The Major Maintenance Reserve Account (MMRA) ensures that during certain operational years with lumpy capital expenditures, a project can be maintained without raising further capital. This requires careful planning of financial needs in the future, best done using a best-practice financial model for renewable energy investments.
What is the purpose of an MMRA?
Similar to a Debt Service Reserve Account (DSRA), the implementation of a Major Maintenance Reserve Account is often required by lenders to ensure an extra layer of security within a project finance deal. The purpose of the DSRA is to ensure that the debt provider receives the debt service in a given period, even though the operational cash flow falls short of sufficiently covering the debt service.
Similarly, the MMRA ensures that major components of a renewable energy plant can be exchanged once they break or are worn out, even if the operational cash flow in a given period may not be sufficient to pay for these extraordinary costs. Solar parks typically require an exchange of inverters during the asset's lifetime. Inverters often break halfway through the asset life of the plant. In addition, some of the modules of a solar park or the blades of a wind farm might need to be replaced at a certain point.
How to implement an MMRA within a financial model?
Integrating an MMRA into a financial model is not as complex as implementing a DSRA. Unlike the DSRA, the MMRA does not cause an interdependency of different variables resulting in a circular reference that has to be broken, which would require using a macro similar to the debt sculpting procedure in accordance with a target DSCR.
Below is an example of how an MMRA might be implemented within a financial model for renewable energy investments using market best practices.
The above MMRA has the flexibility to model up to three different releases for different purposes, such as the exchange of modules, inverters, or other components - the latter not being displayed in the above screenshot.
During the development and construction of a power plant, a technical advisor typically recommends how much cash reserve should be put aside in each period to sufficiently cover upcoming expenses. This figure is given in thousands of EUR per MWp in the above example.
Lastly, implementing additions and release flags ensures the flexibility and robustness of the MMRA within the financial model.
How to build an advanced financial model for renewable energy investments?
Do you want to learn how to adequately implement a Major Maintenance Reserve Account within a financial model created explicitly for renewable energy investments? Then check out the Advanced Renewable Energy Financial Modeling course.
