Introduction to Renewable Energy Project Finance

What is Project finance?

Project financing generally targets projects which are not yet built and only exist in the form of legal documents such as contracts and regulatory permits. In project financings, the borrower is often a weak credit, and its revenue streams are often highly risk-exposed and unpredictable. This unpredictability stems from the type of underlying assets being financed; whereas such assets can be integral to the functioning of an economy, the revenue derived therefrom can be dependent on factors which are not easily predictable.

What are the key features of project finance?

A key feature of project finance is that it involves no, or at least limited, recourse against the sponsors, the ultimate owners of the project being financed. Project finance focuses more or less entirely on the underlying assets of a project, often in the form of a term facility to fund the construction of the project.

What is SPV?

This is a company often referred to as a project company or a special-purpose vehicle (SPV), which is generally the bottom subsidiary in a broader corporate structure. Its only assets will be those required for the project. These assets will initially consist of just a set of contracts and permits; for example, a permit to supply power.