StartupRenewable Energy Business Financial Model – Case Study
Introduction
The oak business consultant is a Financial and Business Consultancy that provides Financial and Business Planning and Management Services to various industries. This case study highlights our engagement with a startup renewable energy business seeking assistance in developing a comprehensive 10-year financial model. The objective was to provide the client with accurate projections and insights to support their business planning and decision-making processes.
Furthermore, they required a financial model to know the feasibility and profitability of their startup renewable energy business and to attract investors and stakeholders for debt and equity financing. The client’s business model was based on extracting natural gas from landfill gas and then producing electricity. Oak Business Consultants aimed to develop a comprehensive financial model to help the client understand the financial feasibility.
Client Background
The client is a startup developing and operating a renewable energy business. They focus on extracting natural gas from landfill gas and then producing electricity to sell and fulfill the market demand at a lower cost. Our client required a robust and dynamic financial model to know the business’s feasibility and profitability and take corrective actions beforehand.
Business Objective
The client’s objective is to annually produce and deliver two megawatts of constant, low-cost, renewable electricity to a US state’s rural area classified as economically distressed. The objective of the financial model was to evaluate the potential return on investment for the client’s proposed renewable energy projects and determine the feasibility of attracting investment. The model would also provide a detailed analysis of the costs and benefits associated with each project.
Furthermore, our client offers the following Products/services;
- Selling the electrons
- Renewable Identification numbers (RINS)
- Carbon Offset
Our Approach
Oak Business Consultant started by understanding the client’s business model, goals, and objectives. We conducted meetings with the management team to understand their current operations, future plans, and challenges. Our initial consultation with our client involved a thorough discussion in gathering essential information about their startup renewable energy business, operations, and financial objectives. We aimed to understand their revenue streams, cost drivers, key performance indicators, production volume, payroll, and growth strategies. This understanding formed the basis of our financial model development.
Technical Complexity/Challenges
Complex Revenue Stream
It required extensive research to evaluate the revenue; it was necessary to identify the gas production, percentage of recoverable, bought, heat rate, and British Thermal Units per standard cubic foot (BTU/SCF).
Investment Tax Credit Amount
The client wanted to incorporate the Investment tax credit benefits in the model. The income tax credit % varies. It can be 30%, 40% & 50% based on government-set requirements. We incorporated a 50% investment tax credit because the client met the 50% requirement. We calculated the overall project cost, including turbine purchase cost, well infrastructure and control systems and then applied the investment tax credit percentage.
Acquire equity and debt financing
Our client had no set criteria for how much investment (debt or equity) he would raise. So he wanted us to calculate how much investment he would need to run the business smoothly. So the investment from investors is the sum of expenses from the start of the operations. Any expenses before the operations are borne by the owner.
Solution
Our experts evaluated the Gas Production on a monthly and yearly basis which helped to estimate the revenue projection for ten years. Furthermore, it also includes the equivalency value and renewable identification numbers (RINs) price.
Our client’s revenue projections were built on a detailed analysis of market demand, capacity utilization, and pricing dynamics. We considered factors such as investment tax credit amount, which helped to return 30%, 40% and 50% of the capital amount by the government and adjusted it in monthly tax payments if our client meets the requirement. Moreover, the selling price of services, gas capture and control system costs are also evaluated.
Moreover, our experts also estimated the Capstone microturbines & wells cost. It was necessary to find the investment Tax Credit amount, Cost after tax Credits, and income tax reduction /month.
As a startup renewable energy business, the client required significant capital investments for project development, equipment procurement, and infrastructure setup. We developed a detailed capital expenditure schedule, considering the timing and magnitude of these investments. We analyzed different financing options to fund these capital requirements, including equity investments, debt financing, and potential government grants or subsidies.
Results
By utilizing our financial model, the client gained the ability to anticipate and plan their financial performance for the next ten years. The model encompassed total revenue, expense, and cash flow projections. Additionally, it incorporated project evaluation, cash utilization, financial ratios, and breakeven analysis to evaluate the influence of different factors on the client’s financial outcomes.
Below, you will find the financial statements and future projections that showcase the details of the forecasted financial model.
Financial Highlights
Our financial model was designed to provide a comprehensive view of financial performance over a 10-year period. It consisted of interconnected sheets, including an income statement, balance sheet, cash flow statement, and supporting schedules. The model incorporated dynamic formulas and inputs to allow for scenario analysis.
Input Sheet
We also engaged in market research to identify growth rates, industry trends, and regulatory considerations. Based on this information, we developed a set of assumptions covering areas such as revenue generation, expenses, capital investments, tax considerations, and funding sources.
Revenue Projection
In this case, it involves selling electrons, RINS (Renewable Identification Numbers), and Carbon Offsets. We conducted a detailed analysis of market trends, pricing dynamics, and regulatory frameworks to estimate the equivalency values, heat rate and price for carbon offsets and RINs.
As Oak Business Consultants, we meticulously prepared revenue projections for our client’s startup renewable energy business, considering various revenue sources. After initial estimations and the costs, it helped our experts to incorporate the department-wise cost, OPEX, and payroll in the cost of sales. Further, it includes the number of Landfill gas (LFG) production bought and the total energy produced monthly and yearly.
Income Statement
The profit and loss statement is an essential financial statement that shows the overview of the profitability of the company. Our experts incorporated the estimations in the income statement, as mentioned in the below figure. Furthermore, the dynamic financial model helped our client change their assumptions per their requirements, and the model will update itself automatically. In addition, it also mentioned the company’s OPEX, Earning Before Interest and Tax, interest charges, and taxes, which give a clear picture of the company’s net profit.
Cash Flow Statement
The cash flow statement is also crucial for the company to understand the inflows and outflows of cash in the business. It covers all the relevant sections, including the company’s operating, financing, and investing activities. Additionally, the company aimed to invest in fixed assets such as Turbines, which resulted in significant capital expenditures in the second year. As mentioned in the below figure, this statement illustrates the company’s potential to generate cash flow in the upcoming ten years.
Balance Sheet Statement
In this section, we prepared the balance sheet that contains the asset, liabilities and equity to analyze the performance of the business. We forecasted a balance sheet that shows that the company is decreasing its long-term obligations yearly and inclining trends on the asset side. As mentioned in the figure below. Furthermore, the company dramatically shows an inclining trend in cash, showing that it is utilizing its assets to generate cash.
Financial Ratios
It is essential to evaluate the financial ratios of the company. Our team of experts performed calculations to determine the profitability ratios, which serve as indicators of a company’s capacity to generate profits from its sales, operations, balance sheet assets, and shareholders’ equity. These ratios provide valuable insights into how effectively a company generates profit and creates value for its shareholders. The figure below illustrates the specific ratios that were included in our analysis.
Project Evaluation
Our expert forecasted the most relevant and essential information in the project evaluation sheet. This information is vital to acquiring investments because it includes the Net present value, Internal rate of return, Payback Period and Minimum Expected Equity Percentage by Investors, as mentioned in the below figure.
Equity Table
It is essential to forecast the equity distribution between the employee, investors and owner. As mentioned in the below figure, we distributed it into two sections: internal and external shareholder ownership. Furthermore, estimating the equity shares, number of shares, and share per value offered to investors is vital. Moreover, we also evaluated the return on investment (ROI) and cumulative ROI of each year.
Conclusion
Oak Business Consultants provided our client with a robust 10-year startup renewable energy financial model through close collaboration and detailed financial modeling. The model enabled our clients to better understand their business financial outlook, identify potential challenges and opportunities, and make informed strategic decisions.
We successfully developed a comprehensive financial model specifically tailored for their startup renewable energy-based operations. It involves extracting natural gas from landfill gas and then producing electricity. This financial model has provided our clients with a clear understanding of their financial standing and empowered them to make strategic decisions to drive their business forward. We are committed to continuing our support as our client grows their business and works towards achieving their goals.
Oak Business Consultant excels in helping businesses stand out and achieve exceptional performance. Our approach involves conducting in-depth market research and employing advanced financial forecasting techniques. Moreover, we thoroughly consider all aspects of our client’s company, providing them with a critical perspective that is essential for their journey toward business success.
