Technical Assumption Review for Energy Models

Objective¶

This guide sets out how technical assumption review should be structured for an energy or power project financial model, within Energy Financial Modelling, as a discipline distinct from the structural formula checks covered in Energy Model Audit.

Why This Is a Distinct Discipline¶

A structural formula audit tests whether the model's formulas calculate correctly given whatever assumptions are entered into it. Technical assumption review tests something different: whether those entered assumptions are themselves properly sourced from credible independent evidence. A model can pass a structural audit entirely — every formula calculates as intended — while still resting on technical assumptions that are unsourced, outdated, or inconsistent with the actual independent evidence available for the project.

Resource Yield¶

Resource yield assumptions should be traced to the specific independent resource yield assessment and the specific confidence level actually cited for each purpose the figure serves — the base case forecasting figure and the conservative debt-sizing figure should each trace to a specific, identified source, not accepted simply because a yield figure of some kind appears somewhere in the model.

Degradation¶

Degradation assumptions should be traced to the specific equipment manufacturer's warranty and technical specification documentation, confirming that the model's assumed curve shape and annual rate actually match that documented basis, rather than a generic cross-technology default disconnected from the actual equipment installed.

Availability and O&M Cost¶

Availability assumptions should be traced to the actual O&M contract's guaranteed availability level; O&M cost assumptions should be traced to the actual contract's fee schedule and escalation terms. Both should be reviewed against the specific, executed contract governing the project, not an industry-average benchmark that may not reflect the actual commercial terms in place.

Flagging Unsourced Assumptions¶

Where any key technical assumption cannot be traced to a specific, credible independent source, this should be flagged explicitly as an open item requiring further evidence or, at minimum, a more conservative placeholder assumption pending that evidence — rather than accepted on the basis that the model is otherwise internally consistent. Internal consistency is a necessary but not sufficient condition; it says nothing about whether the assumption itself is well-founded.

Common Pitfalls¶

Internal consistency mistaken for proper sourcing. Confirming a model calculates consistently, without independently confirming its input assumptions are well-sourced, misses a real risk that a structural audit alone would not catch.

Yield or degradation figures accepted without a specific traced source. Treating any yield or degradation figure as acceptable simply because it appears plausible, without tracing it to the specific report or specification it should come from, understates genuine sourcing risk.

Unsourced assumptions left unflagged. Failing to explicitly flag an assumption that cannot be traced to a credible source leaves a genuine open item invisible to the reader relying on the review.

Recommended Practices¶

• Trace each key technical assumption (yield, degradation, availability, O&M cost) to its specific, named independent source.
• Confirm the confidence level cited for each purpose the yield assumption serves.
• Flag any assumption that cannot be traced to a credible source explicitly as an open item.
• Treat technical assumption review as distinct from, and complementary to, a structural formula audit.

Continue Reading¶

Related Pillars¶

• Energy Financial Modelling

Related Technical Guides¶

• Energy Model Audit
• Energy Model Validation
• Availability Models

Related Glossary¶

• Resource Yield Assessment
• Degradation Rate