Modelling P50 and P90 wind profiles is generally done poorly in the models I am sent. This is maybe one reason we are producing so many financial models for wind projects at the moment! Depending on your budget and purpose there are quite a lot of resources on the web for understanding Wind Economics, the template model from Windustry has some interesting features for a quick evaluation but I would not recomend this for any form of investment decision.
Banker friendly wind project financial model
A wind model needs the functionality to switch between different wind profiles say P90 (debt) and P50 (equity). I thought I would share with you how we do it as it seems to work well.
What does P50 and P90 mean in wind financial models?
Without turning this into a statistics forum we can broadly say that “P50″ and “P90″ represent two probabilistic comparisons of the wind expected to be available to drive the turbines compared to historic records. P90 broadly represents the probability that the wind (fuel) experienced by the project will on average be in the 90% confidence range.
How do banks use P90 and P99 profiles.
P90 is often used for the “Bank Base Case”. A P99 profile is even more conservative and often used as the Bank Downside Case. Because of the different risk profiles of different parties involved in the same transaction it is a useful feature for the financial model in a wind project to have the ability to switch between a P50 to a P90 with ease, I recomend setting the profile up as a scenario field – its important to make your bankers life as easy as possible!
How are wind probability profiles modelled?
It is easier said than done but let’s take a look at how it could be modelled. To model a P90 versus P50 case, a NORMINV function is used. For a P50 scenario, the formula would be:
= NORMINV (1 - 50/100, Net Production, Uncertainty * Net Production)
Similarly for P90, the 50 would just be replaced by 90. Therefore, its easy to see that scenarios can easily be run by just controlling one parameter in the above formula. Shown above for P50
Advanced tip for modelling multiple wind turbines
This computation can slow Excel down so rather than calculating this for each turbine, the formula can be used on the aggregated amount. So instead of having say 40 lots of NORMINV functions for 40 turbines, you would only have just one NORMINV line and speeds up the model tremendously! – if you find yourself in this situation and not sure how to solve then let me know!