Construction delay webinar materials
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Why construction delay is now a modelling question
Supply chain disruption, grid connection backlogs, permitting timelines and contractor capacity are extending construction periods on solar, wind, battery storage and green hydrogen projects around the world. Delay risk has moved from a tail scenario to a board-level discussion.
“Hard-coded dates are the enemy. The moment you type a date into the calculation, you have created something that won’t move when the project moves.”
Project finance modellers, sponsors, lenders and independent engineers already model delay. The question now is how well the model handles it. This webinar builds a flexible delay timing structure into a project finance model. It focuses on construction cost spend and increase, interest during construction and the sources of funds available during a delay.
What you will learn about modelling construction delay
Delay in the model timeline
Adjust milestone dates and construction phasing so revenue start, debt service and other downstream dependencies flow through correctly.
Cost increases against cost spreading
Separate real cost escalation from spreading the same budget over a longer period, and see why mixing the two distorts the model.
Interest during construction under delay
Compound capitalised interest correctly, manage the circular reference it creates and test the impact on total project cost.
Sources of funds under delay
Compare a cost overrun facility, more senior debt and an equity plug when a delay creates a new funding need.
Modelling construction delay: the session in writing
The webinar treats construction delay as a core assumption of the model. It is built around four pillars: the timeline, the treatment of cost, interest during construction and the sources of funds that close a delay-driven funding gap.
The delay timeline
A single delay assumption drives every milestone. Construction start is a base date plus an offset. The commercial operation date is construction start plus duration, and revenue starts from the commercial operation date, not a fixed calendar date. Date-based flags, not hard-coded ranges, mark each period as construction or operations, so every downstream calculation moves when the delay assumption changes.
Once a date moves, these consequences are easy to miss:
- A longer construction period increases both the size and the length of the drawdown
- A debt maturity date set by a long-stop provision squeezes the repayment period instead of moving with the delay
- Long-stop and sunset dates in the PPA, the EPC contract and the grid connection agreement need checking for breach
Cost spreading and cost escalation
The second pillar separates two effects that are often mixed up. Cost spreading incurs the same total budget over a longer period. Cost escalation means the delay increases total project cost. Real increases come from contractor prolongation and extended owner costs such as lender commitment fees. Materials and labour also cost more if procurement slips into a more expensive period. Liquidated damages offset part of this when the contractor is responsible for the delay.
The recommended approach builds cost spreading and cost increase as two separate layers. The base spend curve stays untouched and delay-driven increments sit on their own lines, so the bridge from base capex to delayed capex stays visible and auditable.
“Cost spreading means the total budget is incurred over a longer period: the timing changes, the total does not. Real cost escalation is different. The delay actually increases the total cost of the project.”
Interest during construction
Debt drawn to fund construction accrues interest that is capitalised instead of paid in cash. That increases the debt balance and so the next period’s interest, which creates a circular reference. Because it compounds, interest during construction grows faster than the delay itself. The session recommends:
- A documented, switchable circularity break instead of live iterative calculation
- Interest on the opening balance instead of the closing balance
- Cash and capitalised interest on separate lines
“IDC doesn’t grow linearly with delay, it compounds. A six-month delay doesn’t add six months of simple interest: it adds six more months of interest on a balance that has been growing the whole time.”
Sources of funds under delay
A delay-driven funding gap is usually closed with some combination of a pre-arranged cost overrun facility, more senior debt (subject to gearing, cover ratios and lender consent) and a contingent equity plug. Each trades off cost, availability and the effect on cover ratios and equity returns differently. The model lets users switch between funding sources and compare the DSCR, LLCR and equity IRR side by side, following the priority and caps in the financing documents instead of an assumed order.
The example delay model
A live example model shows each pillar, including a working funding cascade. It compares a no-delay base case with two delay scenarios: one with cost spreading only and one with an added cost increase.
Construction delay modelling questions
What causes construction delay in renewable energy projects?
Supply chain disruption, grid connection backlogs, permitting timelines and contractor capacity are the most common causes across solar, wind, battery storage and green hydrogen projects.
Why does construction delay matter for a project finance model?
A delay moves milestone dates, extends interest during construction and can create a new funding need. The model has to capture all three for lenders and sponsors. Extending one date is not enough.
How is interest during construction handled under delay?
Capitalised interest has to compound correctly across the longer period, and the circular reference it creates has to be managed without distorting total project cost.
Presented by Hitansh Doda
