Energy
Energy Project Development
DMC partners have delivered customised solutions for the Energy sector from oil & gas to power generation.
Private Power Financing - From Project Finance to Corporate Finance
Limited recourse project financing of power generation projects has been widely promoted as a solution to the intractable problem of getting private
credit to a sector dominated by non-creditworthy borrowers and public agencies—from the point of view of both those supplying capital and those needing it.
When the lights are going out, incumbent power enterprises are financially unviable, and the public purse is nearly empty, project financing of independent
power producers (IPPs) may seem the only way to get new capacity fast. In the developing world, however, the public-private partnership in project-financed IPP
ventures has been disappointingly slow to produce results.
Greater corporate finance support will make it possible to raise private capital for independent power financing from wider, deeper, and cheaper sources.
But innovative strategies will be required from governments, lenders, investors, and power sector enterprises alike. The following strategies are worth considering:
- Encourage the formation of large, well-capitalized independent generation companies. Purely private and quasi-private variants of the Huaneng merchant generation model in
China might be workable in large power systems.
Healthy competition should be engendered through prudent regulatory reviews of the market power of the IPP in a particular system.
- Encourage divestiture of commercially operating (and perhaps under performing) generation plants by incumbent utilities to IPP developers. These sales should be conditional on the purchaser’s commitment to making specified investments.
By making positive revenue streams available to IPP developers immediately, such transactions would give them the financial base to invest in multiple plants.
- In IPP pre qualification under competitive bidding, give greater weighting to IPP developers with businesses listed on a stock exchange and to those with well-capitalized balance sheets.
The strategic goals of publicly held entities are likely to be more transparent and longer term because of these entities’ obligations to public shareholders.
- Encourage project sponsors to use balance sheet support for subordinated debt and quasi-equity portions of the project financing plan in order to increase corporate financing. This strategy would ease the overall financing costs of projects and could be
a transitional strategy for meeting the huge financing needs for IPPs in developing countries.
We can arrange up to 100% project finance via a combination of debt and equity on a non-recourse basis.