Turning engineering insight into investment impact: the critical role of financial modelling alongside techno-economic assessments

As Amberside Advisors expands its services and grows its commercial advisory offering across all vectors of the energy transition, we increasingly find ourselves operating in engineering-heavy sectors. Whether it is low-carbon heat networks, energy from waste, or integrated energy systems, a recurring challenge has emerged: translating Techno-Economic Models (TEMs) into robust, decision-ready Financial Models (FMs).

For clients and technical teams unfamiliar with financial modelling - or indeed for funders unfamiliar with techno-economic modelling - this can often feel like a mistranslation. However, this interface is precisely where Amberside Advisors brings essential value.

What is a techno-economic model (TEM), and why is it useful?

Amberside Advisors work alongside technical advisors who build the TEMs, typically in the early stages of a project. The primary purpose of a TEM is to assess the technical feasibility and basic economic viability of different options. It is an energy-first view of the world:

• Energy-led assumptions: outputs are measured in MWh or heat demand, rather than monetary terms

• Revenue assumptions: typically based on estimated energy demand and assumed tariffs, often without full commercial validation or market-tested pricing

• Cost build-up: largely benchmark-based estimates for capex, opex, and repex, sometimes supported by quantity surveyors

• Project comparisons: used to assess and compare different technology options, often through metrics like project IRR (pre-finance, pre-tax)

• Societal value: may include consideration of carbon savings, climate impact, or social value benefits

  
  

This modelling is essential, especially for feasibility studies, early-stage business cases, and public funding applications (for example, through the Green Heat Network Fund). However, its scope is limited when it comes to investment decision making.

Where financial modelling comes in and adds value

At Amberside Advisors, financial models can either be built on technical inputs directly, or built on the outputs of a pre-defined TEM to help investors make informed “real world” decisions.

Here is how financial models differ and deliver:

1. Financial structure and capital strategy

Financial models integrate financing layers such as grants, equity, shareholder loans, and senior debt, each with their own terms, timing, and risk profiles - our expertise allows us to propose an optimal capital stack from these. 

 We can help determine how much capital is needed, when, and from whom. In our models we reflect different commercial structures and provide modelling of HoldCos, where necessary.

2. Accounting, tax, and financial statements

Unlike TEMs, financial models reflect actual accounting treatment, high-level tax assumptions, and working capital requirements. As regulatory cashflows (Contracts for Difference, Capacity Payments, government grants etc) are rarely annual, we include quarterly (or better) cash flow granularity, rather than just annual summaries, in addition to providing balance sheet and Profit & Loss calculations.

3. Investment metrics

Financial models evaluate capital expenditure requirements and then calculate metrics that matter to decision makers, including shareholder IRRs (Internal Rate of Return), DCF (Discounted Cash Flow) valuations under differing cost of capital, ROCE (return on capital employed), (Debt) cover ratios, and valuation multiples. The focus is on margins, return on investment, and bankability.

4. Real-world market complexity

Amberside Advisors incorporates macro-economic assumptions as well as project-specific considerations that can be overlooked:

• Inflation assumptions, interest rates, commodity price forecasts and other macroeconomic factors

• Transaction costs, insurance, business rates, operational overheads

• Embedded energy benefits such as Renewable Energy Guarantees of Origin (REGO), Renewable Transport Fuel Certificates (RTFC) and Green Gas Support Scheme (GGSS)

• Phasing, growth scenarios, and capex reconfigurations

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This ensures that models reflect not only how a project could technically work, but how it will commercially succeed.

5. Scenario analysis

Amberside Advisors financial models contain the functionality to run numerous scenarios and sensitivities, allowing for broader analysis of key project drivers and their impact on performance metrics. These would include variables such as timelines changes including different project phasing and construction delays and the availability of grant and subsidy schemes.

Closing the loop: improving integration between TEM and FM

One of the biggest challenges lies in the interface between TEMs and financial models. Changes in one can materially affect the other, but there is rarely a direct feedback loop. For example, a change in capex phasing may improve IRR but undermine feasibility from a technical design perspective.

Amberside Advisors is helping to solve this disconnect by:

• Making financial modelling a central part of early-stage project design, not just a bolt-on at the end

• Wrapping energy modelling within financial tools, allowing the team to challenge or refine TEM assumptions where they may be underdeveloped

• Collaborating with multidisciplinary partners, such as our colleagues at Steer, who can integrate economic, social, and policy lenses earlier in the process

  
  

In some cases, this approach allows earlier-stage decision making and project rationalisation from a commercial, governance and risk perspective, prior to embarking on potentially over-engineered technical selection exercise, where appropriate to do so.

Practical considerations for clients

A few practical points for clients and partners navigating this landscape:

• For Green Heat Network Fund submissions, a TEM is mandatory, but Amberside Advisors' heat network financial models are detailed enough to meet this requirement whilst including added-value financial functionality

• If access to a full TEM is restricted, Amberside Advisors is happy to work with transfer sheets containing core outputs, such as demand profiles and capex. These can even be live-linked to allow seamless updates.

In summary

Techno-economic models and financial models serve different but equally important purposes. Amberside Advisors does not just convert one into the other; it enriches, challenges, and enhances them to ensure that projects are not only technically feasible but commercially compelling.

As the commercial advisory and financial modelling teams at Amberside Advisors work together as one team, the ability to bridge engineering rigour with financial reality becomes a major differentiator and a key source of added value for clients.

If you would like to understand more about how Amberside Advisors can support your project at the interface of engineering and investment, please get in touch.