Sensitivity to debt and equity closing costs

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mcs41
Sensitivity to debt and equity closing costs

Hello,
I am using SAM for a project comparing different ownership structure options for PV. I used the parametrics function to study the sensitivity of projects to debt closing costs and equity closing costs. What I have found is that projects that have higher LCOEs tend to be more sensitive to changes in the debt and equity closing costs. This feels counter intuitive to me because it seems like the effect of the costs would be more diluted in more expensive projects. Do you have any insight into why I would be seeing that effect?
Happy holidays and thank you for your help,
Mahayla

Paul Gilman

Dear Mahayla,

The answer to your question may depend on how much debt-related costs are contributing to the LCOE, and what sort of incentives the project uses. Debt affects both the size of the initial investment and the size of tax deductions for interest payments over the debt period, so can have unexpected effects on the cash flow and resulting metrics.

Best regards,
Paul.

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