There are many types of financial models. These can range from basic three-statement forecasts for businesses to complex option pricing models. In the context of infrastructure and energy, financial modeling often refers to long-term forecasts that support capital investment decisions, funding strategies, and return analysis for project sponsors.
For the purposes of this discussion, we’ll narrow our focus to financial modeling within the energy sector—particularly renewable and sustainable energy projects. Each industry brings its own nuances to financial modeling, and energy is no exception. The specific characteristics of the sector significantly influence how models are structured and what they must capture.
At its core, financial modeling combines two essential elements:
- Modeling techniques in Microsoft Excel, and
- The economic essence of the project the model is built to represent.
Excel provides the structural framework, but it’s the economic substance—defined by project agreements and commercial arrangements—that gives the model its meaning.
The economic content of a model is shaped by the relationships between key project stakeholders: sponsors, technology providers, EPC contractors, operators, lenders, and others. These relationships determine the financial flows, risks, and performance metrics that the model must accurately reflect.
Key components typically included in a project finance model for energy projects are:
- Revenue streams
- Cost structure (O&M and S&GA)
- Capital expenditures and equipment replacement
- Funding and Financial Costs
- Taxes, fees, and other government charges
Each of these elements must be tailored to the specifics of the project and jurisdiction to ensure the model is both realistic and decision-useful.
Revenues

Revenue streams are typically categorized as either contracted or uncontracted, with multiple potential sub-streams under each main category.
Uncontracted revenues, on the other hand, rely on internal projections or forecasts supplied by third-party advisors. These are inherently more uncertain and may require sensitivity analysis to assess associated risks.
Contracted revenues are governed by binding agreements, which may include provisions for renegotiation or price adjustments after a predefined period. These contracts provide a higher degree of certainty and are generally preferred by investors and lenders.
Operational Costs

Operational costs are primarily comprised of two categories:
- O&M (Operations and Maintenance), and
- S&GA (Sales, General, and Administrative expenses).
Salaries and wages are generally embedded within these two categories but can be forecasted separately for enhanced transparency.
Routine maintenance expenses are included under O&M, while major maintenance activities—depending on their nature and materiality—may qualify as capital expenditures (CAPEX) and, as such, could be capitalized rather than expensed. The classification should be determined on a project-specific basis in accordance with applicable accounting standards.
At a high level, operational costs can be modelled as a function of installed capacity, actual energy generation, or a combination of both, depending on the granularity and purpose of the model.
Capital Expenditures (CAPEX) and Equipment Replacement

Capital expenditures represent a significant component in power project financial modelling. The total investment and expenditure profile will depend on the technology, scale, and location of the project. Projects utilizing the same technology often have similar CAPEX profiles; however, regional factors such as logistics, permitting, and labor costs can introduce material differences.
In certain projects, a substantial portion of equipment may require replacement over the asset’s lifecycle due to technological limitations or operational intensity. These replacement costs should be explicitly incorporated into the financial model. Maintenance and replacement schedules are typically based on inputs from technical advisors or derived from the sponsor’s historical operational data.
Funding Structure and Financial Costs

The structure of project financing dictates the nature and timing of financial costs, which include interest, fees, and other financing charges. These costs are determined by:
- The sequence of debt drawdowns and repayment schedules,
- The terms negotiated with financiers, including covenants, debt service coverage ratios (DSCRs), and interest rates,
- And the overall capital stack composition (e.g., senior debt, mezzanine, equity).
Financial costs also influence the calculation of taxable income and, consequently, the project’s effective tax rate.
Taxes and Government Levies

Infrastructure projects are subject to a range of government-imposed taxes and charges, which vary depending on the jurisdiction. The most common is the corporate income tax. Additionally:
- Payroll taxes are generally included within payroll-related costs,
- Various local levies, business licenses, and industry-specific charges may apply.
These obligations must be assessed individually for each project, taking into account both statutory requirements and local practices.
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