The challenge
Viva Wind is startup wind operator. They create value by putting turbines on small parcels of land—smaller than most operators can profitably operate. Due to air flow considerations, companies need large plots of land (50 acres per turbine!) to operate efficiently. Further, high transaction costs compel most operators to create farms with hundreds of megawatts of capacity. If Viva can operate efficiently on smaller plots they can grab prime real estate fast. The challenge was to calculate how small these plots can be so that Viva Wind remains profitable.
The model
Factors:
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Fixed transaction costs for contracting and financing
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Fixed connection costs relevant to a sample plot of land and its proximity to the grid
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Variable turbine costs ($3.1M/turbine)
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Financing terms
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Power generation statistics
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Power selling agreement terms
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Cost of land (and buy vs. lease analysis)
The results
But how low can they go? We modeled the unit economics and showed that they could cut 3 turbines off their expected size. As a result, over one hundred thousand additional acres became open to development, thus increasing Viva’s market size by over $1B. Viva is current expected to announce their first public private partnership deal.
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About the author: David Brode is the Principal of the Brode Group. An economist by training, Brode has over two decades of experience helping ventures develop and communicate business strategies through financial models so they can launch, grow, and sell businesses. Brode’s financial forecasting models have been through due diligence dozens of times and have been successful in securing over $11 billion in financing for projects worldwide. Brode has a B.A. degree in Economics from the University of Michigan.
