Small wind / Buyer questions
Energy and economics
How can loan payments and discount rates double-count financing costs in a wind comparison?
The short answer
Financing costs can be mishandled when a model mixes a project-level cash-flow view with an equity-level view. Loan proceeds, principal, interest and discount rates need a consistent framework. The answer is not to delete financing costs automatically, but to define the decision perspective and follow the financial model's documented convention.
Identify whose cash flows are modelled
A project comparison before financing and an investor comparison after debt service answer different questions. State the perspective, analysis period and treatment of the initial investment. Use the owner's qualified financial input for the appropriate discount-rate basis.
Do not place full project cost, selected loan payments and a financing-adjusted rate into one unexplained table. The arithmetic can be internally correct while representing no coherent decision.
Trace each financing entry once
Record loan receipts, fees, interest, principal repayment and any other documented financing effects in the periods to which they belong. Check how the chosen software calculates and discounts those entries. Do not add a second manual financing allowance without understanding what is already included.
Keep tax assumptions and their applicability subject to qualified local advice. A generic example or software default does not establish the owner's tax treatment or available financing terms.
Reconcile financial and technical scenarios
Use consistent energy, cost and timing assumptions when comparing finance structures. A favorable financing case cannot repair an unsupported resource estimate, and a lower payment does not automatically mean a lower total project cost.
The handover should identify the model perspective, financing assumptions, rate convention and any sensitivity cases. This allows the buyer's adviser to review the calculation without confusing a conditional software result with an actual loan offer, a guaranteed investment return or a complete assessment of project affordability.
Sources
- System Advisor Model documentation: commercial cash-flow and financial assumptions
- System Advisor Model documentation: real and nominal levelized costs
Examples are illustrative. Confirm product-specific performance, compatibility and supply scope in the applicable documents.