Form of Financing Renewable Energy Projects: Corporate Versus Project Finance, Capital Markets and Green Bonds
摘要
Renewable energy infrastructure requires special forms of financing, particularly the ones used for large-scale projects. They could be compared to financing forms typically used to fund highways, railways, tunnels, airports, or telecommunication grid equipment. This is mainly due to their capital-intensive nature and their extended payback time. As far as power generation is concerned, some large utilities have the financial strength to finance their infrastructure projects on their own, through their balance sheet. But usually, these utilities act just like project promoters who first develop their projects with the support of venture capital (among others) and then, for the construction, which requires multimillion funding, seek the contribution of solid lenders. Indeed, the most common form to finance renewable energy plants is the so-called Project Finance. This form of financing is based on high leverage, long-term loans, and the standalone company concept (the project is legally isolated from the ownership of the original promoter). The latter is one of the key differentiators that distinguishes Project Finance from Corporate Finance. In Project Finance, the assets are the obtained permits and licenses to operate the future plants, they are also the relevant contracts that the project has entered into. Lenders thoroughly analyze them (just like they would do with the assets of a balance sheet in Corporate Finance), before signing off long-term unsecured loans. This involves detailed due diligence, risk-and-return analysis, risk allocation, etc. There are further forms of financing such as by issuing bonds in the capital market, even though this form applied to renewable energy infrastructure is still in its early years. The chapter introduces these three forms of financing, project finance, corporate finance and green bonds. Because it is key in investing and financing renewables, it also extensively presents the different stages of the project and their implications on the project’s risk and return profile.