Capital Investment Decision

Case Analysis

EDP Renewables North America: Tax

Equity Financing and Asset Rotation
 EDP Renewables- North America: Tax Equity
Financing and Asset Rotation

SUBMITTED TO:
PROFESSOR Sadiqul Islam, Ph.D.

SUBMITTED BY:
GROUP:
SECTION: A

DEPARTMENT OF FINANCE, UNIVERSITY OF DHAKA

Date of submission: 12 December, 2016

Contents
Introduction
Analysis of Economy
Analysis of Industry
PESTAL Analysis
Porter's Five Forces Analysis:
Analysis of the Company
Ratio Analysis
SWOT Analysis
Country Risk Analysis
Problem Statement
Alternative Courses of Action
Analysis of Each Alternatives
(Comparison)
Real Option
Findings & Recommendations
Introduction:

This is basically a part of a solution of investment decision

making for EDP Renewables North America, which is a
subsidiary company of EDP Renovaveis, the third-largest wind
energy producer after Iberdrola Renovables and NextEra
Energy Resources. The company had reached almost 10 GW of
renewable energy capacity and was operating 10 countries in
Europe and the Americas. The case is about a 200 MW wind
farm investment located in Jupiter, Florida of USA, which is
under construction consisted of 90 turbines, and its start of
operations was scheduled to occur at the end of 2015. This
would be the part of continuous growth of EDPR-NA, which had
already reached the landmark of 4.2 GW of installed capacity of
electricity from wind power across 12 U.S. states and one
Canadian province.
Analysis of Economy

Despite facing challenges at the domestic level along with a

rapidly transforming global landscape, the U.S. economy is
still the largest and most important in the world. The U.S.
economy represents about 20% of total global output, and is
still larger than that of China. Moreover, according to the IMF,
the U.S. has the sixth highest per capita GDP (PPP). The U.S.
economy features a highly-developed and technologically-
advanced services sector, which accounts for about 80% of its
output. The U.S. economy is dominated by services-oriented
companies in areas such as technology, financial services,
healthcare and retail. Large U.S. corporations also play a major
role on the global stage, with more than a fifth of companies
on the Fortune Global 500 coming from the United States.
Analysis of Industry

Most of the wind farms in the world were located in Europe

and in the United States, where primarily federal programs
supported wind power development as an alternative energy
source to reduce dependency on fossil fuels and lower
greenhouse gas emissions. Once U.S. electricity had
traditionally been provided by coal, natural gas, and nuclear
power plants and, in the first half of 2015, these energy
sources combined to generate more than 85% of all
electrical output. During the same period, renewable
sources, such as wind and solar, generated approximately
6.5% of total electricity production.5 Albeit still relatively
small, 6.5% of total generation of the United States was
already remarkable for such a new industry; moreover, the
U.S. electrical mix was expected to change considerably in
the coming years.
PESTLE Analysis
Political
In the case of political analysis of the industry, we got to analyze USA politics which has
a strong democratic setup and effective rule of law, with the recent elections that are
considered fair and transparent. The US Govt enjoys massive political and economic
influence over both national and global policymaking, and is recognized as the leading
superpower in the world.

Economic
The financial crisis of 2007 has been of major influence in nearly all industries. Still
today many countries are suffering due to the damages the financial crisis caused
which resulted in decreased expectations for the following years. However, the situation
in the U.S. was not as traumatic and the installed capacity was above manufacturers
and economists expectations.

Social
The social factors of a country are one of the factors showing the biggest variation of
importance in different industries. The wind industry, however, is said to be remarkable
influenced by these conditions and that attract great public support due to its
environmental-friendly process and reasonably cheaper operating cost.
Technological
The technological level of a turbine is crucial for manufacturers success in wind
power energy production. It is not for nothing that R&D is one of the biggest costs that
manufacturers are facing. Besides a companys internal level of technology, the
countrys specific energy infrastructure is of tremendous importance.

Legal
These factors have both external and internal sides. There are certain laws that
affect the business environment in a certain country while there are certain
policies that companies maintain for themselves. Approximately 150
landowners had written long-term leases to The Rising Star and the Waterfall
wind farm for the land where turbines, access roads, and transmission corridors
were to be installed.

Environmental
The Rising Star and the Waterfall wind farm planned to prevent more than
335,000 tons of carbon emissions. These two new wind projects will nearly
double the amount of clean, renewable generation in our energy portfolio. This
addition will be another step in diversifying our generation mix. The companies
was able not only to reduce the carbon footprint of its operations but also
green the communities it operated in.
Country Risk Analysis
The country risk assessment has been made for USA by using the International Country Risk Guide
(ICRG) Methodology for AES Tiete: EDPR project evaluation in USA. The Composite political, financial
& economic risk ratings for USA are 79.25 in the year 2015 which fall in Low risk category. All the
variables & sub components are ranked based on assumption as those data were unavailable.
Political Risk:
USA is a politically stable country compared to the history says so. Because it is a democratic nation
with some political party divisions. The fear is that the energy sector is government regulated so;
government has access to anything anytime it wants.
USAs Score: 78 out of 100.
Economic Risk:
Economically USA is very strong as we see it has a very good trend of GDP growth rate with much
export than import and a huge foreign currency reserve.
USAs Score: 41.5 out of 50
Financial Risk:
The overall aim of the Financial Risk Rating is to provide a means of assessing a countrys ability to
pay its way. In essence, this requires a system of measuring a countrys ability to finance its official,
commercial, and trade debt obligations.
USAs Score: 39 out of 50.
The Composite Risk Rating:
CPFER (country X) = 0.5 (PR + FR + ER) = 0.5 (78 + 41.5 + 39) = 79.25
Year 2014 2015 Net Profit Margin 0.196953 0.21491
Net Income 177887 245491
Return On Assets 0.012425 0.0156
Net Sales 903196 1142295
Return On Equity 0.030768 0.041114
Total Assets 14316319 15736157 Debt Ratio 0.557794 0.565707
Com. Equity 5781646 5971000
Debt To Equity 1.381191 1.490881
Total Liab. 7985560 8902048
Total Equity 6360759 6834109 Equity Ratio 0.444301 0.434293
Current Asset 971532 1021888 Current Ratio 0.808224 0.682348
Current Liab. 1202058 1497606
Quick Ratio 0.790488 0.667149
Inventories 21320 22762
Cash 368623 436732 Cash Ratio 3.935055 3.203962
Receiv. Turnover 6.185257 5.15611
Marketable Sec 4361541 4361541
Days Sales Outst. 58.20291 69.82007
Net Sales 903196 1142295
Total Receiv. 146024 221542 Invent. Turnover 33.25094 37.40695
COGS 708910 851457 Total Asset Turn. 0.063089 0.07259

Profitability ratios compare income statement accounts and categories to show a

company's ability to generate profits from its operations. EDPRs overall position is
better in 2015 than previous year. But the Liquidity Ratios fall down this year which
means it has more debt in 2015 resulting an upward trend in Leverage Ratios.