Climate Finance
Project finance
Lending secured against a project's own cash flows rather than the sponsor's balance sheet.
Project finance isolates a single asset in a special purpose vehicle, with lenders relying on contracted revenues and ring-fenced cash flow. It is the standard structure for capital-intensive infrastructure.
For carbon projects, the challenge is that revenue depends on future verification. Lenders therefore require offtake contracts, experienced sponsors and often completion support before committing.
Frequently asked questions
Why ring-fence the asset?
To let lenders assess and secure the project independently of the sponsor's other obligations.
What is a debt service coverage ratio?
A covenant measuring cash flow against debt payments, central to how much can be borrowed.