Project Planning & Financial Analysis Flashcards

A battery storage project paired with solar earns revenue through energy arbitrage. Which market mechanism allows it to also earn capacity payments in many US wholesale markets?

Answer: Capacity markets or resource adequacy programs

Capacity markets compensate resources for being available during peak demand periods, providing a revenue stream independent of actual energy production.

Which financial metric is most commonly used by lenders as a covenant in renewable energy project finance loan agreements?

Answer: Debt Service Coverage Ratio (DSCR)

DSCR measures a project's ability to cover debt payments from operating cash flow and is the primary covenant lenders monitor throughout the loan term.

A developer is planning a 50 MW solar project and must post a transmission deposit with the grid operator. This deposit is typically based on:

Answer: A per-MW amount set by the interconnection tariff to fund study costs and network upgrades

Interconnection deposits are set by tariff on a per-MW basis and cover the cost of interconnection studies and, ultimately, required system upgrades.

In US project finance, a 'tax equity flip' structure refers to the point at which:

Answer: The tax equity investor's ownership percentage decreases after achieving its target return

After the tax equity investor has claimed sufficient tax credits and depreciation to reach its target IRR, its ownership share flips down (typically from ~99% to 5%), leaving the developer with majority control.

Which renewable energy project development risk is best characterized as 'basis risk'?

Answer: The difference between the PPA price and actual market prices at the delivery point

Basis risk is the difference between the nodal price where a generator delivers power and the hub or reference price used in a financial hedge or PPA.

A renewable energy project's 'P90 energy estimate' means that:

Answer: There is a 90% probability that actual energy production will meet or exceed this estimate

P90 is an exceedance probability: the energy yield that will be met or exceeded with 90% confidence, representing a conservative estimate used for debt sizing.

Which type of offtaker agreement provides the most revenue certainty for a utility-scale solar project seeking non-recourse project financing?

Answer: A 20-year fixed-price PPA with a creditworthy investment-grade counterparty

A long-term fixed-price PPA with an investment-grade counterparty provides the predictable, contracted revenue stream that lenders require for non-recourse financing.