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This paper provides a review of the state of the art of project finance methodology. The growing body of literature in this field serves to emphasize the increasing use and new areas of application of project finance techniques. The paper attempts to describe the main features of project finance, to explain the role of the participants, and the mai...
Citations
... Project finance has been used to fund long-term and large-scale infrastructure projects worldwide (Garcia-Bernabeu et al., 2015). For example, project finance completed 96% of the solar projects from 2010 to 2015 in Germany (Steffen, 2018). ...
Solar energy is one of the fastest‐growing renewable energy resources globally, with solar photovoltaic (PV) technology being a promising application designed to add usable solar power to the national energy mix of several countries. The Taiwan government announced that the targeted amount of electricity generated from renewable sources shall increase to 20% of its total energy supply by 2025, in which 20 GW capacity is expected to be achieved by solar PV power. This study aims to design index‐based insurance to manage the volatility risk of solar radiation on energy production. We apply auto‐regressive integrated moving average models to predict monthly and annual energy production for a solar PV power plant in Taiwan and use the estimated results to calculate the pure premium rates for the designed insurance product. The daily data on solar irradiation are from NASA surface meteorology and solar energy, spanning 35 years from January 1984 to December 2018. The analyzed results reveal that the index‐based insurance approach can protect against the impact of insufficient solar radiation on solar PV energy production to strengthen investment security for solar PV projects.
... Moreover, ref. [34] provided a review of the state-of-the-art indicating the main features to explain the role of the PF participants and the main contractual arrangements. This work analyzed 148 papers from Scopus covering the period 1969-2020. ...
The purpose of this study is to analyze the extant literature on Project Finance (PF) with a comprehensive understanding of the status quo and research trends in the mining industry. Thus, this study utilizes a scientometric review of global trends and structure of PF and mining research from 1977 to 2020 using techniques such as co-author, co-word, co-citation, and cluster analyses. A total of 80 bibliographic records from the Scopus database were analyzed to generate the study’s research through scientometric networks. The findings indicate a steady growth of the research field, which includes Environmental, Social, and Governance criteria. The most significant contributions have originated mainly from the United States, Australia, the United Kingdom, and South Africa. The main research trends identified several issues related to risk, management, and financing concerns. This study provides researchers and practitioners with a comprehensive understanding of the status quo and research trends of ontology research within PF in the mining context and promotes further studies in this domain.
... PF has been used to fund long-term and large-scale infrastructure projects worldwide since approximately 50 years ago (Garcia-Bernabeu, VITORIA and Verdú, 2015). The key factors for the success of PF are reviewed in (Gatti, 2013;Steffen, 2018). ...
Project finance is based on the future cash flow of projects. Ensuring that the expected revenue of projects will cover the debt and equity obligations issued by lenders and shareholders is crucial. The uncertainty of solar resources is among the highest, and it causes fluctuations in the future cash flow of solar photovoltaic (PV) projects. To reduce this uncertainty, several methods such as measure-correlate-predict (MCP) analysis, have been applied. However, MCP is an oversimplified linear regression method that disregards the difference between the parameters and conditions of different hours throughout a day; hence, it cannot provide accurate and reliable results. Here, we propose a methodology based on Bayesian updating, which is a robust probabilistic approach to reduce the aforementioned uncertainty. We use the Metropolis-Hastings algorithm and four years of onsite measurements to obtain the posterior distribution of hourly solar resource data. Then, we demonstrate that our proposed method improves the reliability of indices of project finance deals by applying it to a 10 MW solar PV project. To facilitate decision-making in determining the leverage for a project finance deal, particularly in the case of material default, we introduce conditional value-at-risk (CVaR) for the distribution of the debt service coverage ratio (DSCR). We calculate DSCR in three cases: applying MCP and the Bayesian updating method for risk mitigation and without using any risk reduction approach. The results demonstrate that higher financial leverages can be selected by choosing a rational threshold amount for CVaR that corresponds to the boundary of material default.
Project finance continues to be one of the most critical sources of financing infrastructure projects in the world. The growth of project financing is directly related to private sector involvement in infrastructure projects, including the adoption of public–private partnership arrangements for implementing the projects. The robustness of project finance is based on agreements between various stakeholders, the due diligence that is conducted on the project cash flows, the ability of each of the stakeholders, and the general risk management framework that is adopted across the transaction. The risks in infrastructure projects are very high during the construction period and taper off substantially after the initial operations period. An appropriate investment de-risking mechanism is needed for projects or sectors to make the same attractive for the private sector. The global financial crisis proved to be a major transformation point in project financing. The monoline industry providing guarantees wound down, the export credit agencies and the multilateral financial institutions, pension funds, and insurance companies increased their participation, both through debt and equity. Infrastructure debt funds have come into existence to fill the gap created by commercial banks. The incremental transformation across all the relationships and practices continues to provide a stable platform for the growth of infrastructure development in the world.KeywordsBanksPension fundProject financePublic–private partnershipRisk managementSpecial purpose vehicle
Projektno financiranje je način osiguravanja financiranja koje se
razlikuje od konvencionalnog, klasičnog financiranja. Cilj rada je
utvrditi i analizirati glavne odlike projektnog financiranja,
sudionike, faze projektnog financiranja te glavne rizike koji se
susreću kod tog vida financiranja, te usporediti konvencionalno,
klasično kreditiranje sa projektnim financiranjem. Obzirom da je
jedna od glavnih značajki projektnog financiranja da se povrat
financiranja oslanja samo na novčane tokove projektnog društva,
u radu se nastoji istražiti i analizirati opće i projektno specifične
rizike i kako ih minimizirati. Metode korištene u ovom radu su:
metode analize i sinteze, metoda deskripcije, statističke analize,
grafičko prikazivanje odnosa sudionika u projektnom financiranju
te metoda klasifikacije. Projektno financiranje je zastupljeno u
praksi domaćih poslovnih banaka i međunarodnih financijskih
institucija koje su prisutne u Republici Hrvatskoj. No,
zastupljenost projektnog financiranja mogla bi biti i značajnija.
Pretpostavka veće zastupljenosti je bolje poznavanje odlika i
karakteristika projektnog financiranja. Stoga je doprinos ovog
rada u boljem poznavanju elemenata i strukture projektnog
financiranja sa ciljem detaljnijeg približavanja kako teoretskih
tako i praktičnih aspekata problematike projektnog financiranja.
This paper highlights the significant aspects of the project finance theme in terms of the prospective return of the infrastructure project, the risk mitigation feature of project finance in addressing various risks, and future stability requirements in achieving the future country growth target through infrastructure investment. This paper attempts to investigate the determinants of the total interest rate charged on project finance. We found that the critical risk factor does not affect the interest rate, because the critical risk factor with the proxy of political stability and government effectiveness does not affect the interest of project financing loans due to the characteristics of ASEAN-4 countries.
Despite the widespread attention for the private financing of infrastructure projects, actual empirical work on financing public-private partnerships remains limited. Especially the topics of return on equity and lenders’ cash flow control in relation to uncertainty are under-researched. The aim of this paper is to investigate and discuss the mechanisms applied by private financiers of infrastructure projects to protect their returns on investment. Using semi-structured interviews, the qualitative viewpoints of infrastructure financiers and their consultants on infrastructure investment are examined. The findings identify nine control mechanisms that financiers apply, including a range of asset and risk diversification portfolio strategies for their infrastructure investments, and reveal that they depend on governance mechanisms relating to the project environment, relations, knowledge and expertise. Hence, this study provides a better understanding of the actions and mechanisms applied to protect a return on infrastructure investments that leverage partnering strategies between public authorities and private investors in public infrastructure projects. This contributes to the debate on project financing under uncertainty and its implications for project governance in public private partnerships.
Introduction. Transformation of economic relations determines the need for real investment, without which it is impossible to upgrade and expand the production potential of economic agencies and the production of competitive products and services.
Purpose. The main purpose of the study is to deepen the theoretical and methodological foundations and to monitor the risks of project financing in the current conditions of the development of the national economy.
Results. The article focuses on the problem of project finance market’s development in the context of uncertainty and risk. The authors consider scientific views on project finance. The systematization of scientific views on the definition of “project financing” has given the authors a possibility to establish the decisive role for banks, taking into account the requirements for the formation of the project itself, its support, risk evaluation and support. The theoretical foundations of project financing are determined, namely: the economic essence of project financing, features of project financing; functions of banks in the process of project financing; principles of its implementation, as well as subjects and objects of this process. The analysis of the current state of bank’s project finance showed that the activity of domestic banks in the project finance market remains low. This is due to the negative impact of environmental factors such as unsatisfying market transformation’s rates; the low level of development in the real sector; the weak and insufficiently transparent financial position of a large number of corporate entities; the underdeveloped of the stock market’s infrastructure; uncertainties about the land market; the low level of protection for creditors’ rights; the high country-risk. It is formed the scheme of sequential actions of a bank for deciding on project finance.
Conclusions. The authors clarify the classification of project finance risks. Project finance risks include: credit risk, interest rate risk in the banking book, market risk, compliance risk and innovation risk. The necessity of introducing mezzanine lending to minimize project financing risks has been proved.
