Renewable energy developers · Renewable energy and clean technology
Renewable projects where generation, collections and debt service are read together
A renewable project earns from the power it generates and pays its lenders from the cash the offtaker actually releases. We link generation, billing, collections and debt service in each project company, so a shortfall in sunshine, wind or payment shows up in the covenant forecast the same month it happens.
In one paragraph
Independent power producers and developers own solar, wind and hybrid projects, usually through one company per project. They sell to distribution companies, central agencies or commercial and industrial buyers. The capital is spent once and revenue is set by a long-term power purchase agreement. After commissioning, the outcome turns on generation, collection timing and the terms of the project debt, which is what chief financial officers and finance heads manage.
Chief financial officer or head of finance for the portfolio
The economics
How the money moves in this trade
A project is built, capitalised and then earns a tariff per unit for twenty years or more. Capital cost per megawatt, including interest during construction and the cost of transmission connectivity, fixes the depreciation and the debt the project carries. After commissioning, revenue depends on units generated, which vary with resource, availability and curtailment. It also depends on the offtaker paying on time. Distribution companies have a history of delayed payment. The late-payment surcharge rules give a claim on overdue amounts, at a rate that rises with each month of delay, and it has to be computed and pursued.
Each project company usually has its own lenders, a debt service reserve and covenants on coverage ratios. Distributions to the developer are allowed only when those are met. Projects selling to commercial and industrial buyers under captive or group-captive structures must meet ownership and consumption conditions tested over the financial year. Failing them makes cross-subsidy and additional surcharges payable on the electricity supplied. A portfolio of a dozen project companies is a dozen sets of accounts, lender reports and compliance tests, with intercompany funding running between them and the holding company.
The problem
Where the numbers usually break down
Generation shortfall is not carried into cash
Operations reports generation against forecast, but the effect on revenue, collections and next quarter's debt-service coverage is worked out only when the lender asks.
Capital cost is not closed out after commissioning
Capital work in progress stays open for months after the commercial operation date, with retention, final bills and interest during construction not yet settled into the asset value.
Late-payment surcharge is not computed or claimed
Overdue amounts from distribution companies are tracked as receivables, but the surcharge due on them is not calculated invoice by invoice or claimed.
Covenants are calculated by the lender first
Coverage ratios and reserve requirements are computed from the lender's template after the quarter closes, so a breach or a blocked distribution is a surprise.
Captive conditions are tested at year end
Ownership and consumption by captive users are checked once a year, when a shortfall can no longer be corrected and the surcharges it triggers, with carrying cost, are already due.
What we do
The work, and the result each part produces
Generation to cash bridge
Units generated, units billed, deductions by the offtaker and cash received reconciled every month for each project.
A shortfall in resource or payment appears in the cash forecast immediately.
Capitalisation close-out
Capital cost finalised after commissioning, with interest during construction, retention and pending bills settled into the asset register.
Depreciation and the asset base are right from the first year of operation.
Offtaker receivables and surcharge workings
Invoices aged by offtaker, with late-payment surcharge computed and claims tracked.
Money due for late payment is claimed rather than written off by default.
Covenant forecasting
Debt-service coverage, reserve balances and distribution tests projected for each project company from the latest generation and collection data.
Covenant pressure is known a quarter ahead.
Captive compliance tracking
Shareholding and consumption by captive users monitored monthly against the conditions for the structure, including each user's proportionate share in a group captive.
Shortfalls are corrected during the year.
Portfolio close and consolidation
Common chart of accounts and close calendar across project companies, with intercompany balances agreed monthly.
Portfolio results and lender reports come from one set of books.
Where we start
The first steps of an engagement
PPAs, generation and loan papers
We ask for the power purchase agreements, monthly generation and billing data, the offtaker payment history, the loan agreements with their covenant definitions, and each project company's trial balance.
Generation-to-cash bridge
Units generated, billed, deducted by the offtaker and paid for are reconciled for each project. Overdue invoices are listed with the surcharge due on them.
Covenant model and close calendar
Coverage ratios and reserve tests are rebuilt from the lender's definitions as a forward forecast, and a common close calendar is set across project companies.
Portfolio cash and covenant report
The first report shows generation against plan, billed against collected, surcharge due by offtaker, and forecast debt-service coverage and headroom for each project company.
How it is measured
The reports the work is judged on
Each is recorded as a baseline before the work starts, so later reports have an honest comparison.
- Generation against plan, by project
- Units billed against cash collected
- Receivables and surcharge due, by offtaker
- Debt-service coverage, actual and forecast
- Capital cost per megawatt, closed out
- Captive consumption against requirement
Who it suits
Written for, and not the right fit for
- You build plants for others and do not own them; our solar EPC page covers that.
- You need a lender's certificate from a chartered accountant, a statutory audit or a statutory valuation on its own; those are signed by independently engaged professionals.
- Developers and independent power producers owning solar, wind or hybrid projects through project companies.
- Developers selling to commercial and industrial buyers under captive or open-access arrangements.
- Portfolios preparing for refinancing, a stake sale or a transfer to an investment platform.
Services
Services this work draws on
MIS and financial planning
Reporting built around the questions you actually need answered.
Explore service ↗Outsourced accounting
Your books kept current and reconciled, closed to a published calendar.
Explore service ↗Banking, funding and due diligence
Information a lender or investor can verify without a reconstruction.
Explore service ↗Internal controls and risk
Controls sized to your business, documented and actually tested.
Explore service ↗Transaction advisory and due diligence
Quality of earnings, working capital and net debt, under one owner.
Explore service ↗Every other service, also available in this trade
Common questions
Questions owners in this trade ask
We have a separate company for every project. Can all of them be run together?
Yes, and running them together is the point. A common structure and close calendar means intercompany balances agree, lender reports come out on time, and the portfolio view isn't a spreadsheet stitched together after the fact.
How is late-payment surcharge on distribution company dues claimed?
We compute what's due invoice by invoice under the surcharge rules and your agreement, and keep the record that supports the claim. Formal recovery steps and any regulatory petition remain with you and your counsel.
Do you prepare the certificates our lenders ask for?
We prepare the underlying figures and schedules. Certificates that must be signed by a chartered accountant are issued by an independently engaged CA.
5th Quadrant maintains project company accounts and prepares lender, covenant and captive-compliance information. Statutory audit, tax-audit reports, chartered accountant certificates for lenders, statutory valuations and regulatory petitions are handled by independently engaged licensed professionals, coordinated through 5th Quadrant. Full detail is on our Professional Scope page.
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