Debt Balance and Principal Amount

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Paul Gilman
Debt Balance and Principal Amount

For the residential, commercial, commercial PPA, and utility IPP financing options, SAM displays a value called the "Principal Amount" on the Financing input page, and during simulations, calculates another value called "Debt Balance" in the project cash flow. You might expect the principal amount and year 1 debt balance to be the same, but they are not.

The difference between the two amounts is that the first-year debt balance value in the cash flow accounts for investment-based incentives (IBI) and capacity-based incentives (CBI), while the principal amount on the Financing page does not:

Principal Amount = (Total Installed Cost + Construction Financing Cost) x Debt Fraction

Debt Balance in Year 1 = -(Total Installed Cost + Construction Financing Cost - Total IBI - Total CBI) x Debt Fraction

Where Total Installed Cost is from the System Costs page, and Construction Financing Cost applies only to the utility IPP and commercial PPA financing options.

(Note that the description of debt balance in year one equation in Help is incorrect.)

The reason for the difference is that before running simulations, SAM does not know what the total incentive amounts are, so it cannot use those values to calculate the principal amount shown on the Financing input page.

Best regards,
Paul.

antonop

Hi Paul,

Thanks for this explanation. I would argue that the current behaviour for the debt balance is a bit counter-intuitive and cumbersome though.

Often one knows what one will be able to get for debt on a project, and perhaps has arranged for a certain loan. By having the Principal Amount in the inputs different from the actual debt balance, the user is left having to calculate what the actual debt will be by hand.

Furthermore, in my experience, when we are evaluating an investment, the way we do it is that we consider the debt off the Total Installed Cost, regardless of the incentives, and I see this often from other financiers as well. So if a $1,000,000 project has a 50% state buy-down, and we will put $150,000 debt, we are not considering that "30% debt", but rather 15%.

Lastly, there is another problem. Long-term debt usually comes on board AFTER the project is commissioned, taking out the construction finance. The current cashflow behaviour, as a result of the calculation of debt balance, does not do this.

I will take the example of the above $1,000,000 project with a 50% state buy-down. If I am considering $150,000 debt (in my metric, 15%, in the current behaviour 30%), then I am getting that $150,000 after commissioning. Now if I go to the financing tab, and list 30% as the debt (in order to have $150,000), I note that this $150k has actually come into play already at the beginning, instead of in year 1 along with the ITC.

It would be interesting to see what others would say on how they consider the debt fraction too!

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