Public and private sector renewable energy projects can now directly access an investment pool of over $600bn through the UK-based Project Finance Exchange (PFX). Three years into its long-term mission of consolidating the fragmented $multi-trillion global project finance market, PFX is now under pressure from its registered investors to provide more energy transition projects with deal values from $100 million to $5 billion+, worldwide. Investor interest is highest in utility scale waste-to-energy (WTE), hydro, solar, bio-fuel and nuclear.
The project finance structure is unique because unlike M&A, venture capital (VC), mezzanine or other investment structures it does not rely on the assets, balance sheet or performance forecasts of the borrower. Instead, investors and their underwriters focus on the track record and financial stability of whoever is contracted to buy the output from the built project. Therefore, successful renewable energy project financings rest on the track record and financial stability of whoever the power purchase agreement (PPA) is with, usually a national or regional grid. Most financings are long-term debt with minority equity participation for the investor.
PFX CEO, Richard Osmann, said: “There is often confusion among business leaders and policymakers between financing the development of new renewable energy technologies, and the projects that bring those technologies on-stream. R&D needs risk-inclined capital which comes through VC, corporate investment and other structures, with which PFX is not involved. However, using today’s project finance structure there is abundant capital available to bring viable projects, using proven technologies including WTE, solar and bio-fuel, on-stream.”
PFX has also become the catalyst through which the global capital and insurance markets are now actively collaborating in order to get more projects financed. A+-rated insurance Wraps are now available backed by leading insurance markets, including Lloyds-of-London, enhancing the risk-mitigation and long-term returns already inherent to the project finance structure. This enables renewables projects, even in credit agency ‘borderline’ ratings jurisdictions, to successfully apply for finance.
In closing, Osmann said: “We have now achieved well over half-a-trillion dollars, and growing, of investable capital from our registered investors. They’re now putting constant pressure on us to provide them with fully prepared, submission-ready energy transition projects to finance. Only the investor can decide when a project is ‘shovel ready’ There is abundant capital available from the private and institutional capital markets to finance these projects, which is always through a special purpose vehicle (SPV). This leaves the project principals, be they public or private sector, free and clear of all financial liabilities, whilst still retaining ownership of the asset. Energy policymakers need to understand that there is no need to burden consumers or taxpayers with any so-called ‘energy transition levies’ at all, the private and institutional capital markets are ready, willing and waiting to carry this load.”
Current preferences for investors are deal values $100m to $5bn+ across WTE, hydro, solar, bio-fuel and nuclear. PFX provides advice and guidance on preparing project finance investment applications through its Intake Form and Listings Worksheet which can be downloaded, free, from the PFX website.