Eolian PRoject

Assumptions

Based on real-life data collected at our role-model wind farm

General Logic: act like a Pro-dividend company

Eolian operates according to the usual logic of companies whose shares are traded on the free market. We try to maintain a reasonable balance between good revenue and rising value (future revenue). We make sure not to miss out on good opportunities and buy power generation facilities at a good price, but at the same time keep payouts at the target rate.

Fund Management Related Assumptions

Cash level is kept low, around 3%, so most of the value in the fund works for investors. We buy power plants continuously. We will sell aged facilities at the remaining future value of the infrastructure not less than 270 thousand euros per 1MW of nameplate power. Fund fees (all together) are 7% p.a. Depreciation rate is 4.4%.

Electricity Market-Related Assumptions

Annual energy production for 1 nameplate megawatt is assumed to be 2400MWh. Current effective price of €58 and the effective level of government subsidies come into our spreadsheets from real-life measurements. Approximately half of costs are growing with the age of a facility (for example, spare parts and insurance). The growth rate is 5%. Other costs assumed to grow slowly (1%). Technology development provides some additional cost reductions.

Time-related assumptions

The business plan horizon is 5 years. The time consideration metric is 1 quarter. A single turbine planning horizon is 20 years meaning that we will sell turbines after reaching this age (certified lifetime is usually 25 years; many turbines run since 1980s).

Quarterly cycle

Numerical Highlights

Core Parameters After 5 years

Production Capacity

The parameter mostly depends on the particular pattern of our geographical expansion in Europe.

Fund NAV

This metric mostly depends the growth rate of new investments and growth rate of electricity prices.

Internal Rate of Return

IRR mostly depends on how well we can buy new power-generating facilities, while the level of annual dividends is a weak parameter.

view Spreadsheets

Sensitivity Analysis

How do acquisition skills, investments inflow, and electricity price affect IRR and NAV 5 years from now?

What if...

Electricity prices Go up? or down?

Of course, the economic competitiveness of renewable power is affected by fossil fuel prices. However, the fund’s performance does not directly depend on electricity prices.

It may seem counterintuitive, but stopping distance does not depend on vehicle mass. A huge dump truck may outperform a compact car in breaking, provided correct tyres, because the greater mass increases inertia and friction to the same degree.

Similarly, the fund’s performance can be hedged against the volatility of electricity prices if we apply the following logic: the lower the prices, the less profit each wind turbine makes, the lower its fair value, the greater the discount the fund can buy it at, the more turbines the fund can own at the given moment. Of course, there will be some discrepancies caused by the structure of demand, availability of long-term power purchase agreements, and some fixed costs but, generally, the prospects of the business mostly depend not of the electricity market but on the relative risks, when compared with other industry sectors with similar IRRs.  

Other advantages, Opportunities, and...

Great Upsides

With no implementation risks and virtually all other risks insured, with attractive and extremely stable returns, Eolian is already a great business. However, there are at least three strong factors that make it even better:

  • As the Fund reaches certain size thresholds, the scaling effects turn on so cheaper operational assets can be added without losing efficiency.
  • We should expect more upside from EU regulators who tend to favour renewables more and more.
  • And, of course, we will utilise the ongoing technological advancements that will further increase efficiency and reduce costs.