REP Project Planning & Financial Analysis 2 — Questions and Answers
Question 1: A solar developer is evaluating two sites with identical capacity but different solar irradiance. Site A has a P50 yield of 1,800 kWh/kWp and Site B has 1,600 kWh/kWp. If both sites have the same installed cost, which financial metric is most directly affected?
- Debt Service Coverage Ratio (DSCR)
- Levelized Cost of Energy (LCOE) (Correct answer)
- Weighted Average Cost of Capital (WACC)
- Debt-to-Equity Ratio
Correct answer: Levelized Cost of Energy (LCOE)
LCOE is directly affected by energy yield; higher irradiance at Site A lowers the cost per kWh produced.
Question 2: In a renewable energy project pro forma, a 'sculpted debt service' structure means:
- Debt repayments are fixed and equal throughout the loan term
- Debt repayments vary to match the project's expected cash flow profile (Correct answer)
- Interest payments are deferred until the project reaches commercial operation
- Principal is repaid in a single bullet payment at loan maturity
Correct answer: Debt repayments vary to match the project's expected cash flow profile
Sculpted debt service tailors repayment amounts to align with projected cash flows, maintaining a target DSCR throughout the loan period.
Question 3: Which permitting pathway typically applies to large-scale offshore wind projects in the United States?
- State Public Utility Commission (PUC) approval only
- Bureau of Ocean Energy Management (BOEM) leasing and permitting process (Correct answer)
- Environmental Protection Agency (EPA) New Source Review
- Federal Energy Regulatory Commission (FERC) Certificate of Public Convenience
Correct answer: Bureau of Ocean Energy Management (BOEM) leasing and permitting process
BOEM manages the leasing, site assessment, and construction/operations permitting for offshore wind on the Outer Continental Shelf.
Question 4: A wind project's capacity factor is 35% and installed capacity is 100 MW. Annual energy production (AEP) in MWh is approximately:
- 35,000 MWh
- 306,600 MWh (Correct answer)
- 350,000 MWh
- 3,066,000 MWh
Correct answer: 306,600 MWh
AEP = 100 MW × 0.35 × 8,760 hours/year = 306,600 MWh.
Question 5: Which risk is best mitigated through an interconnection queue study conducted early in project development?
- Permitting delays from environmental review
- Unexpected grid upgrade costs that could render a project uneconomical (Correct answer)
- Fluctuations in equipment procurement costs
- Changes in state renewable portfolio standard (RPS) targets
Correct answer: Unexpected grid upgrade costs that could render a project uneconomical
Interconnection studies reveal required network upgrades whose costs are allocated to the project, potentially making it financially unviable.
Question 6: A 'merchant tail' in a renewable energy project refers to:
- The final installment payment to the EPC contractor
- Revenue generated after the expiration of a long-term power purchase agreement (Correct answer)
- The portion of project debt secured by equipment collateral
- Transmission curtailment experienced at the end of the project life
Correct answer: Revenue generated after the expiration of a long-term power purchase agreement
The merchant tail is the period after a PPA expires when the project sells power at market rates, introducing price risk.
Question 7: In project finance for renewable energy, 'cash flow waterfall' refers to:
- Hydraulic analysis of a run-of-river hydropower site
- The priority order in which project revenues are distributed to various stakeholders (Correct answer)
- Monthly drawdown schedule for construction loan proceeds
- Revenue sharing between co-located solar and battery storage systems
Correct answer: The priority order in which project revenues are distributed to various stakeholders
The cash flow waterfall defines the priority sequence for distributing revenues, typically: operating costs, debt service, reserves, then equity returns.
REP Project Planning & Financial Analysis 2
A solar developer is evaluating two sites with identical capacity but different solar irradiance.
Site A has a P50 yield of 1,800 kWh/kWp and Site B has 1,600 kWh/kWp.
If both sites have the same installed cost, which financial metric is most directly affected?