@Philbert great question. The best way to understand how this...

@Philbert great question.

The best way to understand how this works is to look at how Fluence will make money from this project.

Here is the information you need to work it all out:

US$44m development cost.

75% is debt financed, US$33m.

25% equity financed, US$11m. Fluence have a 51% equity ownership of the special purpose vehicle created to operate this project.

That is, US$5.61m equity invested by FLC (51%) and $5.39m (49%) from local partner.

So how does Fluence make money?

1. Fluence will firstly invest US$5.61m as part of the special purpose vehicle, whilst this is a cash outlay it is not a cost. It is an equity investment, big difference. As any 'net profit'/equity remaining in this vehicle when the project closes is returned to Fluence and the local partner, Fluence will take 51% of the profits/equity and its initial equity investment (US$5.61m)

2. Fluence will earn a margin on construction of the plant, this will usually be quite modest where Fluence will get paid this as revenue and will incur costs of production with a net outcome of approx 15% margin.

3. Fluence will earn US$11m recurring operating/servicing revenue. This should be at a higher margin (don't know how much) than the construction revenue, but will be earned over approx. 30 years.

Point 3 is the most important in terms of valuation of Fluence. You can now start to calculate FLC's valuation based on a DCF valuation model, as we will now have recurring revenue.

As an example, I have calculated the value of this project based on the recurring revenue alone (point 3 only) with a 12% discount rate over 30 years, the discounted revenue is worth US$88.6m. Assuming the margin is 30%, that is a discounted net profit of US$26.6m.

So at a minimum, the valuation of Fluence should increase by about A$35m or +16% of its market cap, and this doesn't include any profit made on the equity investment or the upfront investment.

San Quentin is the first of many BOT projects, with more flagged to come into play later this year ... big tick today, and a big shout out to @Dungiven who has contributed some invaluable research and kept us ahead of the game on many occasions, including finding the funding approval mid last week ... hat off to you mate!