Renewables Finland: Financing

Private investments in Finnish projects typically combine equity and debt financing, with the latter primarily being sought in the form of non-recourse project financing. Project finance does not have a long tradition in Finland but has gained popularity with the rise of energy projects. As Finnish banks take a somewhat conservative approach, a significant portion of projects continues to be financed by other European banks.

Investors seeking funding must present their project in a way which will convince the lenders. This includes a suitable range of contractual relationships to secure the project resources and evidence that the permits required under public law have been obtained. The cash flow forecast must provide a sufficient reserve so that there is no question mark over whether all liabilities will be met under any circumstances (stress test).

From the perspective of the financing bank, the success of the project depends on all parties involved (sponsors, authorities, suppliers, insurance providers, etc.) making their contributions in full and in accordance with the contract at the scheduled times. This means that:

The project participants must be known to be reliable.

There is clear contractual definition of the obligations of the various participants and adequate compensation is stipulated in the event of breach of contract.

The various contracts must be reasonably coordinated to ensure the project implementation according to the cash flow and profitability calculation.

Banks will instruct their own trusted technical experts and lawyers to analyse the technical and legal risks involved in a project. If this due diligence exercise throws up problems, this will cause delay and it is possible that the loan conditions will become less favourable or that financing may not be forthcoming. To minimise the risk, an operator should conduct its own technical and legal assessment as soon as possible and, in any event, before the start of the financing negotiations.

The security package plays a key role for the project financing loan decision as the sponsors do not assume any personal liability. Next to an adequate proportion of equity financing, the bank will typically require pledges on all relevant project assets, the SPV’s bank accounts, and the shares in the SPV itself.