Capstone: a project finance deal from idea to operations

0:00 One deal, idea to operations

Everything in this course has been building to one idea: a project finance deal is a single story, told in stages, where each decision constrains the next. The estimate you accept in feasibility becomes the budget lenders fund. The risk you leave unallocated in structuring becomes a gap the model has to carry. The CFADS case you size on decides whether you lock up in year three. In this capstone lecture, we'll follow a fictional deal, Sahara Sun Power, a one hundred and fifty megawatt solar plant with battery storage, from concept to operations. At each stage, I'll connect it back to what you've learned and pose the question a good deal team would ask. By the end, you'll have a mental map of the whole lifecycle and a template for your own capstone.

0:58 Stage 1: feasibility and appraisal

Stage one, feasibility. Sahara Sun Power plans to sell power under a twenty-five-year PPA to a creditworthy state utility in the Gulf, with a total project cost estimated at one hundred and eighty million dollars, illustratively. The capex estimate comes from benchmarks, so it's early-stage and presented as a range, not a point. Opex and lifecycle costs include O and M, insurance, land and battery augmentation in later years. Revenue uses P50 and P90 energy yields from an independent resource assessment, and the tariff is partly indexed to the dollar. The team appraises project IRR and NPV at the sponsor's hurdle rate, with payback as a secondary signal, and decides to proceed to bid, approving a development budget that everyone knows is at risk until close. The question here: are we presenting the estimate honestly enough that it doesn't become a fixed budget by accident?

2:01 Stage 2: structuring and bankability

Stage two, structuring. The SPV is formed with a developer holding sixty per cent and a strategic partner forty. The contracts: an EPC turnkey contract with a fixed price, a fixed date and liquidated damages; an O and M agreement; the PPA; a land lease; a grid connection agreement; and direct agreements for lenders. The team completes a risk allocation matrix and finds exactly the gap we've discussed several times: EPC delay damages didn't cover the PPA's late-COD penalties plus debt service during a delay. They fix it with higher delay damage rates and sponsor completion support. An environmental and social assessment is carried out to lenders' standards. The question here: if construction ran six months late, who would pay for each day, and is anything left with the SPV that it can't bear?

2:59 Stage 3: modelling and debt sizing

Stage three, modelling. The model follows the principles you've learned: separate inputs, a timing sheet with flags, clean calculation blocks, outputs, and a checks sheet with a master check. CFADS is built on P90 for the lenders' case and P50 for the equity case. Debt is sized at the lower of DSCR sculpting, with a target set by lenders for contracted solar, and a gearing cap. The illustrative result: debt of one hundred and thirty-five million, seventy-five per cent, equity of forty-five million, and the DSRA funded at close with a letter of credit. In the base case DSCR is flat at target, LLCR at the start roughly equals the target, and PLCR is higher thanks to a PPA tail beyond debt maturity. Sensitivities cover delay, capex and opex overruns, a P99 yield and a combined downside: debt service is covered in every case, but equity returns are thin in the combined downside. The question: why size on P90 but evaluate equity on P50?

4:10 Stage 4: due diligence and financial close

Stage four, diligence and close. Technical, legal, insurance, model audit, tax and environmental and social reports all feed the lenders' base case. The CP checklist is tracked weekly, and the longest-lead item turns out to be an amendment to the grid connection agreement, exactly the kind of third-party dependency that slips closes. Interest rate swaps are executed at close, and the tariff is adjusted according to the bid rules for swap movements. Financial close is achieved, and the first drawdown follows the agreed order: equity first, then pro rata with debt. The question: what would happen to debt capacity if interest rates had risen by one per cent before the swaps were executed? And which CPs would you have escalated six months earlier?

5:03 Stages 5 and 6: construction and operations

Stage five, construction. Monthly drawdowns come with independent engineer certification and funding sufficiency tests. Estimate at completion is tracked by cost category. Contingency is drawn down for a transformer delay, and the claims log is monitored. AI is used to extract obligations from the contracts into a compliance tracker and to draft monthly lender reports, all reviewed and signed by the finance lead. Commercial operation arrives two weeks late, and the delay damages cover lost revenue and debt service, just as the stage two fix intended. Stage six, operations. Quarterly reports cover availability, output against P50 and P90, opex, DSCR and reserves. In year three, low irradiance and an inverter fault push DSCR close to lock-up. The team explains the variance by volume and availability, increases spares holdings, and talks to lenders early. By year five, a refinancing opportunity arises, with any gains shared according to the contract's provisions.

6:08 Watch me do it: answering the capstone questions

Let me work through the capstone questions the way I'd want you to answer them in an interview or an exam. Why size debt on P90 but evaluate equity on P50? Because lenders need confidence in debt service under downside conditions, while equity accepts more risk in return for higher expected returns. What if interest rates rose one per cent before hedging? Debt capacity falls, because the same maximum debt service has a lower present value at a higher rate. Which contracts protect CFADS in a long construction delay? EPC delay damages, sponsor completion support, delay-in-start-up insurance if purchased, and the PPA's own provisions. How would a lock-up affect sponsors? Distributions are deferred and cash trapped, lowering equity IRR even if the cash is later released. And which AI uses needed the highest tier? Figures in lender reports, compliance certificates and any model change affecting the base case.

7:12 Common mistakes, recap and try this now

The mistakes that recur across deals: optimistic early estimates becoming fixed budgets, gaps between contracts discovered late, models that are hard to audit, CP tracking left to the last month, and reporting that surprises lenders rather than informing them early. So, to recap the whole journey. Feasibility sets honest ranges. Structuring allocates risk so contracts fit together. Modelling turns contracts into CFADS and debt capacity, tested with sensitivities. Diligence and close convert agreement into funding. Construction protects the budget with controls and evidence. And operations keep lenders informed with early, honest reporting. Your try-this-now: write your own one-page capstone for a different asset type, perhaps a toll road or a hospital PPP, covering all six stages and the key question a deal team should ask at each.