[HW 1.5a] Mojave Wind Turbines

1.   Logging Changes
Here’s a model that I built for a client about a dozen years ago to consider an investment with a partner in a wind power project in California’s Mojave desert.  Over the course of the development of a project, certain economic aspects of the project evolve, and those changes need to be reflected in the financial model.

As an example, start with the model 2014.1201.EurEnx.Mojave Wind.1.  At this point, many aspects of the model will be unfamiliar to you, but I’m providing this to you as an example of how a full blown cash flow model for an industrial facility might be structured.

Here are the changes that need to be made:

  1. Increase the number of wind turbines from 40 to 50.
  2. Increase the rated capacity of each turbine to 1.75 MW from 1.5 MW.
  3. Decrease the power purchase rate price by 5%
  4. Decrease the administrative expenses by $20,000 to $140,000 from $160,000.
  5. Assume that the project will start 3 months later

Do this by preparing a step by step change log, showing the evolution of the base case

from: 2014.1201.EurEnx.Mojave Wind.1.xls
to: 2015.0110.EurEnx.Mojave Wind.2.xls.

Save the new base case.

For each change, it would be a good idea to leave a formula either on the left side or the right side that refers back to the cell that was changed.  This will act as a pointer, so in case you need to redo it, you can.

Which of the above changes had the greatest impact on the overall amount of after tax cash flow to the Project?

 

2.   Partnerships
The above model assumes that the entity is a corporation, and needs to be adjusted to reflect the partnership that will own the project.   The partnership structure involves two parties, a General Partner (call it the “GP”) and the limited partner (call it the “LP”).  The General Partner will put up 5% of the initial capital in exchange for 10% of the distributable cash flow.  The Limited Partner will put up 95% of the initial capital, in exchange for 90% of the distributable cash flow.  Show the allocation of cash flow between the partners and calculate the returns for each partner, on a pre-tax basis.

Print out this section and turn it in.

 

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6 comments

  1. For question number 2, should we use the original model in the given file? Or the model with the 5 changes reflected?

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  2. Either way is fine. It’s probably easier for you to use the one with the changes in it.

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  3. For 1.5a, when it says to “decrease the power purchase rate price by 5%,” are we changing the “PPA base rate” on the excel spreadsheet to 5 from 5.02 or decreasing 5.02 to 5.9196?

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    1. It’s supposed to be a decrease.

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  4. For the question #2, do we just take pre-tax cashflow as the distributable cashflow? If so, then it appears that the returns for GP and LP are negative…
    Thank you, Jason!

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  5. Would it make sense for the project to have a positive return but the return for BOTH partners to be negative?

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