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Project Finance Renewable Energy Projects Risk Analysis

Project Finance Renewable Energy Projects Risk Analysis

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Published by Ashutosh Agrawal
A report summarizing risk analysis and mitigation of renewable energy projects from project finance perspective.
A report summarizing risk analysis and mitigation of renewable energy projects from project finance perspective.

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Categories:Business/Law
Published by: Ashutosh Agrawal on Jul 29, 2010
Copyright:Attribution Non-commercial

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01/16/2013

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Ashutosh Agrawal1
Project finance forRenewable Energy Projects
Risk Analysis
Aug 2009Ashutosh AgrawalBlog:www.frontiers2explore.blogspot.com LinkedIn:www.linkedin.com/in/itsmeashu Email: aagrawal.ie@gmail.com
 
Ashutosh Agrawal2
Contents
What is Project Finance .......................................................................................................................... 3Benefits of Project Finance ..................................................................................................................... 4A Note on Structured Finance ................................................................................................................. 5Risk Considerations for Renewable Energy Projects .............................................................................. 6Key Findings ............................................................................................................................................ 9Works Cited ........................................................................................................................................... 10
 
Ashutosh Agrawal3
What is Project Finance
Project finance involves the creation of a legally independent project company financed withnonrecourse debt for the purpose of investing in a capital asset, usually with a single purpose and alimited life.In context of an electric power project, the project company who owns the power project is thelegally independent entity. It is separate from its sponsoring firms. These sponsoring firms aretypically one to three which can be an EPC(Engineering Procurement & Construction) company or afuel (for power plant) company or an electrical utility or others. The sponsors contribute equity tothe project company typically upto 30% of total capitalisation. This equity appears as investments inbalance sheet of sponsors. The rest 70% comes in form of non-recourse debt.Non-recourse debt would mean that in event of default the debt holders have no claim on sponsors’assets. This in stark contrast with debt on corporate balance sheet where debt holders have claim oncorporate assets. In case of project finance the debt holders have claim only on the assets and thecash-flows of the project company. The project finance deal is characterised with large amount of contracts covering supply of inputs (Eg: fuel supply), purchase of outputs (Power off-takeagreement), EPC, Operations, Insurance and numerous others.Project finance has emerged as one of the most important financing vehicles for investments in thenatural resources and infrastructure sectors such as power plants, toll roads, mines, pipelines,airports, railways and telecommunications systems. (1)

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