Lesson 4 Overview
The next series of lessons, starting with this one, will develop quantitative tools that will allow you to prepare an assessment of the profitability of an energy project, whether that project falls into a conventional energy category (e.g., a natural gas power plant) or a sustainable energy category (e.g., solar hot water heating). While our focus here will be on profitability as a performance metric for project evaluation, it is possible to use other performance metrics (such as life-cycle impacts; embedded energy, carbon equivalent or water). In the investment world, these alternative metrics are used less frequently in project evaluation.
This lesson will build up to the construction of the "pro forma" financial statement for a single energy project. Along the way, we will learn a little about the unique language of accounting, what "depreciation" means to a tax accountant, and how a "10K" is not just a road race.
By the end of this lesson, you should be able to:
- Discuss topics related to basic accounting and corporate finance
- Differentiate debits (assets) from credits (liabilities) in an accounting statement and verify the fundamental accounting identity
- Explain the process of financial depreciation and calculate depreciation using several different methods
- Explain sensitivity analysis and uncertainty
- Build a Revenue Time Series
- Construct an Operating Expense Time Series
Basic accounting concepts and the items on the pro forma income and cash flow statements will be explained using the following resources
- Accounting Basics
- A Primer on Financial Statements
- "Primer on Financial Accounting," by Alison Kirby Jones (especially the second part on income and cash flow)
What is due for Lesson 4?
This lesson will take us one week to complete. Please refer to the Course Calendar in Canvas for specific due dates. Specific directions and grading rubrics for assignment submissions can be found in the Lesson 4 module in Canvas.
- Participate in the Zoom call
- Complete Quiz 3
- Final Project: Revenue Time Series
- Final Project: Op Expense Time Series
If you have any questions, please post them to our Questions? discussion forum (not email). I will not be reviewing these. I encourage you to work as a cohort in that space. If you do require assistance, please reach out to me directly after you have worked with your cohort --- I am always happy to get on a one-on-one call, or even better, with a group of you.