Methodology note — “IFI Standard” financial model
Purpose. This note accompanies the standard model of a 50 MW solar photovoltaic project under a 20-year power purchase agreement (PPA). It explains the logic of the model and the ratios that lenders (AFD, AfDB, World Bank, IFC) examine to assess a project’s bankability. The data presented is anonymised.
1. Principle: financing backed by cash flow
In project finance, the lender is not repaid from a company’s balance sheet but from the cash flow the project itself generates. The entire model therefore serves to answer one question: is the cash flow sufficient, period after period, to cover debt service with a margin of safety? The central concept is CFADS (Cash Flow Available for Debt Service) — the cash available to service debt, i.e. EBITDA less taxes paid.
2. Coverage ratios — the heart of the decision
| Ratio | Definition | What it proves to the lender |
|---|---|---|
| DSCR | CFADS ÷ debt service (interest + principal) over the period. A DSCR of 1.20x = 1.2 times the cash required. | Ability to service debt period by period. Below 1.00x, the project no longer repays itself. |
| LLCR | Present value of future CFADS over the loan term ÷ outstanding debt. Discounted at the cost of debt. | Structural soundness of the financing across the whole loan term, smoothing annual swings. |
| DSRA | Dedicated reserve account, sized at ~6 months of future debt service. | Safety cushion that reassures the lender in the event of a temporary cash shortfall. |
On this model, the minimum DSCR sits right at the 1.20x covenant in the first year and then improves — a realistic profile that shows how sensitive the structure is to debt sizing.
3. Workbook structure
- Assumptions — all input parameters centralised (editable blue cells): technical, PPA, costs, 70/30 financing, macro. USD → FCFA conversion built in.
- Operations — generation (with annual degradation), PPA revenue (with indexation), O&M, EBITDA.
- Debt — senior debt schedule (interest, principal, outstanding debt), free of circular references.
- Cashflow & Ratios — cash flow cascade, CFADS, DSCR, LLCR, DSRA target, equity cash flow.
- KPI Dashboard — project NPV and IRR, equity NPV and IRR (distinct), coverage ratios, in USD and FCFA.
- Scenarios & Charts — scenarios (base, downside, upside, offtaker stress) and presentation-ready charts.
4. What this model establishes
Beyond the figures, it demonstrates a method aligned with IFI expectations: traceable assumptions, standard ratios cleanly computed, a distinction between project return and equity return, and consideration of Africa-specific risks (offtaker risk, foreign exchange). This is precisely the dimension that gets a submission accepted — or rejected.
Model presented in anonymised form. A live model is calibrated on the project’s own data and on the requirements of the lender concerned.