Finance » Renewable Energy Projects

Instruments & Sources for Renewable Energy Projects

Instrument Sub Category Function Source
Equity Ordinary Shares Rsik capital from developer or sponsor Sponsor
Preference Shares Senior to ordinary shares, typically from tax investor; sometimes proviiding a cumulative dividend. Institutional Investors
Investment Funds
Tax Investors
Debt Subordinated Loan / Mezzanine Usually fixed rate, long-term and unsecured. May be considered as equity. Can be used to cover construction overruns or other guaranteed payments Lenders specialising in mezzaninen debt
Syndicated Loans Loan provided by two or more lenders, governed by a single loan agreement. May have different agreements for construction and operating phase of project. Provide long-term finance Banks
Senior Debt - unsecured / secured Large unsecured loans are only available to creditworthy corporations. Banks tend to limit their risk to 5 - 10 years. Commercial banks
Development Loan Financing provided during development of project to a sponsor with insuffiicient resources.
  • Lender with project experience
  • World Bank (only if project can not secure borrowing at reasonable rates from any other sources)
  • Vendor
Intermediary Loan Export-Import bank lends to a financial intermediary (commercial bank), which in turns lends to the project. Export Credit Agency
Private Placement

Direct sale of long-term debt / equity

Sophisticated investors including insurance companies, pension funds, trading companies
Eurobond Issued in amounts averaging $100m without prior registration or approval by any particular government. Terms usually range from 10 - 15 years. Loans may be made in any currency, fewer covenant than syndicated bank loans, and accessible through a large and liquid market. However, a credit rating for the project entity is required which could be both costly and time-consuming to obtain. Also, bond issues tend not to allow changes to the underlying project. Capital Markets
Guarantee Exchange Rate Risk A commercial lender provides a loan to the project entity (the importing entity), at below market interest rates. The Export-Import bank provides compensation for the difference between commerical rate and below-market rate Export Credit Agency
Political Risk Limited protection against risks of sovereign non-performance and against certain Force Majeure risks. Word Bank
Tax Relief

Tax Credits
Tax Holidays
Duty exemption

Individual governments may offer tax incentives Host governments

 

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