Renewable energy FDD hinges on PPAs, subsidy cliffs, degradation curves and project finance covenants - the sector angles that make wind and solar deals unlike any operating business.
The first time you open a renewables data room expecting a normal target, the reflexes you built on operating businesses quietly stop working. There is no sales team to interrogate, no pipeline to age, no customer churn to model. Instead there is a signed contract that fixes revenue for the next two decades, a spreadsheet of expected wind speeds, and a degradation curve that says the asset will earn less every year no matter how well it is run. Renewable energy - solar, wind and increasingly battery storage - has become a deal category with its own grammar, and the analyst who treats it as "just another FDD" will miss the two or three things that actually move the price.
Most renewable assets sell their output under a power purchase agreement (PPA): a long-term contract, often 10 to 20 years or more, at a fixed or formula-linked price, with either a utility or a corporate offtaker. This inverts the usual revenue quality exercise. You are not asking whether customers will come back next year - the contract already answers that. You are asking a narrower, harder set of questions:
This is closer to recurring revenue analysis than to a normal sales review, but with a twist: the "recurring" revenue is only as good as the single counterparty behind it. Where a portfolio sells to several offtakers, treat it like a customer concentration problem - one PPA counterparty representing 60% of contracted cash flow is a concentration risk however investment-grade it looks today.
A PPA is a bond dressed as a business. Diligence it the way you would diligence a twenty-year receivable from a single named payer - because that is exactly what it is.
Assets frequently outlive their PPAs. A solar farm with a 30-year physical life and a 15-year PPA has a merchant tail - years 16 to 30, when output is sold at whatever the wholesale market pays. Buyers routinely underwrite value in that tail, and it is the single most aggressive assumption in most renewables models, because nobody can credibly forecast power prices fifteen years out.
Your job in FDD is not to have a house view on 2041 electricity prices. It is to isolate how much of the equity value depends on the merchant tail versus the contracted period, and to flag it clearly. If 35% of the enterprise value sits in uncontracted years priced off a third-party forecaster's central case, the buyer is buying a power-price bet, not an infrastructure annuity - and they should know which one they are paying for.
A large slice of renewables revenue has historically come from support schemes stacked on top of, or instead of, market revenue: feed-in tariffs (FiTs), contracts for difference (CfDs), renewable obligation certificates (ROCs) and tax credits. These vary enormously by jurisdiction and by the year the asset was commissioned (its "vintage"). Two solar farms built two years apart in the same country can sit under completely different regimes.
The killer question is duration. A subsidy that expires part-way through the buyer's hold period is a cliff-edge, not a footnote - the day the FiT ends, revenue can halve. That belongs in your red flags summary with the remaining years spelled out explicitly, and it needs its own line in the model, not a blended average that quietly smears the drop across time.
Take a 50 MW solar portfolio. The seller presents "€6.0m of stable annual revenue." Decompose it against the contract and subsidy structure, and the stability claim looks rather different.
| Revenue component | Years covered | Annual revenue | Basis of certainty |
|---|---|---|---|
| PPA (contracted) | 1–12 | €3.6m | Fixed price, IG utility offtaker |
| Feed-in tariff | 1–8 | €1.4m | Statutory, expires end year 8 |
| Merchant sales | 13–30 | €1.0m (yr 1 equiv.) | Third-party price forecast |
| Total (year 1) | €6.0m | Mixed |
Now read it as the model should. From year 9, the €1.4m FiT disappears - a 17% revenue cliff with no operational cause. From year 13, the €3.6m contracted block is replaced by merchant pricing. So the "€6.0m stable revenue" is really €3.6m of genuinely contracted cash flow for 12 years, a subsidy layer that dies at year 8, and a long-dated power-price bet after that. Same headline number; a completely different risk profile once decomposed. That decomposition - not a slicker EBITDA bridge - is the value you add on a renewables deal.
Unlike an operating company, a renewable asset is depreciating physical infrastructure with a defined useful life, and it earns less as it ages even if nothing goes wrong. Solar panels degrade at roughly 0.3–0.5% of output per year; the degradation curve compounds across the model and materially lowers late-year generation. Get it wrong and every downstream number is wrong.
Then there is resource risk. Generation depends on actual weather, which varies year to year around a long-term estimate:
A single strong or weak generation year must be read against this distribution, never as a trend. If last year's output was above P50, that is luck, not momentum, and a base case built off it is overstated. Confirm which probability level management has used to underpin revenue - a model quietly built on P50 output and P50 prices simultaneously is stacking two optimistic assumptions and calling the result conservative.
Renewables are usually funded through project finance: debt raised against a specific asset or portfolio, secured on the contracted revenue, with limited or no recourse to the sponsor. This reshapes the net debt analysis in two ways.
First, the covenants are performance-linked, not just leverage ratios. The key metric is the debt service coverage ratio (DSCR) - operating cash flow divided by scheduled debt service - tested regularly, with a cash sweep or dividend lock-up triggered if coverage falls below threshold. A portfolio can be comfortably solvent yet trapped, unable to distribute a cent to equity because a soft generation year pushed DSCR through the lock-up. That is a genuine equity-value issue a generic leverage screen never surfaces.
Second, there are debt-like reserve accounts - a debt service reserve account (DSRA) holding six months of payments, plus decommissioning and maintenance reserves. These are restricted cash: they cannot be swept up as free cash at completion, and they belong in the equity bridge as either restricted or debt-like, not as ordinary balance-sheet cash.
| Item | Cash-like or debt-like? | Why |
|---|---|---|
| Operating current account | Cash-like | Freely available |
| Debt service reserve (DSRA) | Restricted / debt-like | Ring-fenced for lenders |
| Decommissioning reserve | Debt-like | Committed future obligation |
| Deferred/back-ended EPC payment | Debt-like | Financing in disguise |
In an operating business you argue about how much maintenance capex is genuinely required. In renewables the number is largely dictated by the physics of the asset. Inverters on a solar plant typically need replacing once or twice over the asset's life - a lumpy, predictable, six- or seven-figure cost. Wind turbines have major-component schedules for gearboxes and blades. A model showing a smooth, low maintenance-capex line for thirty years is not conservative; it is wrong, and it will overstate distributable cash flow in precisely the years the inverters give out. Tie the capex assumptions back to the O&M contract and the manufacturer's schedule, and treat any gap as a red flag.
Expect the interviewer to test whether you understand that "contracted" does not mean "risk-free." A strong answer names the specific sector mechanics rather than reciting generic FDD steps.
"On a renewables target I'd start by decomposing revenue into its real building blocks rather than accepting a headline figure - how much is genuinely contracted under the PPA, how much is subsidy, and how much is uncontracted merchant sales in the tail. Each has a different risk profile. For the PPA, my focus is counterparty credit over a fifteen- or twenty-year horizon, the price mechanism, and curtailment and termination terms. For subsidies, the single most important number is the remaining duration - a feed-in tariff expiring in year eight is a revenue cliff that has to be modelled as a step-down, not averaged away. On the cost and asset side, I'd stress the degradation curve, check whether generation is underpinned on a P50 or a more conservative P90 resource assumption, and make sure lumpy maintenance capex like inverter replacement is actually in the model. Finally, because these assets are almost always project-financed, I'd look hard at the DSCR covenant and any cash-sweep or lock-up that could trap equity, and I'd reclassify the DSRA and decommissioning reserves as restricted or debt-like in the equity bridge. The overall message to the buyer is how much of the value depends on genuinely contracted cash flow versus a power-price bet in the merchant tail."
That answer works because it shows you can hold the contract, the subsidy, the physics and the financing structure in view at once - which is exactly the judgement renewables FDD rewards.
Renewables FDD rewards a very particular blend: comfort with long-duration contracts, fluency in subsidy and grid regulation, and respect for the physics of a depreciating asset. The analytical centre of gravity moves from "will customers keep buying" to "how certain is each layer of a contracted, subsidised, weather-dependent cash flow, and where does the debt structure let value leak out." Learn to decompose that stack cleanly and you will say something the seller's headline number never will - which is the whole point of the job.
The Transaction Services Interview Programme (€119.99, one-time) includes a dedicated renewables and infrastructure module walking through PPA counterparty risk, subsidy-cliff modelling, P50/P90 resource assumptions and project-finance DSCR covenants, with worked model exercises and interview drills. Enrol today.
Hundreds of candidates prepared their interviews with this programme. Those who landed the role have one thing in common: they worked the cases before walking into the room.
