Project finance forum insights 2024

The interactive forum, held in May 2024, was a unique opportunity to hear diverse perspectives from attendees representing various aspects of project finance. The forum consists of a panel discussion from key stakeholders across a project finance transaction, followed by roundtable discussions with attendees.

Read through the insights from both sessions, focusing on the critical question: “How do we deliver the increasingly complex project finance transactions of the future?”

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Panel discussion

The panel delved into both the challenges and opportunities involved in structuring and executing increasingly complex energy infrastructure deals from a legal, financial and regulatory perspective.

Today’s world has brought new complexities to project finance deals. New energy technologies, ESG mandates and energy transition has participants driving even more innovative projects to conclusion in an increasingly uncertain and unpredictable world. With many deals involving highly diverse lender groups and with EPC contractors placing short time limits on their pricing, how do we get deals over the line quicker than ever before?

Our panel discussion uncovered key complexities in Project Finance including:

• New technologies: hydrogen and CCS
• Diverse lender groups: mixed groups of ECAs, commercial banks, DFIs and mezzanine lenders
• New financing structures: corporate platform financings and the role of insurance
• Global instability: macroeconomic events leading to short validity periods for EPC prices and pressure to close fast

Challenges

Summary of key challenges from the panel discussion

• Incorporating new and emerging technologies into project finance structures: Stephen noted carbon capture projects in particular present unprecedented challenges as the first movers in each region have to tackle. He noted the trend for more of these projects to have project-on-project risk.
• Managing the complex requirements of diverse lender groups: Tim explained intercreditor agreements can grow complicated with many participants involved who have varying risk appetites that need accommodating.
• Navigating geopolitical and macroeconomic volatility: Joanna outlined demand is increasing for ECAs like UKEF to support innovative projects addressing climate change that also operate in geopolitically risky areas.
• Mitigating construction delays, cost overruns, and other project risks: The panel agreed these issues, exacerbated by global disruptions, threaten returns if not cooperatively managed between sponsors and lenders.

Opportunities

Summary of key opportunities from the panel discussion

• Utilising blended corporate-project finance models to prove innovations: Stephen noted how blended structures like corporate financing can phase in new technologies and demonstrate commercial viability before being refinanced under a project finance structure.
• Facilitating cross-border cooperation and knowledge diffusion: Emma discussed the value of cross-border learning exchanges in de-risking first movers in new regions.
• Streamlining documentation through digital transaction platforms: Tim noted that transaction management platforms help legal teams efficiently run complex multi-party deals.
• ECAs can get commercial lenders comfortable with risk: Joanna emphasised ECAs’ role in providing early support for high-risk infrastructure projects in complex environments.

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Group discussions

The roundtable discussion evaluated challenges and opportunities for increased digitisation, standardisation and complexity management in project finance through tool integration and adoption.

Digitisation and technology

Summary of key points on digitisation and technology

• Automating standardised documents like IT security docs and NDAs is feasible using AI/legal tech as they are sufficiently standardised. 
• More complex contracts like finance agreements require a higher level of standardisation first before they can be automated.
• Contract negotiation processes involving exchanges of drafts and comments between multiple parties could potentially be managed on a centralised platform. 
• Knowledge management in databases to find past deals with similar characteristics to draw from remains an area where AI could potentially help but has not been fully solved yet.

Risk management and new energy technologies

Summary of key points on risk management and new energy technologies

• Risk mitigation structures like those provided by ECAs can help facilitate financing of new and emerging energy technologies by reducing risk for lenders.  
• If the technology sponsor is trusted by lenders, it allows for more flexible risk assessment, higher leverage levels and better pricing.
• Project finance remains an important tool for managing risks associated with new technologies.

Standardisation of transactions

Summary of key points on standardisation of transactions

• Certain parts of transactions like traditional technologies have achieved some standardisation globally but new markets and technologies require flexibility. Many project finance transactions remain unique.
• Efforts to standardise ESG documentation in Europe have progressed but a global policy is still needed with room for case by case flexibility.
• Over-standardisation could remove important flexibilities needed to negotiate complex deals.

Evolution of deal structures

Summary of key points on the evolution of deal structures

• Blends of corporate and project finance introduce challenges around roles and risks with corporates taking on more project risks over longer tenors. 
• Issues like layering of revenue streams, rent risks in energy projects, and complex supply chain risks require careful management.
• As corporates influence PF deals more, managing risks and mitigating concerns around their involvement is important.

Effective management of mega-complex deals

Summary of key points on management of mega-complex deals

• Robust upfront deal management processes are needed to coordinate multiple stakeholders and complex issues.
• Less experienced partners require additional support and handholding.
• Clear and ongoing communication among all parties is essential to navigate complex structural and operational challenges like 1000+ conditions precedent or documentation requirements from multiple agencies.
• Legal tech combined with human expertise can help address these challenges through solutions like streamlined document management and knowledge sharing platforms.