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Power Project Financing

If you consider the importance of power i.e. especially electrical energy is an indispensable form of energy for mankind. But the problem associated with such power is that they are easily exhausted (think of coal, nuclear power etc). If you are suggesting anything regarding the use of renewable sources of energy/power like the wind, solar and water then let me tell you that the set up cost for each is so huge that it cannot be imagined. Even in the case of a nuclear plant or a coal plant, it requires huge capital investments and it needs special financing to accommodate for the funds.

Also the emergence of private enterprises in the energy sector has led to the beginning of new and innovative project ideas that help in meeting the energy demands. Now let us come to the main topic of discussion which is based on financing such projects related with power generation. This is very complex and getting a power project sanctioned from a financial institution is not an easy task which consists of lots of paper works, agreements and bonds to be signed. A normal financial agent involved in this business will carry out a detailed check about the creditworthiness of the project with the help of a team of experts involved in field work.

They will check all aspects regarding the risk factor, the measures that are necessary in order to avoid the risks, the possible outcome, the ways to make the project a financially profitable one and all those factors involving minute fiscal matters. Once they have done all these stuffs, it is up to them to decide on whether to sanction or leave the funding.

Even if they fund your project there are lot more in this to be learnt because no financier will single handedly take up the liability of the source of funds. He would get the assistances of other financier parties in order to reduce the impact of the losses in case the project turns out to be a failure. This is because the financier is the loser in case of any project funding as the borrower has nothing to give.

On the whole it is appropriate to say that power project financing is indeed a messy adventure and getting it sanctioned would take at least two or three years. Hope this article was helpful enough to make you understand the basic concepts of power project financing.

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