Stay or Walk Away? Fox Run Is Worth More Dead Than Alive
Fox Run Solar has already spent $6 million developing the project.
That number feels important.
For the next decision, it is almost irrelevant.
Keep the same Fox Run from the first three interconnection articles.
The project entered the queue, progressed through the cluster process, and watched its Network Upgrade assignment move from $38 million to $47 million after another project withdrew.
Now the Facilities Study arrives.
Assume:
Network Upgrade estimate $56.0m
Expected grid-ready date Jun-2031
Development spend already sunk $6.0m
Current Commercial Readiness security $4.7m
Residual development / sale value if exited $3.0m
The $56 million result is not high enough to trigger the pro forma greater-than-100% Facilities Study cost-increase withdrawal exemption relative to the $47 million preceding restudy result.
Fox Run therefore faces a real choice.
Continue.
Or pay to leave.
The next decision starts today, not six million dollars ago
The sponsor's development P&L cares about the $6 million already spent.
The go / no-go decision should not add it to either alternative.
That money is sunk.
From today, the economic comparison is:
Value of continuing from today
versus
Value of exiting from today
Historical spend only matters if it creates something that can still be sold, refunded or otherwise recovered.
That value belongs in the exit case.
The historical cost itself does not.
This sounds elementary.
Interconnection makes it unusually hard to follow because every dollar spent makes the project look more mature:
- land is controlled;
- studies exist;
- a queue position has aged;
- engineers know the site;
- commercial work may already be advanced;
- management has spent years explaining why the project matters.
None of those facts makes the next dollar economically attractive.
Fox Run's continuation case is now slightly negative
Build a deliberately simplified incremental decision from today.
Assume the project, if fully de-risked and financed, has $65 million of forward value before the remaining interconnection and development items below.
From today's decision date:
Forward project value before remaining items $65.00m
Less Network Upgrade funding (56.00m)
Less remaining development / pre-close spend (3.00m)
Less incremental delay carry (5.25m)
Less illustrative PPA / schedule consequence (4.00m)
--------
Continuation NPV from today (3.25m)
The $65 million is a teaching assumption.
The point is the architecture.
The $6 million already spent does not appear.
Fox Run is worth negative $3.25 million from today's decision point under these assumptions.
That does not automatically mean withdraw.
The alternative also costs money.
Walking away is not free either
Assume the withdrawal occurs after the Facilities Study but before LGIA execution.
Under the pro forma withdrawal-penalty ladder, the applicable stage formula is 10% of estimated Network Upgrade costs when the penalty applies.
For Fox Run:
10% × $56m
= $5.6m
Assume the withdrawal materially affects equal- or lower-queued projects and no other penalty exemption applies.
Also assume Fox Run's remaining development package can be sold or recovered for $3 million through some combination of land value, transferable studies, equipment deposits or strategic-buyer value.
Then:
Residual / sale value +$3.0m
Withdrawal penalty (5.6m)
------
Walk-away value from today (2.6m)
Fox Run's two choices are therefore:
Continue -$3.25m
Walk away -$2.60m
-------
Walking away is better by $0.65m
The project is worth more dead than alive.
And the $6 million sunk cost changes none of that.
The existing $4.7 million security must not be double-counted
At this point Fox Run has already posted Commercial Readiness security equal to 10% of the preceding $47 million Network Upgrade assignment:
10% × $47m
= $4.7m
If a withdrawal penalty is assessed, the tariff mechanics determine how posted readiness security is applied to that obligation.
So the walk-away model should not casually calculate:
Lose $4.7m existing security
+
pay $5.6m withdrawal penalty
=
$10.3m exit cost
unless the actual tariff produces that result.
The $5.6 million in our example is the economic penalty burden.
Existing posted security is a funding source for that burden to the extent the tariff applies it.
The finance model should keep:
Penalty liability
Existing security available
Incremental cash required
Security release / forfeiture mechanics
as separate lines.
That avoids counting the same dollar twice.
Continuing also requires another security decision
At LGIA execution, the combined Commercial Readiness and LGIA upgrade-security level rises to 20% of estimated Network Upgrade costs.
At the new $56 million estimate:
20% × $56m
= $11.2m total upgrade-security level
Fox Run currently has $4.7 million posted.
So the new LGIA-stage security requirement is approximately:
$11.2m - $4.7m
= $6.5m additional security
That $6.5 million is not necessarily a $6.5 million economic expense.
It can be cash collateral, LC usage, surety or another permitted form, and it may ultimately be applied to the interconnection obligations.
But it consumes liquidity or corporate facility capacity.
So even before construction funding, continuing Fox Run requires the sponsor to ask:
Is this project worth using another $6.5 million of scarce cash / LC / surety capacity to preserve?
That is a portfolio-capital question layered on top of project NPV.
The withdrawal penalty can rationally keep a negative-NPV project alive
This is the part that needs care.
Fox Run's continuation NPV is:
-$3.25m
That sounds like an automatic exit.
But the walk-away value is:
-$2.60m
The decision is not:
Is continuation NPV positive?
It is:
Is continuation value greater than exit value?
A withdrawal penalty can therefore make it rational to continue a project whose incremental continuation NPV is slightly negative.
That is not sunk-cost fallacy.
It is comparing two negative alternatives.
The sunk-cost fallacy would be:
We already spent $6 million, so we need to keep going.
The correct logic is:
Continuing loses $3.25 million from today; exiting loses $2.60 million from today; exit destroys less value.
Solve the exact Network Upgrade level at which the answer flips
The useful IC number is the indifference point.
Keep the other teaching assumptions fixed:
Forward project value $65.00m
Remaining development 3.00m
Delay carry 5.25m
PPA / schedule consequence 4.00m
Walk-away value -2.60m
Continuation value as a function of Network Upgrade cost is:
Continuation Value
=
$65.00m
- Network Upgrades
- $3.00m
- $5.25m
- $4.00m
Set that equal to the walk-away value:
$65.00m
- Network Upgrades
- $12.25m
=
-$2.60m
Therefore:
Network Upgrades
≈ $55.35m
That is Fox Run's current stay / exit break point under the assumptions.
At:
$54m → continue is better
$55.35m → indifferent
$56m → exit is better
$60m → exit is clearly better
That number is much more useful than asking whether $56 million "feels high."
The penalty changes the kill point
Now remove the withdrawal penalty.
Assume Fox Run still has $3 million of residual sale value.
Walk-away value becomes:
+$3.0m
Solve again:
$65.00m
- Network Upgrades
- $12.25m
=
+$3.00m
Network Upgrade indifference point:
≈ $49.75m
So the penalty moved Fox Run's economic stay / exit threshold from roughly:
$49.75m
to
$55.35m
a difference of about:
$5.60m
which is exactly the penalty burden in our simple example.
The tariff did not make Fox Run more valuable.
It made exiting more expensive.
That distinction matters when management says:
The project still works up to $55 million.
The project itself may not.
The exit alternative is simply worse.
A cost-shock exemption can move the answer overnight
Now assume the Facilities Study does not say $56 million.
It says $96 million.
Compare it with the preceding $47 million restudy result:
($96m - $47m) / $47m
= 104.3%
That exceeds the pro forma greater-than-100% Facilities Study cost-increase threshold.
Under the specified Order 2023 withdrawal-penalty exception, Fox Run can potentially withdraw without the penalty, subject to the applicable tariff and facts.
Economically, that changes the decision immediately.
The project is not only much more expensive to continue.
The exit door has also become cheaper.
That is why the >25% and >100% thresholds belong in the IC model, not only in the legal summary.
A large cost increase can hurt continuation value and improve exit value at the same time.
A 99% cost increase can be worse than a 101% increase
The threshold creates a counterintuitive edge case.
Starting from the $47 million preceding restudy:
Facilities Study at $93.5 million
Increase:
($93.5m - $47m) / $47m
≈ 98.9%
That is below 100%.
The specified >100% exemption has not been met.
Facilities Study at $94.5 million
Increase:
($94.5m - $47m) / $47m
≈ 101.1%
Now the specified threshold is crossed.
The second project has a higher upgrade estimate but can have a cheaper exit.
This is exactly why the decision model needs both:
Continuation economics
and
Withdrawal economics
A smooth cost curve does not produce a smooth decision curve when the tariff contains thresholds.
Residual development value belongs in the exit case
Fox Run's $3 million residual value is not historical cost.
It is what somebody will pay or what the sponsor can recover today.
That can include:
- transferable land rights;
- permits;
- studies;
- PPA or REC position;
- equipment deposits;
- tax work;
- transferable interconnection rights or agreements where permitted; and
- strategic buyer value.
Suppose Fox Run's land package cost $2 million historically but a neighboring developer will pay $4 million for it.
Use:
$4m
in the exit case.
Not:
$2m
Likewise, if a $1 million study has no transferable or continuing value, its market value is zero even though the sponsor paid for it.
The exit model uses current recoverable value.
The development P&L uses historical spend.
Do not mix them.
Sale can dominate both build and abandon
Add a third option.
Assume a strategic buyer values Fox Run's position at $8 million because it owns nearby generation and places more value on the POI.
After the same $5.6 million withdrawal / transfer-related economic burden assumed for our simple case:
Strategic sale value $8.0m
Less exit / penalty burden (5.6m)
------
Net sale value $2.4m
Now the choices are:
Continue -$3.25m
Abandon -$2.60m
Sell +$2.40m
The correct answer is not "walk away."
It is "sell."
This is why a development project can be below the sponsor's hurdle and still have meaningful market value.
Different owners have different:
- basis views;
- portfolio synergies;
- financing costs;
- interconnection positions;
- construction capabilities; and
- tax capacity.
The project is worth what the next owner can do with it, not what the current sponsor spent on it.
The next gate should buy information
Not every marginal Fox Run should be killed immediately.
Suppose the current decision is earlier — before the Facilities Study — and the next step requires another $1 million of incremental expected cost and security carry.
Assume the Facilities Study can produce three outcomes:
| Outcome | Probability | Continuation value at next gate |
|---|---|---|
| Upgrade falls / scope improves | 25% | +$18m |
| Upgrade broadly unchanged | 50% | +$4m |
| Upgrade worsens materially | 25% | -$12m |
Expected continuation value at the next information point:
25% × $18m
+ 50% × $4m
+ 25% × (-$12m)
= $3.5m
Less the $1 million cost to reach that information:
Option value
= $2.5m
Continuing to the next gate can be rational even if today's central case is mediocre.
The question is whether the next dollar buys information that can change the decision.
"Stay in the queue another year and see what happens" is not an investment thesis.
Portfolio scarcity can overrule a positive project NPV
Now assume Fox Run's continuation case improves to:
+$2m
as a standalone project.
But continuing still requires another $6.5 million of LC / cash / surety capacity.
The developer has only $10 million of remaining corporate security capacity and another project, River Bend, offers:
+$12m expected value
for
$5m security capacity
If preserving Fox Run prevents River Bend from advancing, Fox Run's true opportunity cost is not zero.
The portfolio should compare value created per unit of scarce pre-financing capital or security.
A simple view:
Fox Run
Value $2m
Security consumed $6.5m
River Bend
Value $12m
Security consumed $5m
Both projects can be positive NPV.
The company can still rationally kill Fox Run.
Project finance starts at the SPV.
Development-capital allocation does not end there.
The one-page IC memo should show only forward economics
For Fox Run I would put this page in front of the investment committee.
Current state
Facilities Study Network Upgrades $56.0m
Grid-ready date Jun-2031
Development spend already sunk $6.0m
Current readiness security $4.7m
Continue
Forward project value $65.0m
Remaining Network Upgrade funding (56.0m)
Remaining development (3.0m)
Delay carry (5.25m)
PPA / schedule consequence (4.0m)
-------
Continuation value -$3.25m
Exit
Residual / sale value +$3.0m
Illustrative withdrawal penalty (5.6m)
------
Walk-away value -$2.6m
Decision
Walk away beats continue by $0.65m
Stay / exit Network Upgrade break point $55.35m
Additional LGIA-stage security if continuing $6.5m
Sensitivities
No withdrawal penalty
→ break point falls to about $49.75m
Strategic buyer pays $8m
→ sale value about +$2.4m after assumed burden
Facilities Study increase >100%
→ test penalty exemption immediately
That page is enough to decide.
The six million dollars already spent appears in the reporting appendix.
Not in the decision equation.
What the finance team should ask at every interconnection gate
- What cash, LC or surety capacity is required next?
- Is that amount an expense, refundable deposit, collateral or future construction funding?
- What new information or contractual right does the next posting buy?
- What is the project's continuation NPV from today?
- What is the current walk-away value from today?
- What withdrawal penalty applies at this exact stage?
- Does the material-impact condition apply?
- Has a >25% restudy or >100% Facilities Study cost increase created a specified exemption?
- What current residual development / sale value exists?
- What is the Network Upgrade level at which continue and exit are equal?
- What delay produces the same indifference?
- Is another portfolio project a better use of the same corporate capital?
- Can the asset be sold rather than built or abandoned?
- Is management's argument for continuing based on forward value or on time and money already spent?
Fox Run spent $6 million getting here.
That does not mean the right answer is to keep going.
At the $56 million Facilities Study case, our assumptions say continuing destroys about $3.25 million from today while exiting destroys about $2.6 million.
Paying to stop preserves roughly $650,000 of value.
That is not failure.
That is what staged development capital is supposed to allow a sponsor to do.
Primary sources: FERC — Pro Forma LGIP · FERC — Order No. 2023 Explainer · FERC — Order No. 2023-A / Compliance Clarifications