Project finance is the long term financing of infrastructure and industrial projects based upon the projected cash flows of the project rather than the balance sheets of the project sponsors. Usually, a project financing structure involves a number of equity investors, known as sponsors, as well as a syndicate of banks that provide loans to the operation. The loans are most commonly non-recourse loans, which are secured by the project assets and paid entirely from project cash flow, rather than from the general assets or creditworthiness of the project sponsors, a decision in part supported by financial modeling. The financing is typically secured by all of the project assets, including the revenue-producing contracts. Project lenders are given a lien on all of these assets, and are able to assume control of a project if the project company has difficulties complying with the loan terms.
From my discussions so far with professionals in the Indian renewable energy industry, it appears that most (if not all) debt financing that happens in India is of the Financing with Recourse type, with almost none that are in the pure project finance category. Well, that is not really good news because it means that first time entrepreneurs have little chance of securing loans as they have really very little to use as a lien outside of the project assets!
I’d like to know from readers whether this is indeed the case – that there’s little or no project finance for renewable energy in India? I am in fact hoping I’m wrong!
Some useful reading on this topic I found:
The First Ever Off-Shore Wind Farm Financed by Banks… – (2006 article, but still instructive)