Case Study
Financial Modelling and Diversification Strategy
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Context
ReNew Power is an Independent Power Producer having the energy portfolio of Wind & Solar (Solar Ground
Mounted & Solar Rooftop).
Since it was established in 2011, ReNew Power has grown to be one of India’s largest renewable energy
companies.
Over the last 7 years, ReNew Power has rapidly grown to a portfolio of more than 5.8 GW of renewable energy
projects, both operational and under-construction.
This case study will include providing a framework to assess how the company should invest its
free-cash flows, and existing cash, going into the future.
Please share the answers in a word document (adhering to the word limit). Also share all the
supporting documents in a single zip file.
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Stem 1 – Building out a project model
Please answer each question (maximum 200 words)
Question 1: The first part of the assignment is to create a sufficiently detailed project and financial model of a
solar asset – please note that while the assumptions below are not reflective of real numbers, they will provide
you with a very good understanding. [Please use the assumptions from Annexure 1]
Question 2: What is the up-front equity required for this project?
Question 3: What is the post-tax project IRR for this solar plant? How will it change if we add debt to it and
why?
Question 4: What is the difference between MW and MWh and, separately, between KW and kWh?
Question 5: What are the challenges involved in the operations and maintenance of a solar plant?
Question 6: Provide a table that shows the sensitivity of inputs on project returns – i.e. if each of the inputs
was to change by +/- 10%, how would the changes impact the IRR? Then qualitatively describe which is the
most sensitive input and how the risk from it deviating from the assumptions can be managed.
Question 7: How does the IRR change when, all else including date of commissioning being equal, portfolio is
increased 10-times to 1,000 MW? Why is this the case?
Question 8: In the current market in India, who will be able to buy the power from this 100 MW project? As in
which entity, whether a business, central government, or state government, would be the most likely
purchaser of this power?
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Stem 2 - Thinking about diversification
Please answer the below question in maximum 200 words
Suggest how the company should allocate capital between its existing business (i.e. reinvesting the cash in
developing more renewables projects) and making forays into newer areas.
Question 1: What is the state of the renewables industry today? Your answer should cover:
Overall industry landscape
Current market
Competition in the marketplace
Margins to be made in the current market environment
Opportunity areas – Government’s ambitious future targets for renewables
Expected market size in the next 3-4 years
Areas of concerns – land risks, risks with government clients, etc.
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Stem 2 Cont’d
Please answer the below question in maximum 500 words
Question 2: Consider that you are in senior management and the CEO asks you for your advice. “Should we
continue to invest in more renewable projects in India or look at alternative uses of our equity capital”, he asks.
What advice are you going to give to him?
Compare your answers from Stem 1 above to the current state of the renewables market as answered in Stem
2, Question 1 – what are prevailing current tariffs, current capital costs, and therefore, current project IRRs.
What is the fundamental logic for diversification, if at all you think that is the path to go on?
Draw out a map of at least 5 diversification areas you think make sense for ReNew and write a sentence on
each of them of why the CEO should consider those areas
What is the framework you suggest for prioritizing the diversification areas you mentioned above? You can use
any framework of your choice. Prioritize your 5 diversification areas per this framework.
• Also note what other risks we may have to consider in these new markets
What are the pros and cons of each of the strategies, what valuation methodology have you applied and why
to determine the value creation potential for each of these strategies, and what is your final recommendation
to the CEO on the option to pursue?
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Annexure 1
Particulars Assumption
Project size 100 MW
Capital costs 5 crores / MW
For any other assumptions
Land requirement 10 acres / MW
you use, please state the
Cost of land 1 lakh / acre
rationale for using those
Equipment lifetime 25 years
assumptions
System efficiency 15% plant load factor
Yield of units in MWh MW x No of hours in a year x System Efficiency
Yearly degradation 1% in yield
Tariff per unit kWh Rs 5
Tariff Constant through 25 years
Maintenance costs 1 lakh / MW
Maintenance escalation 2% per year
Insurance costs 1 lakh / MW
Insurance escalation 1% per year
Overheads 1% of capital costs per year
Interest rate 10%
Depreciation rate 10% straight-line
Tax rate 20%
Cost of equity 20%
Assume no debt in the project, only equity
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Thank You
