|
|
| Line 3: |
Line 3: |
| | | | |
| | = Overview = | | = Overview = |
| − |
| |
| − | = Debt Finance =
| |
| | | | |
| | Debt financing comes in the form of loans and requires the repayment of both the principal sum borrowed and interest charged on that principal. Generally financial institutions will only provide debt finance to projects and project developers once the market is mature and therefore often need encouragement to enter the market. Debt finance can be provided to local finance institutions to allow them to on-lend to consumers, to project developers, or debt can be provided directly to a project developer. The debt must be repaid whatever the outcome of the project <ref name="Wade, H. (2005). Financing Mechanisms for Renewable Energy Development in the Pacific Islands.">Wade, H. (2005). Financing Mechanisms for Renewable Energy Development in the Pacific Islands.</ref> | | Debt financing comes in the form of loans and requires the repayment of both the principal sum borrowed and interest charged on that principal. Generally financial institutions will only provide debt finance to projects and project developers once the market is mature and therefore often need encouragement to enter the market. Debt finance can be provided to local finance institutions to allow them to on-lend to consumers, to project developers, or debt can be provided directly to a project developer. The debt must be repaid whatever the outcome of the project <ref name="Wade, H. (2005). Financing Mechanisms for Renewable Energy Development in the Pacific Islands.">Wade, H. (2005). Financing Mechanisms for Renewable Energy Development in the Pacific Islands.</ref> |
| Line 22: |
Line 20: |
| | {| cellspacing="1" cellpadding="5" border="0" style="font-size: 13.63636302947998px; width: 100%" | | {| cellspacing="1" cellpadding="5" border="0" style="font-size: 13.63636302947998px; width: 100%" |
| | |- | | |- |
| − | | style="text-align: center; background-color: rgb(79, 129, 189)" colspan="3" | <font color="#ffffff"><span style="line-height: 20.39583396911621px">'''Senior Debt'''</span></font> | + | | colspan="3" style="text-align: center; background-color: rgb(79, 129, 189)" | <font color="#ffffff"><span style="line-height: 20.39583396911621px">'''Senior Debt'''</span></font> |
| | |- | | |- |
| | | style="background-color: rgb(219, 229, 241); text-align: center" | '''Uses''' | | | style="background-color: rgb(219, 229, 241); text-align: center" | '''Uses''' |
| Line 28: |
Line 26: |
| | | style="background-color: rgb(219, 229, 241); text-align: center" | '''Disadvantages''' | | | style="background-color: rgb(219, 229, 241); text-align: center" | '''Disadvantages''' |
| | |- | | |- |
| − | | <div title="Page 36 " class="page"><div class="layoutArea"><div class="column"><div title=" Page 25" class=" page"><div class="layoutArea"> | + | | <div class="page" title="Page 36"><div class="layoutArea"><div class="column"><div class=" page" title=" Page 25"><div class="layoutArea"> |
| | *Reduces project costs.<br/> | | *Reduces project costs.<br/> |
| | *Provides long-term finance. | | *Provides long-term finance. |
| | </div></div></div></div></div> | | </div></div></div></div></div> |
| − | | <div title=" Page 36" class=" page"><div class="layoutArea"><div class="column"> | + | | <div class=" page" title=" Page 36"><div class="layoutArea"><div class="column"> |
| | *Obligation to repay creates incentives for project viability.<br/> | | *Obligation to repay creates incentives for project viability.<br/> |
| | *<span style="line-height: 1.5em">Repayment of principal frees funds for further support to RET projects.</span><br/> | | *<span style="line-height: 1.5em">Repayment of principal frees funds for further support to RET projects.</span><br/> |
| | *<span style="line-height: 1.5em"></span>Used as a means to increase CFI involve- ment in RET projects (through provision as credit lines). | | *<span style="line-height: 1.5em"></span>Used as a means to increase CFI involve- ment in RET projects (through provision as credit lines). |
| | </div></div></div> | | </div></div></div> |
| − | | <div title=" Page 36" class=" page"><div class="layoutArea"><div class="column"> | + | | <div class=" page" title=" Page 36"><div class="layoutArea"><div class="column"> |
| | *Need for due diligence to verify ability of project to repay loan increases transaction costs.<br/> | | *Need for due diligence to verify ability of project to repay loan increases transaction costs.<br/> |
| | *<span style="line-height: 1.5em">Leverage is limited and may crowd out potential private providers of debt.</span> | | *<span style="line-height: 1.5em">Leverage is limited and may crowd out potential private providers of debt.</span> |
| Line 52: |
Line 50: |
| | | | |
| | <br/> | | <br/> |
| − | <div title=" Page 36" class=" page"><div class="layoutArea"><div class="column"> | + | <div class=" page" title=" Page 36"><div class="layoutArea"><div class="column"> |
| | {| cellspacing="1" cellpadding="5" border="0" style="font-size: 13.63636302947998px; width: 100%" | | {| cellspacing="1" cellpadding="5" border="0" style="font-size: 13.63636302947998px; width: 100%" |
| | |- | | |- |
| − | | style="text-align: center; background-color: rgb(79, 129, 189)" colspan="3" | <font color="#ffffff"><span style="line-height: 20.39583396911621px">'''Subordinated Debt / Mezzanine Finance'''</span></font> | + | | colspan="3" style="text-align: center; background-color: rgb(79, 129, 189)" | <font color="#ffffff"><span style="line-height: 20.39583396911621px">'''Subordinated Debt / Mezzanine Finance'''</span></font> |
| | |- | | |- |
| | | style="background-color: rgb(219, 229, 241); text-align: center" | '''Uses''' | | | style="background-color: rgb(219, 229, 241); text-align: center" | '''Uses''' |
| Line 61: |
Line 59: |
| | | style="background-color: rgb(219, 229, 241); text-align: center" | '''Disadvantages''' | | | style="background-color: rgb(219, 229, 241); text-align: center" | '''Disadvantages''' |
| | |- | | |- |
| − | | <div title="Page 36 " class="page"><div class="layoutArea"><div class="column"><div title=" Page 25" class=" page"><div class="layoutArea"> | + | | <div class="page" title="Page 36"><div class="layoutArea"><div class="column"><div class=" page" title=" Page 25"><div class="layoutArea"> |
| | *Provides intermediate funding between equity and senior debt, which helps reduce risks to senior lenders while not taking control away from project sponsors.<br/> | | *Provides intermediate funding between equity and senior debt, which helps reduce risks to senior lenders while not taking control away from project sponsors.<br/> |
| | *By doing so, can extend the term and reduce costs of senior debt.<br/> | | *By doing so, can extend the term and reduce costs of senior debt.<br/> |
| | </div></div></div></div></div> | | </div></div></div></div></div> |
| − | | <div title=" Page 36" class=" page"><div class="layoutArea"><div class="column"> | + | | <div class=" page" title=" Page 36"><div class="layoutArea"><div class="column"> |
| | *High level of leverage.<br/> | | *High level of leverage.<br/> |
| | *<span style="line-height: 1.5em">Crowds in senior debt by allowing projects to meet acceptable risk criteria for lenders.</span> | | *<span style="line-height: 1.5em">Crowds in senior debt by allowing projects to meet acceptable risk criteria for lenders.</span> |
| | </div></div></div> | | </div></div></div> |
| − | | <div title=" Page 36" class=" page"><div class="layoutArea"><div class="column"> | + | | <div class=" page" title=" Page 36"><div class="layoutArea"><div class="column"> |
| | *It is generally custom designed for each project, implying high transaction costs.<br/> | | *It is generally custom designed for each project, implying high transaction costs.<br/> |
| | *<span style="line-height: 1.5em">Significant risk transferred to public financ- ing agencies, but with only limited ability to control these risks.</span> | | *<span style="line-height: 1.5em">Significant risk transferred to public financ- ing agencies, but with only limited ability to control these risks.</span> |
| Line 80: |
Line 78: |
| | </div></div></div> | | </div></div></div> |
| | <br/> | | <br/> |
| − | <div><div title=" Page 36" class=" page"><div class="layoutArea"></div></div></div></div> | + | <div><div class=" page" title=" Page 36"><div class="layoutArea"></div></div></div></div> |
| | = Further Information = | | = Further Information = |
| | | | |
| − | *[[Portal:Financing_and_Funding|Financing and Funding Portal on energypedia]] | + | *[[Portal:Financing and Funding|Financing and Funding Portal on energypedia]] |
| | *[[Financial Instruments & Support for Renewable Energy|Financial Instruments & Support for Renewable Energy]]<br/> | | *[[Financial Instruments & Support for Renewable Energy|Financial Instruments & Support for Renewable Energy]]<br/> |
| | <div><br/></div> | | <div><br/></div> |
Debt financing comes in the form of loans and requires the repayment of both the principal sum borrowed and interest charged on that principal. Generally financial institutions will only provide debt finance to projects and project developers once the market is mature and therefore often need encouragement to enter the market. Debt finance can be provided to local finance institutions to allow them to on-lend to consumers, to project developers, or debt can be provided directly to a project developer. The debt must be repaid whatever the outcome of the project [1]
Senior debt provided from public sources, takes its place among the first creditors to be repaid from a project. It is primarily used to reduce the costs of the project, by providing concessionary funds that may be blended with more expensive commercial funding, and to offer longer-term debt than may be available in local financial markets. Long-term loans from public sources can also help establish credibility among private financiers for longer-term lending to RE projects. A wide variety of debt amortization and repayment schedules can be used, allowing tailoring of debt service costs to project cash flows. For example, a bullet (one-off) repayment of the loan principal may be made at the end of the loan term, reducing debt service costs in the initial years of the project[2].
A distinction can be made between direct loans to project companies and the provision of credit lines extended through commercial financing in- stitutions (CFIs) or other intermediaries. Credit lines can create incentives for intermediaries to extend their own loans to RET projects along- side that funded from the credit line as well as allowing blending of commercial and conces- sionary loans to reduce overall costs. The choice of intermediaries is discussed in chapter[2].
