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Finance and Insurance

Modelling in renewable energy projects as a tool for strategic decision making



The most critical financial services in the energy due diligence services is financial advisory and specially financial modelling, as causing a decrease in financing costs and optimizing the finance structure. Financial modelling plays a part in both investment decisions and evaluation. 

In project finance, financial model allows a project-specific calculation that demonstrates all cash flows and presents all the outstanding performance indicators. Financial models help financiers through indicating entire funding decisions, providing flexible functionality for funding, forecasting production amount, reviewing tax calculations, creating master scenario and optimizing the project. Another benefit of financial modelling is that it provides input to sensitivity analysis.

For renewable energy projects, focus of the financial modelling is unit cost of production. In this context, financial modelling ensures calculation of the unit cost with considering different conditions. Outcomes of this process help determining the lowest levelized cost of energy in certain conditions and constitute the base of a PPA. 

Financial models can be divided into two depending on the stage of use and the details of the model. It is important to form operational models after the financing is secured and financial close models to be updated. In Project Finance transactions in Turkey, the usual structure is to use project finance financial close models as is for future operational phases that cause problems in both the financing and operations of the plant. With this respect of experience and a recent article by Matthew Bernath we would like to dig deeper into these models, and how to manage the transition. Two financial models can be stated as: 

  • Financial Close Model
  • Operational Model

“The financial close model is a model that aims to raise capital, comprehend a deal and finally reach financial close. This model is useful for not only equity but also debt providers in terms of understanding project risks and sensitivities. This makes the model favourable for financial close and hedging process, in addition being a powerful negotiation tool. Construction and operations begin after the financial close. Financial covenants and ratios are considered to measure in order to interpret the project, because project starts to create revenues and incur expenses. 

Operational model advantageous for events that happen at operational phase such as refinancing and sell-downs. In addition, operational model is useful for equity holders as refinancing or additional gearing are deliberated. 

Both models are helpful in different phases of the projects. The most common problem in the renewable energy sector is to continue to use of the financial close model during the operational period without creating a separate operational model. To convert financial close model to an operational financial model, there are several points financiers should pay attention. 

Hard-Coding Inputs

Inputs which cannot be changed once Financial Close have to be reached are hard-coded. This may include sculpted debt repayments, hedged rates or sensitivities built into the model for running scenarios during the funding process. It should not be possible for future model users to change these cells or any other inputs that have been ’hard-coded’ and agreed to during Financial Close.

Make Changes Easy

Inputs that do require changes or to be updated during operation (wind data or power generated, sales etc.) can be changed very easily and the place in which these can be changed can be easily found because tracking changes helps illustrating the situation. Anyone responsible for updating the operational financial model should understand exactly what and where they need to update assumptions with actual figures when updating the operational model.

Handover Process

Have a proper handover process and training to ensure the model builder adequately explains how the model works and what will be changing now that the model is being converted to an operational financial model. In addition, it should be clear what key ratios and outputs equity and debt providers expect to see on an ongoing basis.


Ratios and covenants should be clearly displayed as the bank will be particularly interested in monitoring these.


Cash flow waterfall have to be still functional in the operational financial model – this will be key to ensure that ratios are correctly calculated, and the bank can assess cash flows.


Build in an operational dashboard that will be useful for management reporting. This dashboard will also show when key events can or should occur.

Operational Financial Model Audit

Audit the operational model to give management and the banks confidence in the model. While this might seem like overkill, auditing a model that will probably survive the length of the project – be it 17 – 25 years, is extremely worthwhile and an easy decision to make.

Making the Operational Financial Model ‘Decision-Useful’

Of course, the list above is not extensive. All complications of the certain transaction should be considered when transforming a financial close model to operational. Following the above list will be provided to move forward a model that can be used to monitor a project and is decision-useful. 

Ultimately – every financial model should be decision-useful, i.e. it should be a tool used for decision making of both an operational and strategic nature. A Financial Close Model that has successfully been transitioned into an Operational Model will be both operationally useful for management report, and strategically important for key project decision making.”

As a result the modelling differences and points to watch out is pointed above. As a practitioner advisory service firm in financial modelling it is critical for project owners and corporates to outsource modelling work to an independent advisory company. This independence from corporate structures and decision lines and day to day operations will prove a successful conversion to operation models from all set financial close models. 


  • Matthew Bernath, “What is a Financial Close Model vs. an Operational Financial Model?”, 2019
  • EIA Publication, Levelized Cost of New Generation Resources in the Annual Energy Outlook 2013 
  • Ed Bodmer, Energy Financial Modelling, 2015 

Ozlem Kildir, Founder of Profinstance Project Finance Advisory Incorporation

Finance and Insurance

Reasons of Non-Bankability of Wind & Solar YEKA Projects in Turkey



Turkey has experienced a significant development in renewable energy installed capacity during the last decade. However, there has been no renewable energy capacity addition with the new auction scheme namely Renewable Energy Resource Areas (‘RERA’ or ‘YEKA’). Accessing financial sources is a key to successful development of new renewable energy capacities. Performing a comparative study on global auction-based renewable energy development & Turkey case, the article proves to point out some reasons for non-bankability supported by a survey study with sector professionals. 

Looking into the global auction-based renewable energy source development; in the 2017-2018 period, around 50 countries used auctions to procure renewables-based electricity, raising the number of countries that have ever held an auction for renewables to 100 by 2019 (REN21, 2004 – 2019). Almost half of the 50 countries had no previous experience with auctions (herein referred to as newcomers); they were likely driven by the reported success of auctions in other markets in attaining low prices. The use of auctions continues to rise, owing chiefly to their ability to reveal competitive prices and the flexibility in their design and their susceptibility to be tailored to fit country-specific conditions and objectives.

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Finance and Insurance

Global wind power capacity to grow by 60% over next 5 years



Global wind power capacity additions are expected to sit at an annual average of 71GW from 2019-2023 and 76GW from 2024-2028, according to new analysis from Wood Mackenzie Power & Renewables.

As noted in the report, ‘Global Wind Power Market Outlook Update: Q2 2019′, Wood Mackenzie Power & Renewables has upgraded it’s global wind power outlook by 11GW from 2019 to 2028 – a 1.5% increase from the previous quarter.

Commenting on the forecast, Luke Lewandowski, Wood Mackenzie Power & Renewables Director, said: “A 5GW upgrade in the global offshore sector will yield 129GW of new capacity and a compounded annual growth rate (CAGR) of 26%. Overall, the outlook is positive and global wind power continues to prosper due to both economic and social benefits.”

U.S. wind market benefiting from tax credits

The U.S. market has been upgraded by 16% QoQ, highlighted by a 3.8GW upgrade in 2021 alone.

“Eligible offtakers are rallying to capitalise on the renewable electricity production tax credit (PTC) before the full value incentive expires in 2020 and then phases down. Developers qualifying wind facilities in 2017 are eligible for 80% of the full credit amount, incentivising U.S. wind market growth.

“New state-level targets in the U.S. and the strengthening of renewable portfolio standard (RPS) mechanisms across the country is expected to support post-PTC demand,” added Mr. Lewandowski.

A modest upgrade of 1% QoQ in Latin America is driven by near-term upgrades in Brazil and Mexico. Demand in Brazil’s free market should positively impact expectations from 2020 to 2022, while an uptick in C&I demand in Mexico will support a record year in 2019.

Europe outlook dismal as sub-regions downgraded

“Northern Europe has been upgraded in our forecast by 6%. This should offset an otherwise dismal outlook update in Europe, as the other sub-regions combine for a 2.2.GW downgrade.

“Permitting challenges and undersubscription of onshore tenders in Germany and France have impeded growth. However, an increasing appetite for unsubsidised projects and a proliferation of demand from the C&I segment across Northern Europe both support a modest 0.6% upgrade for Europe QoQ.”

Increasing competition from solar bad news for Africa’s wind market

Slow project development due to political instability, immature support mechanisms and increasing competition from solar results in a 2% downgrade QoQ in Africa.

“Green ambitions in Africa are more prevalent than ever before. Renewable energy is attractive within the region, as wind and solar projects can be built much more quickly than other sources of energy. However, as solar is becoming increasingly economical, Africa’s wind market faces stiff competition,” said Mr. Lewandowski.

Policy deadlines boost outlook in China

Onshore and offshore policy deadlines in China underpin a 2.9GW QoQ boost in the country.

“Onshore developers are rushing to comply with a new policy that requires projects to be commissioned by the end of 2020 in order to capitalise on feed-in tariffs (FIT) before a subsidy-free era begins. Offshore developers must commission projects before the close of 2021 if they are to utilise the current level of offshore FIT.

“The story is not entirely positive in the APAC region, however. Current market conditions in India have bruised the region’s near-term outlook, resulting in a 4% downgrade QoQ. The government-imposed auction ceiling prices and delays in commissioning awarded projects have slowed near-term growth expectations in India considerably – a decrease of 24% from 2019 to 2022.

“Additionally, reliability concerns in Thailand have led to a 37% downgrade over the 10-year outlook, as the government’s focus has turned to other technologies,” concluded Mr. Lewandowski.

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Finance and Insurance

A first in Turkey: Zorlu Enerji signs a “Green Loan” agreement



Garanti Bank executed Turkey’s first Green Loan agreement with Zorlu Enerji by linking the margin of the loan to their ESG performance. Green Loan  with total amount of USD 10 million is used for meeting the operational capital needs of Zorlu Enerji. During the loan life, Garanti Bank will promote and motivate the improvement of the ESG performance of Zorlu Energy by applying a discount to their initial loan margin should they become more sustainable.

Within the scope of Green Loan, sustainability performance of Zorlu Enerji in the area of environmental, social and governance will be scored on a yearly basis by an international sustainability rating agency, i.e. Vigeo-Eiris. According to the sustainability score attained, the pricing of the margin  will be adjusted accordingly each year. While the margin will be increased  if the company shows a lower performance than the base score, the margin will be reduced if it shows a better performance. With this approach, it is targeted for the companies using Green Loan to improve or at least retain their initial sustainability performance during the loan life.

Green Loan structure which is executed for the first time in Turkey and which has been newly emerged in the world, is also part of BBVA’s sustainable finance approach, as main shareholder of Garanti Bank. In order to support achieving United Nations Sustainable Development Targets, in March 2018, BBVA has declared their climate change and sustainable development strategy in line with Paris Agreement. Within the context of their commitment for 2025 which they have founded on three different action areas defined as finance, management and collaboration, BBVA announced that they will mobilize 100 billion Euros in green finance for sustainable infrastructure, social entrepreneurship and financial inclusion.

Garanti Bank will keep contributing to BBVA’s commitment to contribute sustainable development with its leading practices such as Solar PV loans, Büyük Menderes Basin Clean Production Loan, Climate Change Action Plan, Gender Bond issuance for women entrepreneurs, Environmental and Social Impact Assessment System in best international standards and Green Mortgage.

Garanti Bank Executive Vice President Ebru Dildar Edin

Garanti Bank Executive Vice President Ebru Dildar Edin, commented the following on the subject : “The agreement we signed is the  first sustainable and green loan disbursed in Turkey for a company’s working capital needs. Until today, we have been striving for introducing sustainable practices to Turkish market  with many products and services aimed at contributing to SDGs. After the first social bond issuance in developing markets, we are once again undertaking a leading role in our sector in terms of sustainable finance with the first Green Loan of Turkey . In this way, we believe that we will support the transition of Turkey to a more sustainable economy and that we will encourage the improvement of our customers’ performance in this area. Zorlu Enerji’s sustainability performance will be evaluated by an international sustainability rating agency and we will adjust the margin according to their sustainability performance. Through this structure, we will be able to motivate our customer to improve their sustainability performance, to promote the better management of environmental, social and governance risks by our customers throughout the loan life. In this respect, we believe that there will be a growing interest in Green Loans from companies demonstrating a good sustainability performance in Turkey”.

Sinan Ak, CEO of Zorlu Enerji

Sinan Ak, CEO of Zorlu Enerji, commented on the subject saying that “Sustainability is not complementary to our activities, instead it is embedded into our entire business model.” He added: “As Zorlu Enerji, by keeping energy industry and especially renewable energy in the first place, we focus on adding value to the environment, nature, people and society in all of our activities. We ensure that our employees, suppliers, partners and all stakeholders in Zorlu Enerji ecosystem act under our sustainability vision. To that end, our “Green Loan” agreement with Garanti Bank is a valuable step towards showcasing our dedication to make sustainability an essential part of our entire business model. With this agreement, which is the first of its kind in Turkey and also one of the first deals in the world, we will not only improve the environmental, social and governance performance of Zorlu Enerji, but also, as a sustainable company, we will decrease our interest costs. A performance assessment on our existing facility agreement will once again validate our accomplishments on sustainability. As a leading company with great accomplishments in sustainability, I hope that our “Green Loan” agreement with Garanti Bank will set a good example for companies in Turkey and across the world. 

About Green Loans

After sustainable and green bond market which grew rapidly since the year of 2012, green loans began to be widespread since year 2017 as an alternative financing tool to support sustainable projects and companies. Among 41 green loan agreements reaching to a total volume of EUR 28.4 billion throughout the world, only four of them are similar to the structure being realized between Garanti Bank and Zorlu Enerji. In this way, the structure being achieved for the first time in Turkey bears the feature of being fifth throughout the world.

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