Impact of the Global Financial Crisis 2007 on Project Finance in the Renewable Energy Sector

This study provides descriptive evidence on the adjustment in selected determinants of the credit margin carried out by project participants in the renewable energy sector facing the Global Financial Crisis after 2007. A dataset comprising financing parameters of 950 credit tranches granted in the renewable energy sector in the years 2000-2011 was retrieved from the database Dealogic ProjectWare. We provide descriptive evidence on the impact of the Global Financial Crisis after 2007 on the credit margin. The selection of determinants is based on the existent literature as well as on the realization of 13 case studies of project-financed transactions in the renewable energy sector. Our results show the substantial upward effect on the margins, shorter credit maturities and the need of considerably larger collaterals in order to achieve a Financial Close for projects initiated after the year 2007. A thorough examination of the methods of financing, the structure of project finance, the risk assessment methods and collaterals complement our analysis of the determinants of the credit margin. Overall, an adjustment in certain financing parameters as well as the application of risk-mitigating instruments such as for example project bonds, miniperm loans or co-financing structures allow project finance to remain a proven and stable instrument for energy finance throughout the financial crisis.