July 2023

Financial Management Challenges Faced by Renewable Energy Projects.

For Company shareholders, the certainty of return is important. For renewable energy projects ensuring this certainty can be extremely challenging. 

Financially one of the biggest difficulties facing renewable energy projects is the fluctuation of power generation.  Generation cannot be controlled, particularly on a wind farm or solar park, and the project is therefore in the hands of the weather!  

There are various methods available to companies to fix and give price guarantees, for example, Contracts for Difference, Renewable Obligations Certificates (ROCs) and cap and collar schemes. However, the timing of cash flows can vary significantly depending on the current market prices and the impact of the relevant scheme. The timing of resulting cash adjustments to achieve the contractual price has to be carefully considered in the forecasting.

The importance of accuracy

Factors such as these make accurate cash flow forecasting extremely pertinent to enable and support decision-making by directors.  Sensitivity analysis is critical to determine what potential risks underly the conclusions reached. 

Accurate forecasting also gives confidence to lenders. Highly geared companies often have restrictive covenants such as Debt Service Cover Ratios which are hugely impacted by cash inflows. Large fluctuations and uncertainty of cashflows is concerning for lenders and therefore as much accuracy that can be put into forecasting as possible is critical.

The Vercity Approach

Vercity has been working in the PPP market for over 25 years. Our experienced finance team, including 60 qualified chartered accountants, are tuned into the needs of all stakeholders and have an extensive track record of working with many different lenders and investors.

Bespoke Services

Vercity has a flexible approach to cashflow management depending on the needs of the business and can adapt accordingly. Whether the forecasting is carried out in a long-term financial model or in more regular, shorter-term cash flow forecasts, Vercity’s experienced team ensure close management of cash whilst updating the information provided by the Operator or Asset team. Timely production of this information for the board of directors and lenders is key, and the Finance Manager will make appropriate recommendations based on their detailed assumptions and sensitivity reviews.

Financial Modelling

If you require or prefer the use of a financial model, Vercity’s finance managers are highly experienced in these, updating assumptions and performing regular validatory cross-checks to better inform your board. Vercity has a modelling team who ensure the quality and governance over the models are prioritised, making structural changes to adapt to the needs and changes to the business and legislative environment as required. 

Find out more about Vercity Financial Modelling here.

Financial Modelling Services | Vercity