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What you will gain An overview of the concepts and approach used in structuring and arranging project finance transactions for major infrastructure schemes in the UK and overseas An understanding of risk analysis and risk management technique A project appraisal methodology An understanding of the language and approach of financiers Insight into the drivers, approaches and concerns of the key players involved in creating and financing major projects A focus on finance and the tools to value a project Programme outline Introduction and overview of project finance Definition of project finance Project finance as opposed to financing of a project Limited-recourse and non-recourse finance Main features of project finance Parties involved - interests and roles Importance of cash flow Documentation - what are the aims?

1.2 - What Is Project Finance?

Volatility What is the project and why should it take place? What are the key operating assumptions?

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  • The venue for this course will be confirmed 14 days before the scheduled date. Find out more. Price: GBP 1, Are the costs and revenues predictable or, ideally, contractually guaranteed e. Investors will look for contracts or historical data that demonstrate that the revenues will be sufficient to cover both the original loan amount, plus the additional required return, plus a cushion, just in case anything goes wrong.

    A second important factor for consideration is the size of the project.

    Presentation on theme: "INTRODUCTION TO PROJECT FINANCE"— Presentation transcript:

    Although you might have lots of different kinds of investors, the overhead costs of setting up this kind of financing makes it prohibitive if the amount of capital needed is too small. On the flip side, requiring too much capital may scare off investors or raise the cost of capital for the project.

    Introduction to Project Finance Modeling

    Finally, most other evaluation criteria can be classified as risk. Are there enough physical assets to cover the loans in the case of bankruptcy? Is the technology well established? Are the suppliers reliable?


    Who has ultimate control over the project? How transparent are you willing to be? The answers to each of these questions affects the willingness of lenders and investors to commit money for a given return, ultimately making or breaking the project. Given its complicated nature, why would you choose to utilize project finance instead of other options?

    In general: to protect your assets. Finally, especially important to renewables, this kind of structure can allow a company without taxable income to capture the value of tax benefits created. On the downside, a sponsoring company gives up a substantial amount of control and potentially raises the cost of capital for the project by creating a project company. If Little Energy fails and defaults, Big Energy will not get anything back, because the lenders will take control of Little Energy.

    Even with these downsides, many projects still utilize project finance.

    Introduction to Project Finance

    It might not seem the most straightforward option, but you get your project, lenders get their returns, and the world gets wind farms, oil pipelines, and natural gas plants. This overview has been pretty straightforward, but we mentioned that investors might be in it for the tax benefits. Many energy projects offer special tax benefits, from the production tax credit PTC for wind, to exploration benefits for oil companies.

    In many cases, these projects may not generate enough taxable income to have to pay taxes, but your investors may be trying to lower their tax liability.

    Utilizing even more complicated mechanisms, such as a sale-lease-back or a partnership, the project company can transfer the tax credits to investors, who will then require less of a return on their investment because their taxes will be reduced. In addition to the general requirements for a project company, in power, specifically, the market matters. In the U. Simply put, in regulated markets, the costs of a project are generally approved by the utility commission and can be recovered through charging customers.

    Presentation on theme:

    As a result, projects in merchant markets generally require a long-term power purchase agreement with a local utility to be financially viable. Asset — anything a company owns that will bring it future economic value; can include cash, intellectual property, or equipment, among other things. Capital — a fancy word for money, it can refer to both debt and equity investments.

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    • Cash Flow — the amount of cash being generated by the company; it is often different than the profits as there are non-cash expenses like depreciation in profits. Cost of Capital — when taking on either a loan or an equity investment, this is how much the company will pay for the privilege of taking the money; in the case of loans, it would be the interest rate. Credit Rating — a rating provided by a third party that reflects the likelihood of a company paying its debt, it will determine the interest rate on loans made to that company.

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      Debt Capacity — a company can only take on so much debt before it affects their credit rating and becomes difficult to find investors willing to make it loans. Debt — money lent to a company that will have a timeline for repayment and a guaranteed rate of return for the person loaning the money.

      Liability — something that a company is obligated to pay in the future, like loans, pensions, or money owed to suppliers. Profit — the amount of money a company is making after paying out all of its expenses and accounting for things like depreciation. Revenue — the amount of money a company is earning before taking into account expenses.