How SAVi Works

SAVi combines robust science, systems thinking and financial valuation. Its three features—simulation, valuation and customization—are inherently interlinked.

Simulation

SAVi combines the outputs of systems thinking and system dynamics simulation with project finance modelling.

System Dynamics Modelling

SAVi system dynamics modelling is conducted using Vensim, an industrial-strength software that can be used for simulating social, economic and environmental systems.

The model forecasts how the infrastructure project will affect and be affected by the environmental, social and economic dynamics of the “system” in which it is being planned, financed, built and operated. We develop systems maps or causal loop diagrams for a fast, accurate analysis of causes, effects and resulting model dynamics. Once this blueprint is complete, we create the mathematical model. We then simulate different risk scenarios to calculate how the asset performs under each of them. We can also change model inputs in real time, generating updated results within seconds. 

Despite the variety of scenarios and outcomes that can be generated using the SAVi system dynamics models, simulation experts may consider this range to be relatively limited. Its complexity lies in the high number of cross-sectoral and cross-dimensional linkages.


Project finance modelling

The SAVi project finance model is built in Microsoft Excel following Corality SMART, which is widely considered to be the industry’s best practice standard.

This model simulates how different risk scenarios affect the project’s financial viability across its life cycle, as well as how material externalities can affect future cash flows.  We can therefore assess whether the cash flows generated by the project will be sufficient to service debts and generate an attractive risk-adjusted return for equity and debt investors. We generate results on the return on investment, gross margins, internal rates of return, net present values, debt service coverage ratios, loan life coverage ratios and other indicators as requested.

Our model is also well placed to stress test projects and assess how the expected returns change under certain risk scenarios, such as climate risks, operational risks, environmental risks, legal risks, revenue risks and more. 


Valuation

SAVi values the costs of risks and externalities, as well as the risks that can emerge from externalities over a project life cycle.

SAVi considers economic, social and environmental risks, among others. It then uses the costs of these risks to simulate how they affect the financial performance of infrastructure projects and portfolios across their life cycles. For example, how will the imposition of a carbon tax create unexpected costs for an infrastructure project underway? Or how will water shortages affect the financial attractiveness of a wastewater treatment plant six years down the line? SAVi can factor in what those costs could mean for the project, allowing policy-makers and investors to prepare accordingly.

SAVi also identifies and places a dollar value on the externalities that arise as a direct consequence of infrastructure projects. SAVi helps policy-makers and investors appreciate the wider, second-order gains and trade-offs of infrastructure investments, which may not otherwise be reflected in a traditional valuation. SAVi then shows how externalities today can transform into direct project risks tomorrow. This type of valuation helps stakeholders make decisions in favour of sustainable infrastructure.

For example, the construction of a new building or wind farm involves the creation of new jobs. The increased income of these workers means greater spending power that these workers can then channel into the local economy. This could in turn increase productivity and ultimately enhance GDP.

To provide robust analyses and meaningful comparisons, the SAVi simulations draw from partner- and project-specific data and complement it with internationally recognized data sets. We use open-source data, as well as data we have purchased or obtained via subscription services.

Customization

SAVi is customized for individual investment projects and portfolios. SAVi can therefore value the cost of risks, along with a range of wider externalities, that is directly material to each asset.

We customize the SAVI models to each project, portfolio, master plan or policy. We work with asset owners and their stakeholders to identify and capture the local project context, its uncertainties and its unique dynamics. We engage with our partners over several weeks to gather project-specific data, which allows us to capture and integrate all material risks and externalities that can occur across the project life span. In addition, we spend weeks on data verification and on filling in data gaps using internationally recognized sources.

The models are set up to start simulating several years prior to the commencement of the project. This is important to validate our analysis against historical data. The models’ time frames are also extended to cover a 5- to 10-year period after the project comes to an end.

The SAVi Workflow

1

Engage with partner to understand and record asset or project characteristics.

2

Discuss material project risks. Determine risk scenarios. Identify externalities that are most material to asset owners and their stakeholders.

3

Create a causal loop diagram to determine model boundaries, data needs and emerging dynamics triggered by the project.

4

Create the custom SAVi simulation model. Obtain and verify project-specific data. Complement with internationally recognized data sets. Determine model assumptions and verify data and assumptions with partner.

5

Run the simulation. Validate the model and results following best practices in system dynamics and project finance modelling. Simulate alternative scenarios to test model sensitivity.

6

Analyze the results. When required, prepare an interpretation of model outcomes for multiple stakeholder perspectives.

7

Engage with partners on results. Run simulations in real time. Verify the interpretation of model outcomes. Assess how to present results to facilitate decision making.

8

Finalize results and reports. Support the partner with decision making and dissemination.

The Data Sources

We engage with our partners to obtain project-specific data and then spend considerable time verifying it, cross-checking it and filling in data gaps.

An indicative list of the data required for a SAVi assessment is given below, though the final list of sources will depend on our specific partner’s needs and circumstances.

  1. Project descriptions and business plans.
  2. Externalities and environmental, social and governance (ESG) impacts already identified or measured.
  3. Carbon footprints and greenhouse gas reduction plans.
  4. Characteristics of the asset and material composition.
  5. Financial feasibility studies, including capital expenditure, fixed and variable operational expenditure, funding split (debt versus equity percentage), debt tenor, debt interest rate, project discount rate.
  6. Technical feasibility studies including output/generating capacity, levelized costs, load factor and generating/operating efficiency. Note that SAVi calculates these performance indicators, but we require estimates for validation.
  7. Environmental and Social Impact Assessments.
  8. Pricing strategy.

The customization of SAVi begins a step before this process, when we develop the SAVi sector models. These are built to combine a wide range of design and technology characteristics, with sound science on environmental, social, economic and governance impacts. They also incorporate key financial performance indicators.

The design and data sources of the sector models are described in the reports below.

Sustainable Asset Valuation: Water Infrastructure

Sustainable Asset Valuation: Roads

Sustainable Asset Valuation: Energy Infrastructure

Sustainable Asset Valuation: Buildings

Sustainable Asset Valuation: Natural Infrastructure

 

 

Try SAVi Demo

Try the simulator below for a brief “snapshot” of what SAVi can do. The simulator shows how different project costs, externalities and risks can affect a project’s financial performance. The demo is built on insight and data from ongoing and recently completed infrastructure projects.