2011 International Conference on Alternative Energy in Developing Countries and Emerging Economies
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Table VII shows loan programs under the Revolving
Fund Program provided by a Thai commercial bank.
T
ABLE
.VII
L
OAN TERM SHEET
–
UNDER
EE/RE R
EVOLVING
F
UND
P
ROGRAM
Project Finance:
Company borrows debt for a
specific, standalone project, sponsored by a group of
investors. Debt will be paid off by using revenue
streams generated by the project. Loans are usually
senior debt, first priority claimant, and sponsors
cannot pay dividend before finishing servicing the
loans. Project finance is a nonrecourse loan (means
lenders have claims limited to what sponsors invest
in the project). Apart from normal assessment
process similar to corporate lending, lenders will
consider the participation and credential of all
immediate stakeholders and sponsors as shown in
Fig. 9.
Mezzanine Finance.
This is a quasi-equity
financing. It’s ranked between the top level of senior
bank debt and the equity ownership of a project or
company. Mezzanine loans take more risk than senior
debt because regular repayments of the mezzanine
loan are made after those for senior debts, however,
the risk is less than equity ownership in the company.
Mezzanine loans are usually of shorter duration and
more expensive for borrowers, but pays a greater
return to the lender (mezzanine debt may be provided
by a bank or other financial institution). A renewable
energy project may seek mezzanine finance if the
amount of bank debt it can access is insufficient: the
mezzanine loan may be a cheaper way of replacing
some of the additional equity that would be needed in
that situation, and therefore can improve the cost of
overall finance (and thus the rate of return for
owners) (Justice, 2009).
Fig. 10. Project finance architecture: a solar project case in
Thailand
Refinancing.
This is where a project or a business
has already borrowed money but decides, or needs, to
replace existing debt arrangements with new ones,
similar to refinancing a mortgage. Reasons for
refinancing include: more attractive terms becoming
available in the market (perhaps as lenders become
more familiar with the technology, meaning more
money can be borrowed against the asset); or the
duration of the loan facility, e.g. loans are often
structured to become more expensive over time
because of the increasing risk of changes to
regulation or market conditions. One of the results of
the financial crisis was that banks became extremely
reluctant to lend for more than 6 or 7 years, which
‘forced’ projects that required longer-term loans, to
refinance in the future, and take the risk of the terms
available at that time (Justice, 2009).
Venture capital, private equity and funds’ financial
solutions for renewable energy technologies
Venture capital (VC), private equity (PE) and
funds usually invest in equity. Types of investments
in renewable energy technologies depend on risk
appetite, stage of business operation, exit period,
direct-indirect investment, and expected return.
Justice summarized key features of each type of fund
as the following:
Venture Capital Funds
• Money raised from a wide range of sources with
high risk appetite to include insurance
companies, pension funds, mutual funds, high net
worth individuals
• Target new technology, new markets
• Interested in early-stage companies
• High risk of failure in every venture
• Investment horizon around 4-7 years
• Return requirement, many multiples of original
investment (50 – 500% IRR)
Private Equity Funds
• Money raised from a wide range of sources with
medium risk appetite to include institutional
investors and high net worth individuals
• Target opportunities with possibility for
enhanced returns (or ‘upside’)
