Part I: The Correct Metric for the Correct Time
Navigating Procurement: A Stage-wise Financial Modelling Approach
Selecting the right supplier for renewable energy projects is one of many critical decisions a developer will make. While OEMs compete fiercely on price and margins, developers who focus solely on Capex, risk overlooking crucial factors like technology, yield, timing, and financial exposure. In a landscape shaped by uncertainty, whether around permitting, grid connection, or offtake agreements, financial modelling becomes more than a tool. It becomes a strategic compass.
This article series explores how financial modelling can support developers in making confident, value-driven decisions at every stage of procurement. From early-stage benchmarking to late-stage investment analysis, the right model at the right time can reveal the true economic impact of supplier choices. But modelling is not just about the output of numbers from a preferred metric, it’s about navigating complexity. Each part of this series addresses a different dimension of that challenge:
- Part I: Focuses on choosing the right financial metric; CAPEX, LCOE, or IRR based on project maturity and data availability.
- Part II: Explores the concept of time value of money and how payment schedules, bond structures, and cancellation risks shape supplier attractiveness.
- Part III: We explore how contract indexation modelling can be used not just to compare offers, but to steer procurement strategy, assess contract risk and prices over time.
Throughout the series, we explore how financial modelling can help developers navigate complexity, informing decisions on cash commitment timing, bond exposure, and long-term risk, by translating commercial terms into quantifiable outcomes.
By moving beyond price alone, developers can better align their investments with project performance, market dynamics, and risk tolerance, ultimately securing more reliable returns over the project’s lifetime. And just as importantly, robust modelling helps avoid two common pitfalls: prematurely dismissing a supplier based on overly simplistic analysis or falling into the sunk cost fallacy when more advanced modelling reveals a mismatch between expectations and reality.
Part I of III: Using the correct metric
As renewable energy projects progress from concept to execution, the complexity of decisions, and the data available to support them grow exponentially. Financial modelling must evolve in tandem. The challenge is not just to model, but to model appropriately: using the right metric at the right time.
This is a common challenge and discussion point across the industry. In many procurement processes, early-stage metrics like CAPEX naturally take precedence, especially when data is limited. As projects evolve and richer inputs become available, the modelling approach should adapt accordingly. Conversely, some projects attempt to apply complex IRR modelling too early, before the necessary inputs are in place, leading to conclusions that may not hold up under scrutiny, adding unwanted noise to the conclusions. The key is not to prescribe a one-size-fits-all approach, but to ensure that the modelling strategy evolves in step with the project’s maturity, data availability, and spend profile, avoiding unnecessary complexity when investment remains limited.
To help guide this process, Figure 1 offers an illustrative view of how financial metrics could be layered across the procurement timeline for a generic wind project. It’s not just a chart; it’s a decision-making framework.
Stage 1 – Before accurate measurements
In the earliest phase of procurement, developers are often working with limited project-specific data. An indicative turbine supply agreement (TSA) may be the only concrete input, and site layouts or energy yield assessments (EYAs) are either unavailable or indicative. At this stage, Capex is typically the most accessible metric, and while it doesn’t tell the full story, it plays a key role in establishing a baseline.
Capex comparisons are straightforward and relatively stable. They allow developers to quickly assess the upfront cost of different OEMs and identify outliers. But Capex is only part of the picture, it doesn’t reflect turbine performance, energy output, or long-term value creation. It’s a useful starting point, not a final verdict.
Developers frequently approach us with a single offer or a shortlist of bids, asking: Is this competitive? Is this aligned with the market? Drawing on our extensive experience of historical pricing, geographical trends, and technical specifications, we help sanity-check offers and provide context. Whether it’s identifying a bid as unusually high, validating a competitive price, or flagging technical mismatches, our benchmarking adds clarity to early-stage decisions.
As illustrated in Figure 1, Capex sits at the lower end of both project maturity and modelling complexity. It’s the right tool for this stage, but only when paired with market insight and experience. While it’s too early to draw firm conclusions about supplier preference or project viability, Capex analysis, when done right, can help developers make informed, confident decisions even in data-scarce environments.
Stage 2 – Measurements, but no offtake
As the project progresses and more data becomes available, particularly around turbine models, site layout, and expected energy output, the decision-making landscape begins to shift. At this stage, developers typically have access to a turbine supply agreement (TSA) with a payment schedule, and a tailored energy yield assessment (EYA) based on turbine specifics and site conditions. However, offtake agreements and financing structures may still be undefined.
If a decision must be made at this point, Levelized Cost of Energy (LCOE) becomes the most insightful and appropriate metric to weigh heavily.
LCOE blends cost and performance, offering a more holistic view of value than Capex. It accounts for the total cost of developing, constructing, and maintaining the asset, divided by the energy it produces over its lifetime. Crucially, it introduces the time value of money, helping developers understand how much they need to sell the energy for to recover their investment.
This is where the analysis begins to reflect the actual performance of the technology. A turbine that appears expensive on a Capex basis may outperform others in terms of yield, making it more attractive in the long run. Conversely, a low-Capex option may fall short once energy output is factored in. These shifts in supplier rankings are common once LCOE is introduced.
At Blue Power Partners, we support developers in this phase by combining our valuation expertise with in-house wind engineering capabilities. Our team produces detailed EYAs tailored to the specific turbine and site layout, ensuring that LCOE calculations are grounded in realistic performance expectations. We also help interpret the results, highlighting how different OEMs stack up not just on cost, but on value creation.
As shown in Figure 1, LCOE sits in the middle of the modelling spectrum, more complex than Capex, but still manageable without full commercial inputs. It’s the right tool for the right time: when yield data is available, but offtake assumptions are still in development.
Stage 3 – Offtake dialogue / market sounding
As the project enters a more advanced phase, the financial landscape becomes richer and more nuanced. Developers should now have access to a turbine supply agreement (TSA) with an indicative payment schedule, a detailed energy yield assessment (EYA), and critically early-stage offtake assumptions and indicative capital structures. The project is no longer just about cost and performance; it’s about revenue, risk, and return.
If a decision must be made at this stage, Project Internal Rate of Return (IRR) is the most comprehensive and appropriate metric to weigh heavily.
Project IRR incorporates both revenues and costs over time, offering a dynamic view of financial viability. Unlike LCOE, which focuses on cost per unit of energy, IRR reflects the actual return generated by the project, accounting for market dynamics, inflation, and the timing of cash flows. It allows developers to evaluate how the project performs under different pricing scenarios and contractual structures.
This is the stage where the business case begins to take shape. Developers can start to model how the project will behave financially, not just technically. They can assess the impact of offtake agreements, payment schedules, and financing terms on overall profitability. IRR modelling also helps identify sensitivities, where small changes in assumptions (like energy prices or inflation) could have outsized effects on returns.
At Blue Power Partners, we support this phase by building tailored financial models that reflect the specific realities of each project. We help developers understand not just the headline return, but the underlying drivers, highlighting where risks lie and where value can be unlocked. Our models are designed to be flexible, allowing for scenario testing and stress analysis to support negotiation and investment decisions.
As shown in Figure 1, Project IRR sits at the higher end of the modelling spectrum. It requires more inputs and more complexity, but it also delivers deeper insight. It’s the right tool when the project has moved beyond performance and into commercial structuring.
Stage 4 – Late-stage Assumption
At the final stage of procurement and project development, the decision-making environment is fully formed. Developers now have access to a negotiated turbine supply agreement (TSA) with a payment schedule, a detailed energy yield assessment (EYA) tailored to turbine specifics and site layout, firm offtake agreements, and a defined capital structure with committed financing.
If a decision must be made at this stage, when the stakes are highest and the business case is ready for investment, Equity Internal Rate of Return (Equity IRR) is the most relevant and decisive metric to weigh.
Equity IRR reflects the return to equity investors, incorporating all project-level cash flows, financing costs, tax implications, and capital structure dynamics. It goes beyond project viability and into investor value creation. This metric answers the question: “What is the actual return on the capital we’re putting at risk?”
Unlike Project IRR, which evaluates the overall financial health of the project, Equity IRR zooms in on the investor’s perspective. It accounts for debt servicing, equity injections, and the timing of distributions, making it the most precise tool for assessing whether the project meets return thresholds and risk appetite. Procurement decisions can influence Equity IRR by shaping the project’s risk profile and cash flow stability, factors that directly affect debt sizing. For example, offers with stronger performance guarantees or a tighter P90/P50 spread may support higher leverage, reduce the equity requirement and improve returns.
In this phase, detailed equity models play a central role in capturing the full commercial reality of project. By incorporating assumptions around financing terms, tax treatments, and contractual structures, these models help ensure that key stakeholders, developers, investors, and lenders have a shared, data-driven foundation for decision-making. When calibrated correctly, they support investment committees, lender negotiations, and final go/no-go decisions with clarity and confidence.
As illustrated in Figure 1, Equity IRR represents the most advanced stage of both project maturity and modelling complexity. It draws on a wide range of inputs and requires careful calibration, but it offers the clearest view of investor value. Positioned at the end of the modelling journey, it often serves as the final checkpoint in determining whether a project proceeds to execution.
Where Blue Power Partners come in
Drawing on experience across the full project lifecycle, from origination and development to construction and operation, Blue Power Partners supports clients with financial modelling that reflects the realities of renewable energy projects. This includes early-stage Capex benchmarking across geographies and technologies, as well as advanced LCOE and equity return modelling within complex project finance structures.
Our valuation specialists work closely with developers throughout the procurement process, helping to structure and interpret commercial data in a way that supports informed, value-driven decisions. Whether comparing multiple OEMs or validating a single offer, our role is to provide clarity through modelling, ensuring that decisions are grounded in robust analysis and aligned with long-term project goals.
Interested in learning more? We’re one mail away.
Oliver Lønstrup Thorsen
Lead – Valuation
olt@bluepp.dk
Lasse Jonassen Sundtoft
Valuation Associate
ljs@bluepp.dk
