Over the last few years, I’ve connected with a good number of clean energy MBA students seeking advice on MBA investment banking / finance internships, in-particular at specialized firms such as Marathon Capital, CohnReznick, GreentechCapital, Macquarie, GE EFS, in addition to more standard bulge brackets. I often get asked for ways to prepare and refer them to general industry resources (e.g. GTM, Utilitydive, see the full resource list here), since there aren't many finance-specific resources out there.
I recently came across a new book on clean energy finance, “Renewable Energy Finance: Theory and Practice” on Amazon. I don’t’ know whether it was meant to be a textbook (I think the authors teach a university course on energy finance), or a practitioner’s guide, but either way I was impressed with the amount of detailed content. The authors are obviously credible, coming from established renewable energy investment and economic consulting firms, and they make previously hard-to-find information accessible through this book. If you really want to understand the ins-and-outs of renewable energy financial modeling, this would be a stellar resource. It’s definitely overkill for most students and a lot of it will probably be too advanced, but if you’re extremely curious and dedicated to energy finance, it’s a good way to get a head start on modeling (e.g. you’ve secured an MBA clean energy finance internship, preparing to hit the floor).
Another tip for those entering renewable investment banking: start mastering Excel and in particular, VBA. In a typical corporate LBO models, you could rely on circular references, but infrastructure project finance models are so detailed and circular that you’ll need to utilize VBA copy-paste macros instead (until python or some other language replaces Excel, but that's years away).
Below is my review, re-pasted from Amazon. And before anyone asks, no I don't know the authors and did not receive a free review copy (although I wish I had, because it's definitely a tad on the expensive side)!
"This book was exactly what I was hoping for. I am glad someone finally wrote a practical guide to renewable energy finance (which I don’t think exists to-date), and I expect this book to be a solid reference for renewable energy professionals for the foreseeable future.
Some background: A few years ago, I joined a major clean energy investor at the junior level (i.e. associate). When I joined, I was searching for a practical guide to project finance and tax equity modeling, specific to solar and wind projects in the US. There are very, very few resources (I think none) detailing these topics, and while I eventually learned them through general work experience, having this book would have been a major resource and would have greatly sped up my learning curve. I came across this book on Amazon recently and bought it out of curiosity (lots of spare reading time during COVID-19…). This really is a comprehensive guide to renewable energy finance, and contains some very hard-to-find information on certain topics.
Those who will benefit most from this are renewable energy finance professionals who need to model energy assets on a day-to-day basis (e.g. analyst/associate/VP at a clean energy investment banking, project finance group, investment fund, development shop, IPP, or utility), and especially those in the United States dealing with project finance and tax equity. I think other groups might benefit from reading this, but if you’re a student exploring the basics of renewable energy finance, or a lawyer seeking to get some exposure to energy finance, there are some more introductory-level books out there.
There are two sections in particular that I think are invaluable for any project finance modelers:
Chapter 3-4 (Basic Project Finance Concepts + Modeling Project Cash Flows and Debt Service): Fantastic job of explaining project finance concepts clearly, with lots of practical, granular, applicable advice. Also contains useful guidance on market norms (e.g. sizing debt service off minimum of P99 1.05x DSCR or 1.3x P50 DSCR). There are sample Excel model outputs to help walk through the concepts, and one could probably replicate these in excel without too much difficulty.
Chapter 6 (Tax Structuring for Financing Renewable Energy Projects in the US): Information on tax equity is pretty sparse on the internet (i.e. almost non-existent). This chapter explains partnership flips, PAYGO, inside/outside basis, capital accounts, DROs, in-detail, with accompanying Excel model outputs. It also covers sale/leaseback and inverted lease structure, though given partnership flips are more prevalent, naturally doesn’t go into as much detail. I can see this section being incredibly valuable for those dealing with tax equity (and apologies for those first learning how to model tax equity, you’re about to go through a lot of brain damage…)
The book covers many other useful sections as well (energy storage, transmission risks, distributed generation), but much of this information is publicly available with some google searching. I particularly liked Chapter 10, which covers alternative off-take strategies including corporate PPAs, hedges, and emerging structures such as proxy revenue swaps, which will serve as a good refresher in the future.
While the book is already comprehensive, I wish the authors would have covered a couple more subjects in detail (perhaps in the next version?). It would be great if the authors had picked a real life portfolio acquisition as a case study and commented on asset valuation and deal dynamics. Furthermore, while the authors briefly discuss merchant curve forecasts, this section could be expanded a bit more. As PPAs get shorter in tenor and contract prices fall, and given declining merchant power prices, what will happen to all these projects once they transition off PPAs? I realize this subject is not the primary scope of this book, but nevertheless it would’ve been interesting to hear their thoughts.
Overall, I think this is a fantastic resource for those embarking on a career in clean energy finance. The real gems are the coherent explanations of project finance, tax equity, and sample model outputs. And despite these heavy topics, the authors manage to explain these in an interesting and clear way, such that I managed to read through a ‘work-related’ book in my spare time quite quickly."
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