Sources and Uses: Why the Two Sides Balancing Proves Nothing

September 17, 2026 · Dezzmond Team

Project Finance Project Finance Mechanics Sources & Uses

A modelling sources-and-uses table can always be forced to balance by making sponsor equity the residual. A financing package, however, can still have a real funding gap if that residual equity is not legally committed or if another stated source funds later than the use it is supposed to cover.

So “sources = uses” is an arithmetic identity, not a fundability test.

The two questions it cannot answer are the only ones that matter. Is every use complete — or is there a cost nobody has put in the table? And is every source committed — or is a number sitting in the sources column that nobody has actually agreed to provide?

This post covers what belongs on each side, where the circularity comes from, and the two tests worth running on a table that can be forced to balance mechanically.

ℹ️ Note: All figures are labelled assumptions, solved consistently including the funding circularity. Line items vary by project and jurisdiction.

What Is a Sources and Uses Statement?

The project's capital budget and funding plan on one page: everything the project must pay for before it earns revenue, and everything that will pay for it. The two sides should reconcile mathematically, but the financing closes only if committed and conditional sources are sufficient and available when the uses arise.

It is the foundation of the model. The debt sizing tests from the first post in this policy and regulation materialpply to the total uses figure, so every line on the uses side feeds the gearing constraint — and as the construction post showed, some of those lines depend on the debt, which is where the circularity comes from.

The Uses Side

Use	Worked example
EPC contract price	$190,000,000
Owner-supplied equipment	$12,000,000
Interconnection and network upgrades	$20,000,000
Land, permitting and development costs	$8,000,000
Development fee to sponsor	$10,000,000
Contingency	$9,500,000
Subtotal — construction	$249,500,000
Interest during construction and commitment fees	$9,510,426
Arrangement and financing fees	$2,545,617
DSRA initial funding	$7,976,458
Working capital	$2,000,000
Total uses	$271,532,502

Four observations about what is easy to miss.

In this worked example, financing-related uses equal 8.0% of the construction subtotal. That is an output of the assumed rates, fees, reserve and draw profile, not a market benchmark.

The development fee is a source as well as a use. A fee paid to the sponsor for development work is a use of funds and, economically, a return of and on the development capital already spent. Lenders scrutinise it because it is the one line where the sponsor pays itself out of the financing, and a fee that is large relative to genuine development spend reduces the sponsor's real equity at risk.

Interconnection appears as a use even when some future recovery may exist. Reimbursement, transmission credits and allocation rules are RTO/utility- and agreement-specific. Fund the gross cash requirement shown by the executed interconnection documents; model any recovery separately and only where the legal entitlement exists.

Contingency is a use that is intended not to be spent. At 5% of EPC on this example. Whether it is drawn determines whether the final equity number is the one in the table.

The Sources Side

Source	Worked example	Committed?
Senior debt facility	$203,649,376	Committed at financial close
Sponsor equity	$67,883,125	The plug
Total sources	$271,532,502

Other sources appear in real structures and each carries a different quality of commitment: tax equity contributions, which fund at a defined milestone against conditions; proceeds of a §6418 credit transfer, which arrive only after a return is filed; grants, which are conditional on compliance; subordinated or mezzanine debt; and vendor financing.

What Is Actually in the EPC Price?

Less than the number suggests, and the gap is where uses-side omissions live.

An EPC contract price covers the contractor's defined scope. Everything outside that scope is the owner's, and the boundary is drawn in the contract's scope schedules rather than in anyone's assumptions.

Potential owner-retained items can include high-voltage / interconnection facilities, owner-supplied equipment, spares, permitting, environmental work, utilities, telecommunications and site infrastructure. The actual boundary comes from the EPC scope schedules and owner-supplied-item lists.

Two structures change the boundary materially.

A wrapped EPC can concentrate construction scope, schedule and remedy risk with one contractor, while a multi-contract structure leaves more interfaces with the owner. The pricing difference is transaction-specific; do not hard-code a generic wrap premium.

A multi-contract structure splits supply, installation and balance of plant across several parties. It is cheaper in headline terms and leaves the interface risk with the owner: if the modules arrive late and the installer claims delay, there is no single party responsible, and the delay LD analysis from contracts and legal material becomes considerably more complicated.

The financing consequence can be a different contingency requirement, sponsor support package or independent-engineer view of completion risk. Compare the total financed uses and support package, not only contractor prices.

How Much Contingency?

More than convention suggests, and sized against the distribution rather than as a percentage.

Five percent of EPC is the conventional figure and it appears in the worked table above. The difficulty with a conventional percentage is that it bears no relationship to the risk of the specific project, and the risk is not symmetric.

The network upgrades post made the point in a different context: cost estimates revise upward far more often than downward. A contingency sized as a symmetric buffer around a central estimate will therefore be systematically short, because the distribution it is buffering has a long right tail and almost no left one.

Three factors should move the number materially.

Contract structure. A wrapped EPC with a firm price and a strong contractor needs less contingency than a multi-contract structure with interface risk and several parties able to claim.

Interconnection maturity. A project whose network upgrade costs are fixed in an executed interconnection agreement carries a different risk from one still awaiting a facilities study — and the 25% and 100% exemption thresholds from the interconnection post define exactly how much that estimate can move.

Technology and supply chain. First-of-a-kind equipment, a new supplier, or a component exposed to tariff or trade action all widen the distribution.

The practical test is simple and rarely applied: what does the contingency have to absorb before the cost-to-complete test fails? That figure, computed from the construction post's mechanics, converts contingency from a convention into a stated amount of protection — and a project where the answer is "one adverse change order" is under-provisioned regardless of what percentage the line represents.

Why Is the Plug a Problem?

Because it absorbs every error on the other side, silently.

The sponsor equity line is computed as total uses less every other source. That means a cost understated by $5m produces an equity number $5m too low, and the table still balances perfectly. A cost omitted entirely does the same thing. So does an optimistic contingency.

The consequence is that the equity number in a sources and uses statement is an output, not a commitment — and the gap between that output and what the sponsor has actually agreed to fund is where cost overrun undertakings and equity commitment agreements do their work.

This is why the construction post's cost-to-complete test matters so much. It is the only mechanism that tests, repeatedly and with third-party certification, whether the uses side was right.

The Development Fee Question

The one line where the sponsor pays itself out of the financing, and it attracts attention accordingly.

A development fee compensates the sponsor for taking a project from an idea to a financeable asset — site control, permitting, interconnection, offtake procurement, and several years of expenditure at risk on projects that mostly do not reach financial close. It is a legitimate cost and a real one.

It is also, mechanically, a partial return of the sponsor's equity at the moment of financial close. Ten million dollars of development fee, funded 75% by debt, means $7.5m of the sponsor's equity cheque is returned to it from the lender's money on day one. The sponsor contributes $67.9m and receives $10m back, so real equity at risk is closer to $57.9m — and the effective gearing on a cash basis is higher than the 75% the term sheet states.

Lenders test it in three ways, and a sponsor should expect all three.

Against actual development spend. A fee that approximates the documented cost of developing the project is straightforward. One that substantially exceeds it is a distribution wearing a cost's label.

Against the financing and valuation case. Lenders can compare the fee to documented development spend, appraised / permitted value, remaining sponsor equity at risk and any affiliate-payment restrictions. A generic “market percentage” is not a substitute for those checks.

Against the sponsor's remaining commitment. The important question is not the fee's size but what equity the sponsor still has at risk after receiving it. A sponsor left with meaningful capital in the project behaves differently from one that has been made whole at close.

Where a development fee creates a lender alignment concern, possible structures include deferral, subordination, partial payment at closing or conditions tied to remaining sponsor equity. The financing documents decide what is permitted.

Where Does the Circularity Come From?

Three lines on the uses side depend on the size of the debt.

Uses          = Construction + IDC + Fees + DSRA + Working capital
Senior debt   = Gearing % × Total uses
IDC           = f(debt drawdown profile)
Arrangement fee = % × facility size
DSRA          = f(debt service) = f(facility size)

More debt means more IDC, more fees and a larger DSRA, which means larger total uses, which means more debt. As the sculpting post set out, this loop is genuine, algebraic, and separate from the operating-phase sculpt that is not circular at all.

On the worked example it converges quickly: the debt settles at $203,649,376 against total uses of $271,532,502, and the equity plug at $67,883,125 — exactly 25% of the total, as the gearing constraint requires.

Note what that means. The sponsor's equity cheque grew from $62.5m on the bare $250m construction budget to $67.9m once financing costs were included — an $5.4m increase arising entirely from the cost of the financing itself.

The Two Tests Worth Running

Since balancing proves nothing, run these instead.

Test one: is every use complete?

A checklist, because omissions are the failure mode:

EPC price, and everything explicitly outside the EPC scope
Owner-supplied equipment and spares
Interconnection, network upgrades and the security postings behind them
Land acquisition or lease prepayments
Permitting, environmental studies, legal, technical and insurance advisory
Development fee, and the development costs it is replacing
IDC, commitment fees, arrangement fees, agency fees
Hedge costs, including any upfront premium
All reserve accounts at their initial required balances
Working capital and initial spares inventory
Insurance premiums for the construction period
Contingency, sized against the actual risk rather than a convention
Taxes and duties on imported equipment
Startup and commissioning costs

The lines most often missing are the security postings, the advisory costs, and the taxes on imported equipment — each of which is real cash and none of which appears in an EPC price.

Test two: is every source committed?

Classify, and report the percentage:

Senior debt          $203,649,376    COMMITTED (facility agreement signed)
Sponsor equity        $67,883,125    COMMITTED (equity commitment agreement)
                     ------------
Committed sources    $271,532,502    = 100.0%

Now consider a deliberately weaker worked case:

Senior debt          $180,000,000    COMMITTED
Tax equity            $55,000,000    CONDITIONAL (funds at COD, on conditions)
Credit transfer       $20,000,000    UNCOMMITTED (buyer not identified)
Sponsor equity        $16,532,502    COMMITTED
                     ------------
Committed at close   $196,532,502    = 72.4%
Funding gap          $75,000,000     ← the real number

That second table reconciles mathematically and describes a completely different project. A financing with 72.4% of its sources committed at close has a $75m timing / commitment gap that must be covered by some committed source — sponsor equity, construction debt, a bridge facility or another enforceable funding commitment.

Three grades of commitment are worth distinguishing, because "committed" is doing a lot of work as a single word.

Unconditionally committed. A signed facility agreement with satisfied conditions precedent, or cash already contributed. The only remaining risk is the counterparty's solvency.

Conditionally committed. A signed agreement whose funding depends on conditions that are not yet met — tax equity funding at commercial operation subject to performance tests, a grant conditional on compliance certification, a facility whose remaining CPs include items outside the sponsor's control. These are real commitments and they can fail, and the diligence question is who controls each condition.

Uncommitted. A number in the table with no counterparty behind it. A credit transfer with no identified buyer, a mezzanine tranche still being marketed, an expected grant not yet awarded. These are plans, and treating them as sources is how funding gaps get discovered during construction rather than before it.

The useful output is not a single committed percentage but the three-way split, with the conditional tranche annotated by what each condition depends on. A project whose conditional sources all turn on its own performance is in a very different position from one whose conditional sources turn on a third party's decision.

How Do You Model This in Excel?

As a solved circularity with commitment status as a first-class field.

The solve

Iterate or solve algebraically:
   Total_Uses   = Construction + WC + DSRA + IDC(Debt) + Fees(Debt)
   Debt         = MIN( Gearing × Total_Uses , DSCR_Sized_Debt )
   Equity       = Total_Uses − Debt − Other_Sources

Converges in a handful of passes. Keep it separate from the operating-phase model.

The outputs nobody publishes

PF_FinancingCostPct  = (IDC + Fees + DSRA) ÷ Construction     =  8.0%
PF_EquityIncrease    = Equity with financing costs − without  = $5.4m
PF_CommittedPct      = Committed sources ÷ Total uses         =  see test two
PF_FundingGap        = Total uses − Committed sources

The bridge nobody models

Tax equity contribution       →  fund on the dates / conditions in the contribution agreement
Credit transfer settlement    →  fund on the contracted settlement date; transfer election is made on the return
Bridge requirement            =  peak cumulative gap before those proceeds arrive
Bridge cost                   =  actual drawn balance × rate × time + fees

The direct-pay and transferability timing must be mapped to the actual monetization documents. A §6418 forward purchase can provide a contracted settlement before the tax return is filed, while the transfer election itself is made on the return. Direct-pay refunds have a different timing profile. The sources-and-uses model needs the cash settlement date, not a generic “tax proceeds at COD” or “after filing” assumption.

ℹ️ Note: Add a column to the sources table for when each source funds, not just how much. A funding plan that is correct in total and wrong in timing is a liquidity failure, and the table as conventionally drawn cannot show one.

To build the solved sources and uses, the commitment classification and the bridge requirement, prompt Dezzmond with your capital budget and funding plan.

What Do Sponsors and Lenders Actually Check?

What percentage of sources is actually committed at financial close?
When does each source fund, and what is the peak cumulative gap?
Is the equity number a plug, and is there a commitment agreement behind it?
What is in the EPC price and what is explicitly outside it?
Is contingency sized against the risk or set at a conventional percentage?
How large is the development fee relative to actual development spend?
Are the financing costs in the table — IDC, all fees, and every reserve at its initial balance?

Frequently Asked Questions

Why can a sources-and-uses statement look balanced and still be unfunded?

Because the model can plug sponsor equity or another source to force arithmetic equality. If that amount is not committed, or a conditional source arrives after the related use, the project still has a funding gap.

How large are financing costs relative to construction?

Transaction-specific. In the worked example, IDC, fees and initial reserve funding add $20.0m to a $249.5m construction subtotal, or 8.0%. Recalculate from the actual draw curve, facility size, fees and reserve requirements.

What causes the circularity?

IDC, arrangement fees and the DSRA all depend on the size of the debt, while the debt is sized as a percentage of total project cost including those items. The loop is genuine and algebraic, and should be solved separately from the operating model.

What uses are easy to omit?

Items outside the EPC scope, interconnection / security postings, financing and advisory fees, initial reserves, working capital, import taxes / duties and owner-supplied equipment are common diligence checks. The actual omission risk depends on the project scope and contracts.

What is outside an EPC price?

Whatever the EPC scope schedules exclude. Depending on the project, that can include interconnection facilities, owner-supplied equipment, spares, permitting or utility connections. Compare wrapped and multi-contract structures using the actual scope, interface risk, support package and total financed uses.

How much contingency is enough?

Not a convention. Size it against the distribution of cost outcomes, which is asymmetric — estimates revise upward far more often than down. The useful test is how much the contingency must absorb before the cost-to-complete test fails.

Should tax-credit proceeds appear as a source?

Yes, if the project is genuinely relying on them — but attach commitment status and settlement timing. A forward §6418 purchase, spot transfer and §6417 elective payment have different cash dates, and the model must bridge any period between project costs and monetization proceeds.

Closing: A Document That Cannot Fail the Test It Is Given

Sources and uses often appears near the front of a financing model because it summarizes the capital budget and funding plan. Its arithmetic simplicity should not be confused with proof that the plan is fully committed and timed correctly.

That is a mistake of category. The table is a statement of a plan, not a verification of one. Its equity line is a residual that absorbs every error above it; its sources column says nothing about whether anyone has agreed to provide what it lists; and its totals say nothing about when any of it arrives.

Three additions fix most of that, and none is difficult. Add a commitment status to every source, so the gap between "listed" and "agreed" is visible. Add a funding date, so a plan that is right in total and wrong in sequence shows up as the liquidity problem it is. And report the financing cost as a percentage of construction, so the difference between a $250m project and a $271m financing is stated rather than buried.

None of those makes the table stop balancing. They make the balance mean something.

the next post takes the instrument that exists precisely because of the funding gaps this document reveals: the equity bridge loan.

Sources: SEC-filed project credit agreement — sources and uses required to demonstrate construction facility, loan commitments, equity and revenues are sufficient for remaining Project Costs · 2026 Project Swift credit agreement — project costs funded by construction / bridge loans after Initial Equity Contribution · SEC-filed construction credit agreement — detailed Construction Budget, draw schedule, equity commitment and independent-engineer requisitions · Dezzmond analysis; worked-example sources and uses are illustrative.