PROJECT FINANCE

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 Executive Summary
The report is regarding the profitability and the various aspect in the solar power plant project in
the UK. Financial projects are structured frameworks which create knots between subsequent
factors namely risk, financial, and operational along with the overall structure of the project
maintaining the legal framework. The country identified for the construction of the project is the
"United Kingdom" UK, which can be accounted as the "sixth largest country" in the world
having a total GDP in the last year of $2.83 trillion (2022). The growth of GDP in the UK has
accounted for about 4.1% as the projection of a "high standard of living" and economic
diversification are projected.

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 Table of Contents

1. Introduction..................................................................................................................................3

1.1 Discussion of the country's background................................................................................3

1.2 Identification of challenges faced by “private finance of infrastructure projects”................3

2. Recommendations for the finance structure of the project..........................................................3

3. Evaluation of different sources of finance...................................................................................4

i. Suggested financial structure....................................................................................................5

ii. Consortium process to conduct the finance for the project.....................................................6

4. Requirement for the restructuring of the finance.........................................................................6

i.Different methods of restructuring a project.............................................................................7

5. Detection of the major risk and the process of management.......................................................7

6. Computation of the predicted cash flow for the concession period...........................................10

i. Analysis of the profitability and viability of the project........................................................11

7. Determination of the financial appraisal and the overall value.................................................11

i. Analysis of the financial appraisal methods...........................................................................12

Conclusion.....................................................................................................................................13

References......................................................................................................................................14

Bibliography..................................................................................................................................15

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1. Introduction
1.1 Discussion of the country's background
The country identified for the construction of the project is the "United Kingdom" UK, which
can be accounted as the "sixth largest country" in the world having a total GDP in the last year of
$2.83 trillion (2022). The growth of GDP in the UK has accounted for about 4.1% as the
projection of a "high standard of living" and economic diversification are projected. Moreover, in
recent circumstances, the inflationary rate in the UK flung to become 9.11% in 2022 due to the
sudden increase in "energy and fuel prices (Oecd.org, 2023). The major "sources of
accountability" that have been generated from “civil and military aerospace” had been emerged
from the UK being the world's prominent producing economy. The occurrence of Brexit had
created operational shifts in the country however the pharmaceutical industry in the UK has been
identified as posse subsequent mineral resources.
1.2 Identification of challenges faced by “private finance of infrastructure projects”
The contemporary challenges which had been faced in the UK can be identified as trade
disruptions created due to increased shortage of labour and "hitting supply-side constraints". The
impact of "Covid-19" negatively affected business investment which can be considered the
"increasing cost of capital" along with uncertainties. The private sector generated the
infrastructure financing of this project where these infrastructural projects were complicated to
produce thereby requiring higher legal arrangements to ensure an equal distribution with layoffs.
2. Recommendations for the finance structure of the project
Financial projects are structured frameworks which create knots between subsequent factors
namely risk, financial, and operational along with the overall structure of the project maintaining
the legal framework. As per the suggestions of Albulescu (2021), a financial structure can be
defined as the diverse funding sources which might be required in projects like short and long-
term debts, equity as well as "trade credit bonds". Therefore the "legal project structure" acts as
the basic layer concerning the foundation for supplying funds within projects with limited
resources. Based on the details of the case study the UK government planned in raising the "solar
power plant project" for enhancing the actions of the "private sector to come forth in the
provision of the economy’s rescue". As mentioned by Yang et al. (2020), private investors can
actively participate in the operational aspects concerning any infrastructural project whose
expectation will remain to maximise profits.

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Moreover, expectations rendered for adequate returns for compensating higher risk ranges will
be born thoroughly. The decision was made regarding whether using both "owned and loan"
financing forms had been considered in the prescribed project. $1.2 billion would be made for
equity financing whereas debt financing would be kept under separate slots namely $1 billion at
1st date and then $500 million at the initiation of the 2nd year. Feasibility concerning the
financing options had been formulated in case the government fails its repayment of loans which
are duly repayable assisted by the equity financing process. The options thus formulated
maintain its critical aim of the diversification of a huge amount of risk projected within the
individual project. The loan amount can be repaid from the beginning of the fifth year, as
expected, having the actual loan amount liable to get paid within twenty years.
3. Evaluation of different sources of finance

The different sources of funds used by the company that can help in the starting of a project or a
venture are various methods like retained earnings, equity and debt etc. There is a requirement
for the development of strategies and planning that is crucial for the UK in the growth of the
power plant there has been consideration of several elements for the project. There is the
involvement of the sites that are appropriate to denote the adequate influence of the project on
the closeby environment with the number of aims for renewable energy. This can be inferred that
there is a requirement for an investment on a long-term basis that can be conducted with the help
of equity debt. This is along with the funding from the government that can help in attaining the
solar power point project that will be in the interest of 5% that will run for 20 years. The factor
for the source of funds and the decision to choose the one sources that can fulfil the purpose of
the project as early as possible. The methods that are used for the investment in the project are
detected to be "debt, equity and government grants". This can help in running the maintenance of
the project along with developing strategies that can help mitigate the issues and risks.

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 Figure 1: Contract structure in the project

Requirements of contract in the project

There is a need for a higher amount of capital for the project as it is related to the renewable
infrastructure project in the long run. There is a requirement for massive investment due to the
nature of the project where the optimum financial structure should be 50% equity and 50% debt
which is regarded to be the lower amount of financial option. The private ownership that has
been allocated is utilised by the concession contract that has been decided in the initial stage.
There is the inclusion of the pattern, infrastructure and the other management form and
transferring methods. This can be stated that for there is a requirement for the loan in the sources
of finance in the project. The positive outcome and the financial choices along with the lifespan
of the project have been considered for the overall analysis.

i. Suggested financial structure

The total cost for the capital of the project is identified to be $ 4 billion and the construction of
the solar power plant is stated to be at $2 billion per year and the project will run for 3 years.
There is a requirement for the detection of the appropriate different sources of funds that are
from equity capital that are ordinary shares issued. The bank loans selected are under the debt
capital and grants from the government that can support the long-term solar power plant project.
This can be stated that the structure created has a negative impact due to the risks and stress in
the financial terms of the project. There is the consideration of the "equity finance weightage"

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that is stated to be more than the amount of the debt and there is a requirement to decrease the
amount from the $1.5 million in the additional financial expense in the "debt capital".

ii. Consortium process to conduct the finance for the project

There are several beneficial options for the detection of the steps in accumulating funds that are
provided by the "big energy firms. This can be stated that each of the projects for renewable
energy takes up to 25 years to complete. The detection of the involvement of the government in
the project has been on the basis of the biodiesel that is available on legal terms that have formed
an assurance for the potential shareholders and investors. Venture capital is one of the focus for
the types of sources of finance and can help remove the stress that is on the means of the
financial means. There is also a decrease in the chances of going insolvent with the use of the
interaction of "venture capital" and "government bonds"(Ozbayoglu et al. 2020). Authority and
power to oversee the project that is decreased due to the legal aid for the financial and non-
financial activities that are equivalent during the formation. This can be denoted that the use of
the appropriate capital structure is crucial for decreasing the complications in the distribution of
the money that is used for the project to be completed successfully.
4. Requirement for the restructuring of the finance

The restructuring of the finance is to help with the significant changes that are used on the
financial and operational structure of the company or project. This is conducted under financial
duress and also for the decreasing amount in the financial fundamentals, low performance and
also the huge amount of debt. There has been the detection of financial restructuring that can
help with the obstacle in the finances that have increased. This can be denoted that there is a
requirement of $ 4 million along with the capital distribution of $1,3 billion granted by the
government in the project. This can be seen in the financial leverage that is of $1.2 billion and
the remaining debt value has been at $1.5 million conducted through equity financing. The
current implemented structure has denoted through the sources of funds through the debt capital
that is higher in value due to the equity capital. Additionally, there is also a government grant
that can help in the payment of the invetsment that is inclusive of the interest rates that are higher
in value.

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i.Different methods of restructuring a project

The structure of the business of the solar power plant is constructive in different directions that
are inclusive of the cost, legal, divestment and also repositioning restructure. The project requires
the switching between the use of equity and debt capital which are implemented through several
methods of financing options. The incorporation of the restructuring can help reduce the
financial threats that create stress on sales and equity. The valuation of the return amount is seen
to have been distributed among the equity is 1.5 billion and also the debt value is at $1.2 billion
which can result in notable modifications. The project detected a high level of risks that can be a
negative impact on the investors where strategies are not properly developed. According to the
opinion of Duong et al. (2020), there is no requirement to pay back the amount that was loaned
from the potential stakeholders for the project in equity capital. Addtionally, there is no
requirement to pay back the investors during the period of loss incurred by the project or even
the government that is considered under the equity capital option.

5. Detection of the major risk and the process of management

The risks that are identified in the solar power plant project that affect the long lifespan of the
project are denoted in the different aspects of the project. The risks are denoted to go along
through the entire lifespan of the project concerning renewable energy. There is an increase in
the expenses and the plans that are conducted in the initial stage of the project. The higher
demand and the long life span of the project for the solar power plant reduce financial freedom
which is a problem in the project. There are certain general risks that are ascertained in the solar
power plant that is analysed.

Construction risk -There is the ascertainment of the risks that are seen in the damage to the
property. There are also errors that are seen in the development of the projects for the solar
power plant. There are many damages and accidents that can detain the overall process of the
project due to the high amount of exposure that is seen on the construction site. The risks that are
seen due to the project management with the other facilities also decrease the construction
regulatory standard. There are also costs that are denoted to be more than the estimated costs that
can delay the completion of the project and also the maintenance of the level of quantity (ppp-

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risk.gihub.org, 2023). There are also restrictions that are seen in restarting the project and the
completion that are created on the basis of the terms.

In recent times there are inadequacy in the number of labour that is required for the project that
has been identified in the Brexit on the new renewable energy plan for the project that is
ascerained in the UK. The decrease in the employment of the labours that are low in comparison
to the increased demand in the market and also the shipping activities. There have also been risks
and issues in the supply of materials that are due to the Ukraine war which has reduced the
quality. The identified risks are seen to have caused distortion in the growth of the project and
also the budget limit has also affected the working process of the project.

Operational risk -This can be seen that this is based on the technical risks that are denoted on
the machinery breakdown and the downtime required for the guarantee period. This can cause
interruptions in the losses that are due to the inside procedure that has incurred losses. This can
be denoted that the modifications can be seen in the framework, events and policies that have
caused distortion in the growth of the operational activities. The risks that are seen in the
unorganized closure of the plant that is due to the unavailability of the materials, damages to the
equipment or machinery and also the failures in the elements (renewableenergyworld.com,
2023). The costs that are associated with the activities required for the solar power plant are
calculated at $200 million for each year and there is also an estimation of a 10% hike for each
year.

There is also technological advancement that has been denoted that has made changes that have
been made by the Government. This can be stated on the basis of the technical rules and also the
requirements that are required to be made in the solar power plant. The collection of the
resources is restricted due to the limitation in the money that is on the project which causes
heavy influence over the adoption of the technological creativity that is created. There has been
no adherence and following of the legal regulations that have not been considered to be due to
the operational risks. There is also the impact of the pandemic that has impacted the process of
the modifications in the supply chain management which has caused operational risks. This can
be denoted to have an influence over the operational function of the solar power plant project in
the UK.

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Financial risk- There is a restriction in the full operation of the project due to the limitation in
the project that has caused a delay in the function in productivity. Risks are also seen in the
inadequacy and limitation of access to the investment and capital that are required for the
operational activities of the project. There are also project financing and risks that can be seen in
the interest rates that are denoted in the loan seen in the interest (linkedin.com, 2023). The risks
are estimated on the basis of the difference that can be seen in the returns that are seen in the
predicted investment. High risks are identified in the solar power plant project that is for both the
investors and shareholders that contribute to the positive return rate and also the modifications in
the financial elements.

The requirements that are on the expenditures are based on the financial risks along with the
outbreak of the pandemic that has contributed to the financial loss. There is also the inclusion of
the increase in the inflation rate that has affected the overall function of the financial risks that
have gripped the allocation of the fund in the project. The current rate of inflation has increased
to 11.1% which has affected the increase in employee costs, equipment costs and also the energy
costs that are required in the solar power plant (commonslibrary.parliament.uk, 2023). The
impact of the GDP rate has also created a limitation in the budget that has resulted in revenue
reduction and also measurement in emergency cases. High risks in the financial aspect as caused
barriers to the modifications in the resources that are required for the function of the solar power
plant project.

Political risk- The primary loss that is ascertained in the positive outcome of the project is due
to the changing policies in the political risks. There is a requirement for the project to be
accepted by the government that is for the purpose to obtain a Government grant to support the
project in the long run. As a result of this, the termination of the demand might occur, which is a
place of stability and sustainability of the project. The barriers are the alterations in the policies
that are stated to be risks in the government that can denote the low value of money and other
projects(assets.publishing.service.gov.uk, 2023). The risks that are seen in for the payment of the
insurance claim that is on the basis of "Multilateral Investment Guarantee Agency". There has
been increasing in the interest rate by 4.25% which has impacted the "standard of living" along
with the expenses that are identified in the growth of the project.

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Analysis of the mitigation of the risks through several procedures

There are the required procedures for each of the risks that can help in the mitigation of the risks.

Construction risks can be managed and mitigated through the detection of the main issues that
are seen in the current construction site. This can increase the number of employees and
managers that can go under the training period for the skills that are required to compensate for
and recover the loss on the site (Fawzy et al. 2020). There is also stakeholder mapping that can
help with the control and measure the influence of the internal and external factors for the
monitoring of the elements.

Operational risks can be mitigated through the reduction in time on the basis of the operation
that is on the rules and regulations as well as the framework. Moreover, there is also the
detection of the efficiency of the management that is regulated for adequate mitigation
(Chowdhury et al. 2019). There is also an analysis of the fast modification that is on
technological innovation that has decreased due to the requirement of need for effective
communication and information required.

Financial Risks is the analysis of the effectiveness of each of the sources of the funds that are
used for the invetsment in the solar power plant. There is a comparison between the actual
budget with the estimated budget that can help retrieve the adequate amount that is required for
the project to operate. According to the view of Mirzania et al. (2019), there should be
accountability on the basis of the financial risk-benefit and replicability with the adoption of a
new policy that can evaluate the financial risks. There is also the cash inflow and outflow that are
considered that can be conducted by employing financial analysts for the project.

Political risks are the impact of the rules and regulations that are used for the monitoring of the
supply of resources. There is also the allocation and the technology that is seen in the UK
economy as there are measures taken on the basis of political risks.

6. Computation of the predicted cash flow for the concession period

The cash flow statement is created on the basis of the expenses that are related to the project that
has been conducted by the project manager. The amount for investment in the project is $4000

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million whereas the sales revenue has $400 million generated in the project in the process of 3
years. This can be stated that the generated revenue is higher by 10% there is also the 10%
allocated in the inflation that has affected the project. The estimated expenses for the project are
denoted at $200 million that is after 3 years that s increased to $220 million in the preceding year
which is a 10% increase.

i. Analysis of the profitability and viability of the project

The cash flow statement for the compromising period that has been estimated and the
measurement of the required amount on the cash outflow and inflow. The capital cost is stated to
be $4 billion and the overall amount for the three years where the cash outflow has been
calculated at $1 billion for the three years of the accounting period. The calculated value of the
Payback period is 14.5 which states the number of years to get back the return on the initial
investment. On the other hand, the IRR value is calculated at 8.97% which indicates the return
rate on the invested amount in the project. The IRR value denotes the beneficial return rate that
has been computed at the end of the investment period.

This can be stated that there is a negative value in the cash flow for $2 billion, $1 billion and 41
billion for the number of years for the 1st, 2nd and 3rd years. The net cash flow value has been
calculated at $200 million which has been subtracted from the operating expenses for 4th year in
the cumulated cash flow. There is also the beneficial value stated through the 14.5 years in the
payback period and also the interest rate of 5% is paid on the bank loan where the borrowed
value is $1.5 billion.

7. Determination of the financial appraisal and the overall value

The financial appraisal methods are used for the overall valuation of the profitability of the solar
power plant project that is on the $4 billion investment value. There are three sources of funding
that are identified to be used "debt capital", "equity capital" and "government" for the sustenance
of the project. The completion of the project after 3 years where the revenue is $400 million that
has been computed after the 4th year in the project. Furthermore, the operating expenses are
stated at $200 million which is seen in the 4th year of the operation.

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 Figure 2: Computation of IRR and Payback Period for the project

The above figure consists of the computation of the profitability of the solar power plant that has
been based on the initial investment. This can be stated that the $200 million is the net cash flow
where the payback period is stated to be 12 years and 6 months taken to return the benefits on the
initial investment. There is also the calculated IRR value is 8.92% which is indicated to be a
positive return on the value of the investment. This can be stated that both financial appraisal
methods indicate positive value where the investment is deemed to be beneficial.

i. Analysis of the financial appraisal methods

The financial appraisal methods are comprised of two methods that are used for this project
which are the "Payback period" and "Internal rate of return" which are beneficial methods. This
method is used for the analysis by the investors that can contribute to the decision-making

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process. The methods also consider the "time value of money" which is deemed to be beneficial
for investment purposes (Zhang et al. 2021). The determination of the number of years that are
taken to return on the initial investment that is aligned with the real investment value. This
method is deemed to be beneficial for the easy and quick method to denote the comparison
between the several opportunities in the investment. There is also the detection of the cash flow
amount that is necessary for the project to be invested for the beneficial factors.

The assessment is conducted o the basis of the current and future value of the investment. The
value of the IRR is used to denote the future growth of the project and the reliability of the power
plants on the restriction in the capital structure along with the risks (Zativita et al. 2019). This is
used for the detection of the risks and the credibility of the investment in the project that has
been denoted in the long run.

This is used for the detection of the economic factors that are also used for the decision-making
policies that are on the basis of the techniques. There is a high amount that has been denoted in
the efficiency in the use of the expenses.

Conclusion
The report can be concluded that there are sufficient and reliable sources of funds that are
necessary for the financial expansion of the project. The Project is based in the UK where there
are several risks that have been identified and also are required to mitigate the risks. The report
consists of the development of the cumulative cash flow along with the Payback period and IRR
to denote the beneficial factors for the project. There are profitability factors that have been
detected in the business that can help in the rational reasoning for the project where the
investment is required to be invested to help sustain in the long run.

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