&M (inflation adjusted)
Diesel Fuel = Diesel Consumption Liters per Year * Diesel Cost per Liter (inflation adjusted)
Collection Fees = Total Revenue Net VAT * Collection Fee %

Operating Expenditures – Overhead

Overhead refers to the ongoing business 1. Personnel Salaries
expenses not directly attributed to creating a 2. Travel and Vehicle Costs
product or service. 3. Office Costs
4. Others

Overhead Expenses it out in the
Travel and Vehicle Costs = Travel & Vehicle Costs (inflation adjusted) FM!
Office Costs = Office Costs (inflation adjusted)
Personnel Salaries = Salary of MD (inflation adjusted) + Management and technical staff (inflation adjusted)
Other Costs = Company Insurance (inflation adjusted) + Accounting (inflation adjusted)
Introduction to the Homework Assignment
Step 1 Step 2 Step 3 Step 4

Each Course Module At the end of each Each participant will At the beginning of the
will cover all the key course, the instructor complete the following course, the
concepts and will explain the homework assignment instructor will run
walkthrough of homework assignment in Excel and submit it through the answers
necessary functions and send out the Excel to the email mailbox for the homework
and calculations in template and fmbootcamp@powera assignment and answer
Excel for the instructions. frica-npsp.org by any questions.
completion of the Wednesday EOD.
homework assignment.

Overview of Topics for Day
Introduction to off-grid clean energy finance (concepts!)
Excel fundamentals and financial model orientation
Operating model inputs and core cashflows schedules
7/11/2022 45
Financial Modeling Best Practices

Hardcoding, Linking Cells, and Formulas
Do not Maintain the

duplicate the same formula in
same input in every year for a
multiple schedule of
locations. cashflows.
Avoid Link all

embedding calculations to a
coded numbers single set of
in formula. inputs.

Principles of Model Infrastructure
Basic Model Infrastructure Best Practices:
1 Separate Data: Maintain separately the inputs sheets,

calculation sheets, and results sheets.
2 Use Consistent Signs: Present all values in absolute
terms and add / subtract as required in the formulae.
3 Use Appropriately Real and Nominal Values: All Ideal Model
cash flows should be calculated in nominal terms
including any assumed effects of inflation. Dynamic
4 Avoid Circular Calculations: Circularity can be very Transparent

memory intensive, as Excel will trigger recalculation of Presentable
all the dependent worksheets, and it can cause errors.

Homework & Next Week’s Course

Homework REMINDER: In order to receive the Course
Certificate, participants must submit this
homework by 25 May by midnight WAT.
Operating Model Exercise
Using the inputs provided in the homework handout, populate the Inputs
Step 1 Tab of the financial model template
Calculate total capital expenditure in the Inputs Tab by multiplying each
Step 2 unit cost by the size of the component and summing all figures
Step 3 Create schedules for Consumption, Revenue, and Operating Costs
In the Operating Model Tab, calculate the cashflow schedules for

Step 4 Revenue, Operating Costs, Overhead Costs, and EBITDA in the I/S

Next Week’s Course
Course #2: Asset OFFICE HOURS

Depreciation and Tax Tuesday, May 24, 2022
Considerations **4pm – 5pm WAT**
Zoom registration link
provided to all participants.
Thursday, May 26, 2022
Key Topics Covered: Asset depreciation, tax

considerations, and financial modeling best
practices

Thank you!
Kathy Julik-Heine
Off-Grid Lead, USAID Power Africa Nigeria Power
Sector Program
Contact: kjulikheine@deloitte.com
Mary Allen
Off-Grid Energy Advisor, USAID Power Africa
Nigeria Power Sector Program
Contact: maryallen@deloitte.com
Off-grid Clean Energy Financial Modeling Bootcamp

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Off-grid Clean Energy

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 2

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 3

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 4

Course Introduction and Opening Remarks | 20 mins

Introduction to Off-grid Energy Finance | 20 mins

Building a Financial Model | 70 mins

Financial Modeling Best Practices | 5 mins

Homework and Next Week’s Course | 5 mins

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 5

• Gain new financial modelling skills

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 6

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 7

Review homework from the prior

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 8

Complete and submit weekly financial modeling assignments in Excel to practice

Participants can submit up to 3 questions with their homework submissions and

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 9

To obtain a Course Certificate, a participant must meet the following

Attend and actively participate in all 5

2 Arrive on time to each module (not

3 Complete and submit of all homework

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 10

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 11

May 19, 2022

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 12

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 13

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 14

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 15

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 16

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 17

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 18

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 19

Introduction to off-grid clean energy finance (concepts!)

Excel fundamentals and financial model orientation

Operating model inputs and core cashflows schedules

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 21

HIGH UPFRONT COST: Energy infrastructure projects have

NEED FOR INVESTMENT: This necessitates individuals or

COST OF INVESTMENT: That upfront investment comes at a

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 22

RINGFENCED RISK: Establishes contractual structures that ringfence

ASSET BACKED: Allows an entity to raise finance for a new project,

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 23

Recourse Recourse to corporate ownership Recourse limited to project assets

Capital Returns Indefinite / until exit Finite-time horizon = project life

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 25

Forecast Cashflows: Models project cashflows over the life

Assess Financial Health: Allows users to analyze project

Support Investment Decisions: Demonstrates the ability

Create Financial Statements: Provides key inputs to any

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 26

Enhances management’s Communicates a clear Helps investors evaluate

Shows how various inputs Validates management’s Shows likely performance of

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 28

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 29

How it works: It enables users to

ASSUMPTIONS CALCULATIONS ANALYSIS OUTPUTS

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 31

Income Balance Cash Flow

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 32

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 33

7/11/2022 Off-grid Clean Energy Financial Modeling Bootcamp 34