The value chain

From the plant floor to the credit committee.

The whole map first, then the detail: what engineers on site can do, and how a project gets paid for.

01 The value chain

One journey, four desks, ten documents.

Each box is a document a project needs before it's built; each lane is the desk that produces or reads it. I can produce or check every one of them. Tap a box or a lane to see what that desk needs.

A hand-off
On the balance sheet: no bank, straight to build
Bank route only

Under it all: the infrastructure

01Generate solar PV, wind
02Shift batteries, load shifting
03Deliver the grid, wheeling
04Use motors, compressed air, steam, refrigeration, lighting

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Next02On the plant floor

02 On the plant floor

For the engineers: what's on offer, and where to start.

Most projects start with an engineer who sees waste on the plant, or who is asked about solar. Today's market talks mostly about solar panels and batteries, but the cheapest kWh is still the one you don't use. Here's what's on offer, what each does to your bill, and how a good idea becomes an approved project.

What's on offer today, and what it does to your bill

OptionWhat it doesOn your billWhen it fits

Efficiency
Motors and drives, compressed air, steam, refrigeration, lighting
What it does
Uses less energy for the same output.
On your bill
Fewer kWh, and often a lower peak demand.
When it fits
First, almost always: usually the shortest payback, and it shrinks every project after it.
Power factor and demand
Capacitor banks, the notified maximum demand (NMD), load control
What it does
Stops you paying for power you don't use.
On your bill
Lower kVA demand, reactive and network charges.
When it fits
When the bill's demand or reactive charges are high; often pays back in months.
Solar PV
Rooftop or ground-mounted, owned, leased or under a PPA
What it does
Makes your own energy in daylight.
On your bill
Fewer kWh bought in daylight hours; little effect on the evening peak.
When it fits
Once the load is right-sized, sized to what the site uses in daylight.
Batteries
Peak shaving, load shifting, backup
What it does
Moves energy from cheap hours to expensive ones.
On your bill
Lower peak-hour energy and demand charges, and backup in outages.
When it fits
When peak tariffs, demand charges or outages cost enough to pay for them; check the payback carefully.
Wheeling
Power from a plant elsewhere, through the grid
What it does
Buys energy from a generator off site.
On your bill
A contracted price for part of your energy, plus network charges.
When it fits
Larger sites without the roof or land, where the utility or municipality allows it.

From an idea to an approved project

01
Know your baseline
A year of bills and half-hourly data, with production, so every saving has a yardstick.
02
Find where the energy goes
A walk-through survey and sub-meters, drawn as an energy flow diagram: the gaps show where to look.
03
Fix the load before you build
Efficiency and demand measures first, so any solar or battery is sized for the load that's left.
04
Quantify the saving honestly
From measured inputs where you can, with firm savings kept apart from assumed ones.
05
Put it in rand
Capex, the saving a year, payback and NPV: the numbers finance will ask for.
06
Hand it to finance
A short case with the risks and the decision asked for. From here it follows one of the two routes below.
07
Measure and verify
Once it's built, check the saving against the baseline, so the next project is believed.

Tools for the plant

Next03Two ways to pay

03 Two ways to pay

Not every project needs a bank.

Most efficiency projects are paid from the company's own budget, and the investment committee is the last gate. Large solar and battery projects often sit in their own company, with a bank lending against the project's cash flow. The first three steps are the same either way.

Both routes start here

01
Feasibility study
Measure the site, choose the options, quantify the saving or the yield.
02
Investment committee model
Capex against savings or revenue: NPV, IRR, payback and downside cases.
03
Memo and decision
The investment committee approves, asks for more, or says no.

Company's own money

On the balance sheet

Typical: Energy efficiency: motors and drives, compressed air, steam, refrigeration, lighting, power factor. Often smaller solar too.

04
Capex budget
The project joins the capex (or opex) budget and is bought.
05
Build
Installed and commissioned on site.
06
Measure and verify
The saving is checked against a baseline, so next year's projects are believed.

The numbers: The company pays for everything, so there's no loan in the model: the project IRR and the equity IRR are the same number, and there's no DSCR.

Bank route

Project finance, through an SPV

Typical: Large solar PV, batteries, wind and wheeled power, where the capex is high and the cash flow is long and contracted.

04
SPV and off-take
A project company, and the PPA or wheeling agreement that earns its revenue.
05
Bank-grade model
Debt sized on the cover ratio, sculpted, with reserves, tax and lender cases.
06
Information memorandum
The pack the sponsor shares with several banks, with due diligence.
07
Credit committee and close
Term sheet, credit approval, loan agreement, financial close.
08
Build and report
Construction, then operations reported to the lenders every period.

The numbers: A bank lends to the project company and is repaid from its cash flow only, so the model has to show the debt is covered in a bad year: DSCR, LLCR, reserves and downside cases.

Solar can go either way: a company can pay for a rooftop plant itself, or buy its power from a project company under a PPA. Not sure which route yours is on? Start at the sponsor's desk.

Next04Contact

04 Contact

Questions about a post, a tool or a model?

Happy to explain a method, a number or how to use one of the free tools. Email is best.

Email: thabiso.lungakali@gmail.com
LinkedIn: linkedin.com/in/thabisokali

Based in Johannesburg, South Africa.