Risk Mitigation Strategies for Renewable Energy Project Financing

Abstract

Project finance has emerged as a preferred financing vehicle for
renewable energy projects. Advanced application of project finance (struc-
tured finance) can further spur investment from institutional investors.
A key challenge is the perception of renewable energy projects as high-
risk. This article attempts to cover the entire breadth of risk factors and
spell out the corresponding risk mitigation strategies. Risk mitigation
strategies mentioned in the article cover a wide spectrum, ranging from
standard insurance covers/contracts to the judicious selection of project
attributes. The key, broad areas that influence project selection and at-
tractiveness are credit worthiness of project participants; attractiveness
and guarantee of future cash flows; host country profile; and the legal,
political, and market environment. This article should help project devel-
opers and investors alike to select/structure good projects and improve
their investment worthiness.