Criteria for photovoltaic project finance: Trade-offs in banks' and equity investors' decision making

Recent developments in photovoltaic (PV) project finance have reinforced the need for investigating the preferences of and criteria applied by banks and equity investors in such renewable power generation projects. In 2009, after the credit crisis, the financial markets appeared to be liquid again. But, as a consequence of the credit crunch, fundraising has become more challenging as banks began demanding higher loan securities and project evaluation as a whole has become stricter.

The objective of this study is to empirically measure the relative importance of criteria influencing the decision making of banks ("bankability of projects") and equity investors in large-scale (in MW-range), ground mounted PV projects. Specific attention is given to qualitative aspects of project assessment. The overarching goal is to generate conclusions on trade-offs banks and equity investors make when evaluating PV projects. Specific recommendations will be given to various stakeholders such as project developers (e.g. effective project design in order to increase funding probability), banks and equity investors (e.g. own and peer preferences and trade-offs related to project features), module producers (e.g. implications on module bankability) and service providers (e.g. consulting services in PV project due diligence).

The study is organized in two parts: The first part comprises semi-structured in-depth expert interviews with different market actors. The aim is twofold: (1) to learn more about the criteria that banks and equity investors use for their investment decision-making, while focusing on qualitative aspects and trade-offs between decision criteria; (2) to increase our understanding about the meaning of bankability as a major investment criterion with distinct qualitative characteristics. Part two includes a quantitative, web-based survey based on a conjoint experiment to define the importance of and trade-offs between PV project attributes by international banks and equity investors.