Large scale energy project financing: Long-term loans for construction viola-funding September 11, 2023

Large scale energy project financing: Long-term loans for construction

Large energy projects financing
Large energy projects financing: long-term loans for construction

Banks are showing strong interest in investing in the renewable energy sector amid a clear decline in interest in coal projects and large energy projects financing around the world. Most energy companies require some form of financial support, especially renewable energy projects. However, each business has unique requirements, which is why our team is open to any project.

Viola Funding Limited offers a full range of financial and engineering services for energy companies, including financing of energy projects, construction of power plants, substations and power lines under an EPC contract.

However, each business has unique requirements, which is why our team is open to any project.

Viola funding Limited  funds the following projects:

Construction and modernization of thermal power plants.
Construction of solar power plants of all types (PV and CSP).
Construction and modernization of hydroelectric power plants.
Construction of geothermal power plants.
Construction and financing of electrical substations.
Laying of transmission lines, etc.

Contact VIOLA FUNDING  for more details.

Sources of financing for large-scale energy projects

Traditional corporate financing is used when the amount of investment is adequate to the current scale and activities of the company.

Over the past decades, the energy sector, due to its strategic nature, has attracted significant private investment and bank loans. Most large companies in the sector raise funds primarily through project finance instruments or investment loans.

The 2008 crisis has increased the caution of commercial banks in providing loans, including investment loans to finance large energy projects. Caution is still expressed in increased requirements for borrowers, higher interest rates and shorter loan terms.

The high risk of investors associated with the preparation of project finance models contributes to the attractiveness of traditional methods of business financing.

Therefore, both energy companies and banks prefer a corporate finance model that avoids complex PF procedures and reduces costs.

Large companies in Poland, Spain, Germany and other countries are announcing multi-million dollar bond programs for financing of energy projects.

However, banks to protect their interests use separate contractual provisions, to some extent limiting the activities of the borrower. Restrictions usually apply to lending, guarantees, collateral, ownership structure, etc. These restrictions usually apply to the entire energy group.

The situation is completely different with project finance. Although the structure of the PF contractual relationship is much more complex, the restrictions mainly apply to special purpose vehicles (SPVs) and to a lesser extent affect the activities of the initiating company.

Since the loan refinances a finished project, which does not entail additional risks associated with the investment process, it can be provided on much more favorable terms compared to standard contracts.

Large scale energy project finance

VFL is ready to provide clients with various financing options for an energy project, helping to organize and coordinate financing. Both the initiator of the project and banks and investors cooperate with specialized companies responsible for due diligence.

In the case of large projects requiring funding from several or even a dozen financial institutions, the initiator usually hires a financial consulting team to make decisions.

Projects that are more costly than the company’s current assets require project finance.

Financing large-scale energy projects can take up to several years, especially if the initiator invites a wide range of participants.

Financing energy projects includes the following stages:

• Obtaining appropriate licenses and permits, negotiating concessions, etc.

• Development of a project concept and, in the case of attracting a large number of investors, establishing clear rules for their future cooperation.

• Analysis of the environmental impact of the future facility and obtaining environmental permits.

• Carrying out a feasibility study taking into account all aspects of the project.

• Obtaining funding for the project.

In the case of the construction of wind farms, the list of studies includes, but is not limited to, wind regime studies, environmental studies, market analyzes, as well as financial model audits, insurance and legal audits.

Project finance can be non-recourse or with limited recourse to the borrower, including the obligation to cover unplanned construction costs.

The financial documentation for project finance is stricter and more complete than for corporate finance. Unlike traditional investment loans, where financial ratios and company reports are assessed, the PF is based on indicators related to the cash flows generated by the future project, such as the minimum and average debt-service coverage ratio (DSCR).

Investment loans for large energy projects

Experts believe that project financing is a risky decision in turbulent times. In this case, only effective system solutions are able to ensure the success of investments.

Banks are willing to invest in the energy sector, which generates stable cash flows and has good prospects for the future. However, the large number of applications does not mean that all of them will be approved.

Investment loan is a loan provided to finance investments aimed at increasing the value of a company’s fixed assets. The needs for long-term investment in the energy sector in Europe, East Asia and Latin America are enormous.

Technological and regulatory uncertainty, which determines the hardly predictable efficiency of investment projects in the energy sector, remains a very serious problem for the market. The tightening of restrictions in the banking system is also becoming an important obstacle.

The second factor that requires a cautious approach to energy investment is the uncertain future direction of this sector.

Will it be renewable energy?
Maybe coal or nuclear power?
Or shale gas thermal power plants?

For this reason, investment loans for the construction of power plants and other large-scale energy projects continue to be an important tool.

Project initiators should carefully consider what kind of financial partners they want to see in their project.

Situations vary, and it is very important for energy companies to provide a strategy at all stages of the investment process, including the operation and maintenance of a new facility.

Viola Funding Limited is ready to become your reliable partner in Europe and beyond.

Are you looking for financing for energy projects?

eMAIL:[email protected]

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