Scenario: a 150MW wind project needs 70% debt. The bank agrees — provided the security package has “no holes”: mortgaging everything from uninstalled turbines to 20 years of PPA cash flow. Power project finance is the art of “packaging” risk into bank-acceptable security.
Typical structure: 70/30 project finance
Power projects typically use project finance: ~70/30 debt-to-equity, serviced from the project’s own cash flow (PPA power sales). Banks underwrite on the PPA, EPC contract, insurance and sponsor capacity — not group assets (non-recourse or limited recourse).
Security package: from turbines to cash flow
- Future-asset mortgages: turbines, panels, equipment once installed — registered security transactions as prescribed.
- Leased land-use rights: annually-paid leases are more restricted for mortgage than lump-sum leases — rent structure directly affects bankability.
- Receivables pledges: PPA/DPPA power-sale proceeds — the “crown jewel” of the package.
- Parent guarantees, escrows, blocked project revenue accounts.
No “government guarantee” for project loans
As with PPAs, power project loans carry no government guarantee — banks bear project credit risk. Some special projects may have other support under specific decisions, but those are documented exceptions, never defaults.
Covenants: commitments banks monitor
Project credit agreements contain tight covenants: debt-service coverage ratios (DSCR), no-transfer-without-consent, no additional debt, insurance duties, periodic reporting. Breaches can trigger acceleration — sponsors must manage within the covenant “cage” for the loan’s life.
Frequently asked questions
1. How much debt do power projects typically carry?
Typically ~70% debt / 30% equity under project finance, serviced from the project’s own power-sale cash flow.
2. What secures power-project loans?
Future assets (turbines, panels), leased land-use rights, PPA/DPPA receivables, parent guarantees, blocked revenue accounts.
3. Can annually-paid leased land be mortgaged?
More restricted than lump-sum leases. Rent structure directly affects project bankability.
4. Does the government guarantee power-project loans?
No — ordinary power project loans carry no government guarantee; banks bear project credit risk.
5. What are power-project loan covenants?
Binding commitments: DSCR maintenance, no unconsented transfers/additional debt, insurance, periodic reporting; breaches can trigger acceleration.
This article has been quality-reviewed by the FLAW AI Legal Council.