1 Considering what I know about renewable energy, what are some of the key things I need to be able to explain to a potential funder of my project?
The main detail that needs to be tied down before doing a renewable energy project is capital. Capital is the main driver in any major project. Countless projects in business a year are never completed due to the lack of planning of what if’s and give very little wiggle room with over capital budgets. Typically one would want at least 50% over the budget available in case unfortunate circumstances come with the build. Having that capital in place will save a lot of headache in the end. The last thing a business investor wants to hear is they are not going to see a return on their investment due to bad planning.
Another aspect one must consider is the payback time one will see their investment start generating positive revenue. In terms of scale, the bigger the out the faster the return in investment whereas the small the output the longer it would take for the investor to see a return. Some business plants have as short as a 5 year plan while others have a 20 year payback plan. Whatever the case explaining when the funder will see their payback is critical. A smart investor knows it could take some time to see their investment generate revenue but once the project crosses the payback mark, they will be glad they funded.
The funder must know they are in this project for the long haul. The energy business is not a quick buck business. I would let the funder know there is a lot of education that is needed on a daily basis in the energy industry and I would encourage them to look into places they usually wouldn’t. Say for instance the regulation part of the business. Having a solid foundation of the regulations from NERC and FERC and the EPA will keep costly planning mistakes from coming up. The more information the better for all. Communication is imperative in the energy business.
2. What finance-based processes would I use to explain our potential for success?
I would use the Return On Investment (ROI) process because every smart investor wants to know how long it will take to see a return on their investment.
Understanding the Net Present Value (NPV) calculation will also help the investor to see the math behind the return on investment and understand what debt he or she will be obligated to and what the potential return calculations are being used to determine e when his or her investment will be in the positive and net gain threshold.
Understanding the net gain of capital and asset based profits will give a clear representation of the math that’s being used to come up with the assumptions. I would also create a sheet to show where the debt is going to look for ways to reduce the debt the business sees on a daily basis.