The Hawaiian Electric Company (HECO)
PV Facility Pro Forma Cash Flow Version 2
User Manual for Developers
HECO has created a simplified pro forma cash flow model to use as part of its evaluation of the technical
and economic viability of each proposed project. The model has sufficient detail for HECO to evaluate
developer's proposals, but is not as detailed as would be required by equity and debt investors. It allows
HECO to assess both the likelihood that the project will be completed and that the system will generate
power at the levels projected by each submitting developer.
The pro forma cash flow model is an Excel spreadsheet with an input section where the developer
provides information about the project, and a results section that shows the resulting internal rate of
return and cash flows. HECO expects each submitting developer to complete the input section of the
model. Developers may review the model results to ensure that the cash flows reasonably represent their
own projections for the project's energy production, revenue, costs, and benefits.
The model assumes a transaction with no leverage or tax equity investment vehicles. HECO expects that
the proposed projects are likely to involve leverage and may involve multiple partners. The simplified
model allows HECO to evaluate the cost, value and risk of the asset without detailed information about
the project's actual financial structure.
As part of the proposal review process, HECO will 1) compare the developer's cost assumptions with U.S.
industry benchmarks for various cost categories of a utility-scale solar PV project, 2) review the cash flow
generated by the model to evaluate the financial feasibility of the proposed project, and 3) use the inputs
provided by the developer with the National Renewable Energy Laboratory's System Advisor Model
(SAM) for further analysis. SAM is an industry-standard renewable energy project model that both
predicts a system's performance and models a project's financial structure. HECO will use SAM to
evaluate the developer's power generation predictions, and for sensitivity studies on cost and economic
parameters of the proposed project.
Because many proposed projects are early in the development cycle, HECO assumes for the purposes of
the cash flow model that the developer does not yet know the details of the project's debt structure. As a
result, the model assumes an unlevered cash flow, so the cash flow does not reflect any debt associated
with the project.
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Instructions for Developers
The pro forma cash flow model is the Excel workbook named PV Facility Pro Forma Cash Flow 2.xlsx
included with the application package. The workbook contains one worksheet named "Costs and Pro
Forma Cash Flow." The worksheet is divided into three sections:
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The Inputs section in green contains the project assumptions describing the system's capacity
and design, installation and operating costs, taxes and incentives, and other financial
assumptions.
The Results section in red shows project cash flows calculated from the inputs. Cash flows
include revenue, expenses, and project costs and benefits.
The SAM Inputs section in orange shows values calculated from the Inputs section that HECO
will use with SAM.
Important Note. The developer should only modify cells with a white background in the green Inputs
section. The developer should not modify values or formulas in the red Results section or in the orange
SAM Inputs section.
To complete the pro forma cash flow model inputs:
1. Open and save a copy of the Excel workbook.
2. Complete the inputs section of the Costs and Pro Forma Cash Flow worksheet.
The Inputs section of the model is in Rows 4-31 of the worksheet with a green background. The
developer is expected to provide information and values in cells with white backgrounds in the input
section.
The inputs are defined in the Input Variable Description section of this document.
3. After completing the inputs, save the workbook to update calculated values,
The cash flow in the red Results section shows the system's annual electricity production, and
projections of the project's expenses, taxes, income, costs, and benefits. It also shows the project's
unlevered internal rate of return calculated from the net project cash flow .
The developer should not change any values or formulas in the project cash flow.
4. After reviewing the inputs and results, save and close the workbook and submit it to HECO with the
other required application materials.
Tips for Working with the Spreadsheet Model
Save a copy of the original workbook before you begin completing the inputs section so that you can go
back to the original version if you make a mistake and need to start over.
When you type percentages that are less than one, be sure to type a zero before the decimal point. For
example, to type the percentage 0.10%, type 0-.-1-Enter. Depending on your Excel settings, if you omit
the zero before the decimal point, Excel may interpret '.1' as 10% instead of 0.1%.
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Values in the Results section and other calculated values may not update as you change values of inputs.
Either save the worksheet or use the Calculate Sheet command to update the cash flow and values in
other cells with formulas.
Refer to the explanations in the Input Variable Descriptions section of this manual for descriptions of the
input variables. You can also explore the workbook to explore how the model uses a given input.
Input Variable Descriptions
Plant Design
The Plant Design inputs are associated with the design and installation of a solar PV system.
Plant Capacity MWp (DC): the system's nameplate peak capacity in DC megawatts, based on the
standard test condition (STC) rating of the PV modules in the array.
Plant Capacity MWe (AC): the "Allowed Capacity" as defined in Section 3.2 of the HECO Model Power
Purchase Agreement For Renewable As-Available Energy (February 2013) document. IT is the
maximum net instantaneous output of the system in AC megawatts.
Production in Yr 1, kWh (AC): the system's projected electricity production in the project's first year of
operation, in AC kilowatt-hours.
Annual Degradation: the projected annual decline in electricity production (AC kilowatt-hours) due to
degradation of system components. For Years 2 and later in the project cash flow, the model
applies the degradation rate to the previous year's annual production to calculate the current
year's production.
Percent Production Curtailed: The projected reduction in electricity production each year due to
forced or scheduled outages.
Plant Life, Years: The number of years in the project cash flow, up to 30 years.
Tracking: Describes whether the PV array uses trackers. Click the cell and choose Fixed for no
tracking, 1-axis for single-axis trackers, and 2-axis for double-axis trackers. (Account for tracking
costs in the Tracking Structures category under EPC.)
PV Module Type: Describes the photovoltaic cell technology of the modules in the array. Click the cell
and choose Crystalline Silicon or Thin Film.
Inverter Type: Describes whether the project will use central inverters or microinverters. Click the cell
and choose Central or Microinverters.
PPA (Power Purchase Agreement) Price
PPA Price, $/kWh: The PPA price sought by the developer.
PPA Term, Years: The length of time for the PPA agreement sought by the developer.
PPA Escalator: An annual percentage escalator in the PPA price sought by the developer.
PPA Escalation Term, Years: The length of time for the PPA escalator sought by the developer
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Engineering, Construction and Procurement (EPC) Costs
EPC costs are those incurred in the engineering, design and construction of the proposed project. Cost
categories include PV modules, inverters, and various “hard” EPC balance-of-system (BOS) costs, which
are further broken down into sub-categories. Provide all EPC costs in dollars per peak DC Watt (at
standard test conditions, STC) of plant capacity.
Module: Cost of photovoltaic modules. A PV module is a number of PV cells connected together,
sealed with an encapsulant, and having a standard size and output power; the smallest building
block of the power-generating part of a solar array.
Inverter: Cost of inverters. An inverter is a device that converts DC electricity into AC electricity (single
or multi-phase), either for standalone systems, not connected to the grid, or for utility gridconnected systems.
Structural BOS
Structural balance-of-system (BOS) costs includes hardware and equipment that support the
modules, and physically attach the support structure to the roof or ground.
Module Racking: Total cost of racks, frames, and other hardware used to support the modules.
Tracking Structures: Total cost of tracking equipment for systems with one- or two-axis tracking.
Foundations: Total cost of concrete, steel and other materials used to support the module
racking or structures.
Electrical BOS
Electrical balance-of-system (EBOS) costs includes equipment that ensure the module’s safe and
code-compliant electrical integration with the inverter system and utility grid, and that and
provides system-performance data. EBOS components include combiner boxes, DC optimizers,
SCADA/data monitoring systems, wire management systems, disconnect switches, AC EBOS
devices and other related devices.
Electrical Equipment: Total cost of all electrical equipment, excluding wiring.
Wiring: Cost of wiring.
Labor
Labor costs are the direct labor costs associated with a solar PV project.
Structural: Labor costs associated with the installation of racking and/or tracking structures.
Electrical: Labor costs associated with the linking of modules to the grid through all EBOS
components, supporting architecture and wiring.
Design/engineering/project management: Labor costs associated with design and engineering,
generating engineering drawings and supporting calculations and ensuring the system meets
code requirements. Project management labor costs are those associated with managing the
project budget, schedule and associated resources.
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Civil: Labor costs associated with the installation of fencing, roads, grading, drainage features,
concrete pads and underground conduit and wire, as required.
Miscellaneous
Miscellaneous costs are costs not included in in the other categories.
Substation construction/upgrades: Costs associated with substation upgrades. These
generally apply to some larger utility-scale projects or projects where interconnection must be
upgraded.
Medium-voltage connection gear: Costs associated with projects connecting directly into
medium-voltage gear. These can include additional electrical protection and isolation
transformers.
Security/fencing: Costs associated with fencing to protect critical equipment such as SCADA
systems and inverters.
Other (please define): If you use the Other EPC cost category, please describe the costs it
represents in Cell C27.
EPC Margin: A profit margin for the EPC contractor.
Soft Costs
Soft costs cover a range of activities required to support the engineering, development and construction
of the solar PV project. Each soft cost input in the pro forma model is expressed as a percentage of the
total installed cost (sum of total EPC cost and all soft costs). Each soft cost is either an “in-basis” or “outof-basis” cost. In-basis costs are those costs that qualify for both the federal Investment Tax Credit (ITC)
and for Modified Accelerated Cost Recovery System (MACRS) depreciation under federal tax rules. Outof-basis costs are any soft costs that do not qualify for the ITC or MACRS depreciation.
Note. For each soft cost, the developer must indicate whether the cost is in-basis or out-of-basis by
choosing an option from the list in Column P. The model automatically calculates total in-basis and out-ofbasis costs and total soft costs in Cells Q23, Q24, and Q25.
Permitting: Costs and fees associated with obtaining permits required for the project.
Site Grading and Preparation: Costs associated with preparing the land for installation of the solar PV
system.
Legal: HECO has broken down legal costs into various components, and each input should be filled in
as a percentage of total costs.
Project Management: Costs including project origination fees, due diligence reports and supporting
documentation fees and direct project-development costs.
Interconnection Costs: HECO Includes such cost items as interconnection upgrades, communication
and monitoring costs and interconnection studies.
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Operating Expenses (OPEX)
Operating expenses are those required to operate plant over its life.
Insurance
Year 1 Amount: The annual insurance payment in Year 1.
Annual Escalation: The annual increase in the insurance payment as a percentage of the
previous year's payment
Land
Acres Leased or Purchase: The project land area in acres.
Initial Lease Rate, $/Acre: If the project involves a land lease, the lease rate in $/acre. If the
project involves a land purchase, enter zero.
Lease Rate Escalation: If the project involves a land lease, the annual increase in the lease rate
as a percentage of the previous year's rate. Use zero if the lease rate is expected to be constant
over the plant life, or if the project does not involve a land lease.
Land Purchase Price, $/Acre: If the project involves a land purchase, the land purchase price in
$/acre. If the project leases land, enter zero.
Electricity Costs (for parasitic loads)
Year 1 Amount: The annual cost of purchasing electricity to meet plant electrical demand for
parasitic in Year 1. This is found in the PV system operation mode during which there is no
usable AC PV electricity production. System inefficiencies, such as parasitic transformer losses,
can result in substantial standby energy use during this mode of operation.
Annual Escalation: The annual increase in the parasitic-load electricity cost as a percentage of
the previous year's payment.
Auditing/Tax Return Fee
Year 1 Amount: The annual cost of auditing and tax preparation services in Year 1.
Annual Escalation: The annual increase in the auditing/tax return cost as a percentage of the
previous year's cost.
On-going Interconnection Operation and Maintenance (O&M) Costs
Percentage of HECO Upgrades, %/month: The model calculates the annual interconnection
O&M cost as a percentage of the HECO Interconnection Upgrade cost (under Soft Costs in Cell
O20) and the monthly percentage that you specify. For example, if the Interconnection Upgrades
cost is $2 million, then the annual HECO Upgrade cost in Year 1 is: $2,000,000 × 12 months ×
0.35%/month = $84,000.
Year 1 Amount (calculated): The annual cost of ongoing interconnection O&M in Year 1.
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Annual Escalation: The annual increase in the ongoing interconnection O&M costs as a
percentage of the previous year's cost.
Operation and Maintenance (O&M) Costs
Year 1 Amount, $/MWp: The annual cost of system O&M in dollars per peak megawatt (DC MW)
of system capacity for Year 1.
Annual Escalation: The annual increase in O&M costs as a percentage of the previous year's
cost.
Year of One-time Cost: The year of a one-time major O&M cost. For example, for an inverter
replacement or upgrade in Year 11, type the value 11. If you specify a year for the one time cost,
the model escalates the Year 1 Amount that you specify to the appropriate year at the escalation
rate you specify for One-time Escalation.
One-time Escalation: If you specify a year for the Year of One-time Cost, the model escalates
the Year 1 O&M amount to the year of one-time cost at the one-time escalation rate. For
example, the One-time Escalation is 15%, and the Year of One-time Cost is 11, the model will
apply an escalation rate of 15% to the O&M cost in Year 10 to calculate the O&M cost in Year 11.
Property Tax
Property Tax Rate: The property tax rate as a percentage of the total installed cost.
Property Tax Annual Decline: The annual decline in property tax to account for depreciation of
assets.
HECO Performance Security
Operating Period Security: The amount of the operating period security as defined in Section
14.4 of the HECO Model Power Purchase Agreement For Renewable As-Available Energy
(February 2013) document.
Form of Operating Period Security: The form of the operating security as defined in Section
14.5 of the HECO Model Power Purchase Agreement For Renewable As-Available Energy
(February 2013) document. Click the cell and choose Cash or Letter of Credit.
Operating Period Security LoC Rate: If the form of the operating performance security is a
Letter of Credit, type the value of the Letter of Credit rate.
HECO Development Period Security: The amount of the development period security as
defined in the Definitions section of the HECO Model Power Purchase Agreement For Renewable
As-Available Energy (February 2013) document.
Form of Development Performance Security: The form of the operating security as defined in
Section 14.5 of the HECO Model Power Purchase Agreement For Renewable As-Available
Energy (February 2013) document. Click the cell and choose Cash or Letter of Credit.
Development Period Security LoC Rate: If the form of the development performance security is
a Letter of Credit, type the value of the Letter of Credit rate.
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Salvage Value, Land Value and Removal Costs
Removal Cost, % of total installed cost: A cost that applies in the final year of the plant life to
account for decommissioning costs.
Salvage Value, % of total installed cost: A benefit that applies in the final year of the plant life to
account for residual value in any plant equipment or materials.
Land Sale
Land Sale Price, $/Acre: The expected sale price of the land in the Year of Sale you specify. If
the project involves a land lease instead of purchase, use zero for the land sale.
Year of Sale: The expected year of land sale. Use zero if the land sale price is zero
Tax, Depreciation, Amortization and Incentives
This category includes federal and state taxes, the federal and state tax credits, accelerated depreciation
and amortization. For this section HECO has provided default values, which the developer may elect to
change.
Federal Income Tax and Incentives
Federal Income Rate: The federal income tax rate applicable to the project.
Federal Investment Tax Credit (ITC) Rate: Use 30% for the Federal ITC Rate.
Federal ITC Amount: The model calculates the ITC amount from the inputs you specify.
State Taxes and Incentives
Hawaii Income Tax Rate: The state income tax rate applicable to the project.
HI Refundable State Tax Credit, % of Total Installed Cost: The HI refundable tax credit is 35%
of total installed cost with a $500,000/MWp cap. The credit is applied toward state income tax in
Year 1, and the remaining cash payment is taxable for both state and federal tax purposes in
Year 2.
HI Refundable Tax Credit Amount: The model calculates the amount of the refund based on
the percentage you specify.
Hawaii General Excise Tax: The HI wholesale GET is currently 0.50% and applies to PPA
revenue.
Depreciation and Amortization
The model applies 5-year MACRS to in-basis costs (total EPC plus in-basis soft costs) and 15year amortization (straight line) to out-of-basis soft costs for both federal and state tax purposes.
Depreciation Basis Reduction, % of Fed. ITC: The cash flow model assumes the project
benefits from MACRS 5-year depreciation. Federal rules require that the depreciation basis be
reduced by 50% of the ITC.
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Depreciation Basis (5-yr MACRS): The model calculates the depreciation basis for reference.
Amortization of Out-of-basis Costs Period, Years: Out-of-basis soft costs are amortized over
the amortization period, which is 15 years by default.
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