Financial modelling with regulatory risk built in

Where models go wrong

• Regulated inputs are typed in once and never checked again. A charge revised by order six months later is still in the model.
• Drafts are mixed with notified rules. A proposal is modelled as if it were law, or a notified change is left out.
• Contract terms are ignored. The model shows a cost change but not who bears it under the contract.
• No one can explain the numbers. A board or lender asks where an input came from, and the answer is not on file.

Why regulation belongs in the model

In energy projects, many of the numbers that decide value are set by regulators and governments: open access charges, surcharges and losses, banking terms, duties, transmission charges and the terms of support schemes. Contract clauses then decide who bears the cost when those numbers move.

In Gujarat, for example, a model draws regulated inputs from GERC tariff orders (distribution wheeling charges and cross-subsidy surcharge), GERC multi-year orders for transmission and SLDC charges, half-yearly additional surcharge orders, and the green energy open access regulations for banking.

These inputs are not equally certain. We label each one:

• Notified: in force in a final official text.
• Draft: published for comment, and may change.
• Under petition: before a regulator, with the outcome not yet decided.
• Announced: stated by government, but not yet in an official order.

We keep regulatory inputs separate from technical and commercial inputs, and record the source and status of each. The model is then easier to update when a rule changes, and easier to explain to a board, a lender or a partner. Where an input needs a regulatory view of its own, such as the range of possible outcomes of a tariff petition, we draw on our power sector regulatory advisory work.

What we model

Each renewable energy project financial model we build is shaped by the decision it supports. Typical cases:

• Open access over the contract term: modelling landed cost over the life of the contract, with each charge tested as it might move. For what makes up the landed cost of open access power, see green energy open access and captive power advisory.
• Captive and group captive economics: the cost of power under a captive structure, with the ownership and consumption conditions tested as scenarios.
• Storage cases: battery energy storage on its own or with solar or wind, including the effect of charges, support and contract terms. This links to BESS regulatory advisory.
• Tariff impact analysis: what a tariff order, a change in charges or a new regulation does to your cost of power or to project returns.
• Change-in-law scenarios: how a change in the rules would pass through the contract, who bears it and what it does to cash flows.

Policy Impact Simulation

When a new policy, regulation, tariff order or change in charges is issued, the first question is simple: what does it mean for our plant? A Policy Impact Simulation is an advisory assignment that answers it in numbers, for your own sites.

The policy change we assess

The assignment suits policies and rules whose terms can be set out as rates, eligibility conditions and calculation steps. For an industrial plant, these are often power, renewable energy and incentive measures, such as a change in tariffs or charges, or a measure linked to on-site solar. We confirm with you at the start whether the change you are concerned about can be assessed this way.

We work from the notified text. Where a related policy is still a draft, we say so.

Regulatory interpretation, clause by clause

We read the notified text and set out its rules step by step: who is eligible, which rates and charges apply, and how each figure is calculated. Each step refers to the clause it comes from. Before we apply this reading to your plant, we check it against the official notification.

How your information is used

We apply the policy to your own information, site by site:

• site and connection: location and State, distribution company, connection type and connected load;
• operations: annual consumption and operating days;
• costs: annual power cost and tariff;
• project details: available roof and land area, any existing solar capacity, and the options you are considering, such as a plant size or a change in contract.

We also need the decision in front of you. We record the date your data relates to. If we adjust any input, we write down what we changed and why.

Scenario comparisons

We set out the results for a base case, a better case and a worse case. Where it helps your decision, we also compare options, policies or sites side by side, or test a range of options, such as plant capacity, to find the best fit.

Sensitivity analysis

We test which assumptions change the result most. You then know which inputs to confirm first and which to watch.

What the results cover

• cost and saving effects, such as the net annual saving, the investment needed, the payback period and a simple return on investment;
• compliance effects, such as the obligations, deadlines and penalty provisions the policy sets out.

Which results appear depends on the policy assessed.

What you receive

A written Policy Impact Simulation Report, prepared by our team as part of the engagement. It sets out:

• three cases: a base case, a better case and a worse case;
• the working: how each figure was worked out, step by step, and which clause of the policy it comes from;
• your inputs and our adjustments, each with its reason;
• the sources, with their dates, and the assumptions behind the results;
• a plain disclaimer: the results are a model-based estimate, not financial or legal advice.

Our advisers then take you through:

• the sensitivity results and the comparisons;
• our recommendations: clear next steps based on the results;
• our commentary: our advisers' own view of what the results mean for you.

Decisions it supports

For management:

• whether and when to act on a new policy or scheme;
• which obligations and deadlines to add to your compliance plan;
• what to tell your board or management, with the working to back it up.

For investment:

• whether a project, such as on-site solar, still makes sense under the new terms;
• which site, option or size gives the best result;
• what to share with a lender or investor, with the working to back it up.

How it fits with our other work

A Policy Impact Simulation sits alongside the financial models and the regulatory risk register on this page. Where a related policy is still a draft, our wider financial models can show results with and without it. If a rule we relied on changes after a report is issued, we flag the affected reports. Where a policy also needs a response, such as comments on a draft, see regulatory affairs and policy advisory.

Regulatory risk register

Alongside the model, we keep a regulatory risk register. It lists, in plain words, every regulatory assumption the model relies on. Each entry records:

• the assumption, and the rule or figure it uses;
• its source and status: notified, draft, under petition or announced;
• what would change it, and what to watch for;
• the effect on the result if it moves, tested in the model;
• who bears the risk under the contract, and possible ways to reduce it.

The register turns regulatory risk into something a decision-maker can read and act on. It also shows when the model needs updating: when a draft is finalised, a petition is decided or an announced measure is notified.

How a model review works

If you already have a model, we review it rather than replace it:

1. Inputs check: we list every regulated input and trace it to its source.
2. Status tagging: each input is labelled notified, draft, under petition or announced, and dated.
3. Gap check: we flag inputs that are missing, out of date or not sourced.
4. Sensitivity: we test which regulatory inputs move the result most.
5. Register: we add a regulatory risk register you can keep up to date.

You keep your own model structure.

Illustrative example. A manufacturer's finance team has a spreadsheet comparing open access with its current tariff. In a review, we would trace each charge to the order or regulation it came from, label any input taken from a draft, test how the result moves if one charge changes, and return the model with a register of these assumptions. This example is illustrative only. It describes no real company and no actual result.

What you receive

• a financial model, or your own model reviewed, with regulatory inputs kept separate;
• a regulatory risk register;
• a sensitivity summary showing which inputs matter most;
• scenarios labelled by status, such as "with draft" and "without draft";
• a short written summary for your board, lender or partner.

How we work

We agree the decision the model must support. We collect your data and the official texts. We build or review the model, label each regulatory input, test it and walk you through the result. When a rule we relied on changes, we can update the inputs. We do not forecast or guarantee outcomes. Read more about how we work.

Practical uses

• A finance head tests a green power contract before signing it.
• A developer checks a storage bid against charges and support terms.
• A lender's analyst asks which regulatory inputs drive a project's returns.
• A plant tests what a new tariff order does to next year's budget.