100% Financing for Solar Power Plant Projects

100% Financing for Solar Power Plant Projects

100% Financing for Solar Power Plant Projects

Published May 9 



The recent rise in the global construction and financing of solar power plants are rapidly in progression with less risks. This reflects the desire of governments and businesses to reduce dependence on fossil fuels, ensure energy security and environmental sustainability over the long term. Finding low-cost sources of financing for photovoltaic projects is becoming an important challenge for the development of renewable energy sources. In general, solar power plant project finance using various sources within the framework of individual financial models is considered more attractive for initiators of large projects compared to traditional bank loans.


Havelet Finance Limited offers 100% financing for solar power plant projects and long-term investments for the construction of large solar power plants around the world.



Financing Options for the construction of solar power plants

Financing covers all operational processes for the provision of financial resources necessary for the implementation of the project. The investor’s decision to participate in financing is made taking into account the risk, expected income and liquidity of the assets of a particular project.


Investors are mainly looking to maximize return on equity in the face of liquidity and security constraints. For this reason, it makes sense to carefully analyze the risk profile and profit forecast of the future power plant before choosing specific financial instruments and combining them into an appropriate financing structure. The profitability of solar power plants mainly depends on a realistic forecast of energy production and the stability of future cash flows in case of deviations from the plan.


This requires the involvement of qualified engineering companies to analyze the project. All of the options for financing photovoltaic projects described below assume that the solar power plant as a whole is profitable. Depending on the resources, scale and structure of the project, a distinction is made between traditional financing (loan or leasing) or the attraction of external funds through structured project finance.


All of the options for financing photovoltaic projects described below assume that the solar power plant as a whole is profitable. Depending on the resources, scale and structure of the project, a distinction is made between traditional financing (loan or leasing) or the attraction of external funds through structured project finance.


Bank loans

An interesting and a renowned method to finance renewable energy projects remains a bank loan. This is a debt financing mechanism. This type of financing is most suitable for small photovoltaic projects where the loan amount is relatively small and usually covers all investment costs. According to the loan agreement, one party (lender) transfers to the other party (borrower) the agreed amount of funds for the project.


The amount provided, increased by a certain interest rate, must be returned by the borrower within the agreed period. Financial terms are agreed between the interested parties individually, depending on the amount requested by the project initiator.


When it comes to applying for a bank loan to finance the construction of a solar power plant, a company can turn to one of the many commercial banks that finance renewable energy projects.


If the project meets certain bank parameters, administrative procedures for the borrower are simplified, and financial conditions become much more favorable (lower interest rates). The solar project will receive the planned funds only if it meets the expectations of investors.


In the case of banks or financial institutions, the term bankability is used, summarizing the numerous criteria used to assess the feasibility of financing photovoltaic projects of various types and sizes.


One of the most important advantages of this form of financing is that the borrower, although he must provide certain guarantees, retains full ownership of the solar power plant. —


Leasing

Leasing is an alternative mechanism for financing energy projects. This is a long-term contract under which the tenant company operates a solar power plant, paying the leasing company an amount that will cover the value of the asset plus interest. This model is usually applied to the financing of small and medium-sized solar power projects.


As a rule, it is focused on the duration of payments of at least 8–10 years. In many cases, the parties agree to include in the contract the option of buying the power plant by the lessee, although there are other options after the end of the contract.

Under the terms of the lease agreement, the lessee is usually responsible for insuring the power plant against damage, including natural disasters, theft of equipment, and the like.


Project Finance

Construction of solar power plants through project finance refers to structured finance. This model is characterized by the presence of several partners.


Each participant in such a project requires a high degree of awareness and rights to control and intervene at the time of a possible crisis in the project. The list of partners includes financial investors (e.g. investment funds), banks, landowners, an engineering company (EPC contractor), a solar power plant operator. In some cases, this includes the consumer of the generated energy, which can potentially assume controlled business risks during the project implementation.


One of the features of project finance is that a solar power plant is transferred to a legal entity created specifically for a photovoltaic project (Special Purpose Vehicle, SPV)


Basis of Solar power plant project finance

“project finance” PF is defined in the literature as financing of an independent, clearly separate economic unit (project). Interest payments and debt repayment using this financing model is made exclusively from the current cash flows of the investment project.


The assets associated with the project serve as collateral. Funding for any solar project involves planning, building and operating, with the construction phase requiring the highest investment over the life of the project. To make a decision on financing a solar power plant, the initiators must provide a full-fledged technical documentation, which contains rational technological processes, a clearly limited implementation period and the necessary financial and material resources.


To implement a photovoltaic project, a legally independent project company (SPV) is usually created, which can enter into loan agreements as a legal entity. Thus, the funds are allocated directly to the project company. Project sponsors are usually only liable for the funds invested, unless specific guarantees are provided. From a lender’s perspective, project finance is a typical example of profit-driven lending.


Loan approval is based on an assessment of the future chances of success of the planned project. Unlike the traditional lending business, it is difficult to verify the feasibility of building a future facility and requires careful analysis. There is no information about the previous situation with assets, including the past situation with profit and liquidity.


Meanwhile, this information is key to assessing a company’s creditworthiness. Analytical data and expert predictions about the likelihood of success of a photovoltaic project, obtained during the analysis process, are critical to the financing decision.


Despite the uncertainty, research shows that project finance is associated with less risk than classic corporate loans. Among the reasons for this, experts call careful monitoring by investors and managers, as well as a clearer structuring of financing. In general, three important aspects of project finance can be identified, namely the orientation of cash flows, the distribution of risks between project partners, and the principles of off-balance sheet financing.


Cash flows

Cash flow is the accumulation of funds for the period resulting from planned payments. The cash flow from a photovoltaic project, net of taxes, shows the amount of free financial resources that a company can use in the future, for example, to pay off debts. The stability and sufficiency of cash flow are important indicators of any investment project. Thanks to a carefully designed cash flow plan, lenders can determine the feasibility of a project and predict the return on investment. One of the most important performance indicators is the return on investment (RoI), which helps investors in deciding whether to participate in a project.


Design Company (SPV)

A dedicated project company usually takes the lead in arranging solar power plant project finance. It provides the necessary external capital. SPV also acts as a contractor for other project participant.


Project Initiators

In project finance, project imitators, also called sponsors, develop the idea of building a solar power plant and are usually responsible for operating it. Project initiators usually have more complex business goals than just selling electricity to the end consumer. These can be companies that expand their own value chains, increase the production of energy-intensive products using renewable energy sources, develop new markets, etc.


In the solar energy sector, photovoltaic panel manufacturers are interested in participating in solar projects in order to expand their markets. Buyers of the final product strive to ensure energy independence by participating in such projects.


Financial investors

In addition to the project initiators, financial investors can participate in the solar project as capital providers. They are interested in getting the most out of the capital invested in the project. Typically, investment companies, insurance companies, pension funds, and venture capital funds act as financial investors.


Their strategic role is significantly less than that of the project initiators. However, large projects can often be implemented only with their participation, especially if the project initiators do not have sufficient capital.


Project lenders

Lenders play an important role in financing solar energy projects as they provide most of the required capital. Leasing companies, development banks, international financing institutions, commercial banks and other financial organizations act as creditors. In the past decades, the most important source of debt capital for the construction of solar power plants has been loans from commercial banks. Many commercial banks offer special financing programs for solar projects.


Solar Power Project Finance; Our Main services

Havelet Finance Limited as an international loan lender and Financier offers a wide range of services in the field of engineering design, construction, operation and financing of solar projects.


Our solar power plant project finance services are not limited to financial modeling and professional advice.


We are ready to find interested partners for your project in Europe and beyond, using our extensive business contacts in many countries around the world. After defining the project profile and the number of participants, as well as their tasks and obligations,

Our teams of financial experts will offer you the optimal project finance structure for a solar power plant.

Website:

Email: credit@havelet-finance.com

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