Pacifico Energy benefits from improved financial forecasting and analysis in the development of solar photovoltaic projects
Pacifico Energy (“PEK”) is a Japanese power plant development company focused on solar photovoltaic projects. Pacifico Energy covers all aspects of solar power plant development, including permitting, design, financing, construction, and asset management. Based in Tokyo, PEK`s strength is in its team and investment partners consisting of professionals with deep solar industry and energy experience.
PEK develops solar PV facilities that can provide sustainable and predictable cash flows over the long term by capitalising on the fixed price feed-in-tariff scheme (“FIT”) that was implemented by the Japanese government in July 2012. As part of the Government’s ‘Green’ initiatives, the FIT scheme was introduced to stimulate investments into the renewable energy sector. Although the FIT subsidies are anticipated to decline over time, given such high rates compared to the rest the world, Japan`s FIT has attracted significant international interest over the past several years – however, historically, market barriers to entry has been high due to the lack of market knowledge, grid infrastructure access, access to land, challenging site conditions, etc.
PEK was working with a legacy model which required additional levels of functionality to accurately analyse various debt and exit scenarios for new project investments as well as existing investments. Given the constant focus on improvement, they decided to commission Corality to develop a new financial model tailored to their exact situation and needs. The challenge was to produce a trusted new model that not only screened and analysed existing investments, but also catered for capital raising requirements, future deals, rapid scenario analysis, negotiations with local lenders, and included bespoke tax and depreciation modelling used in the Japanese solar sector.
Could all of these diverse functions and applications be met by one new financial model?
Corality’s SMART methodology
PEK knew that an in-depth understanding of the Japan market and its cultural sensitivities alone was a critical factor to their success in Japan.
As an additional challenge, large solar projects require significant upfront capital investments, and thus it is essential to produce reliable cash flow forecasts over 20 years to build trust with investors as well as lenders.
Corality used its hard-earned expertise to understand in detail PEK’s business in Japan.
Corality applied their SMART methodology to develop a new financial model based on the underlying business logic of the existing one. New elements were added to increase flexibility for rapid and robust scenario analysis and circularity issues were solved with transparent macro functionality. Most importantly, the new model used transparent calculations and consistent best-practice rules that drastically reduced modelling risk.
Corality’s commercial focus
Getting the right development team is vital for any major project, and Yuki enjoyed working with the people from Corality.
“One of Corality`s strengths are that their people come from financial backgrounds and thus commercially understand what we are trying to do.,” she said. “Our objective was not to create the most complex model that nobody could understand – that’s not what we need. It’s about creating a flexible and transparent model that can tailor to our needs.”
Corality’s earn-out waterfall calculation
The service commissioned by PEK had one more tricky final challenge – could the model include a complex limited partnership earn-out waterfall engine to calculate returns for partners who may invest into the asset at multiple entry points and later sell out of their stake at differing exit points?
In a nutshell – yes. The earn-out waterfall calculation has a mathematical complexity of a high order, and is an example of a highly tailored solution that Corality can provide. It was an idea Corality helped bring to fruition given their previous modelling experience.
Corality is helping PEK prosper
PEK is working hard to capitalise on the benefits brought about by the introduction of the FIT scheme in Japan. The newly developed model Corality produced provides great confidence in forecasting, and will be used in raising capital as well as financing on new projects. [Note: As discussed, the model is not up and running yet as the ball is in our court. Once it has been properly reconciled with our old model, we will switch over to the Corality model.]
PEK’s success in less than 4 years:
1 project has achieved commercial operation
3 projects in construction phase of which 1 project to achieve commercial operation in June/July 2016
4+ projects in the development stage
Various new projects in the pipeline
Although PEK`s primary focus is on solar opportunities in Japan, PEK is always open to exploring other attractive renewable energy opportunities in other markets across the world.
The right team
“The most important thing is to work with the right people,” Yuki said. “I enjoy working with Corality.”