Debt for Brands – Tracking Down a Bias in Financing Photovoltaic Projects in Germany (2011)

Summary

What kinds of PV project conﬁgurations do lenders prefer to ﬁnance? Recent developments in the ﬁeld of renewable energy project ﬁnance have reinforced the need for investigation, as fundraising has become more challenging and project evaluation by banks more demanding. To contribute to the limited research in this ﬁeld, we focus on photovoltaic projects and report from an Adaptive Choice-Based Conjoint experiment with German experts in project ﬁnance. We ﬁnd a bias which we call “debt for brands”. Simulations reveal that debt investors prefer projects with premium brand technology (modules, inverters) to low-cost technology. Although we assumed that lenders prefer projects with the highest Debt Service Cover Ratio (DSCR), they favor projects with lower DSCR, as long as those projects include premium brand technology. We ﬁnd that, if premium brands were engaged, lenders would also choose projects with higher risk. Our ﬁndings have implications for renewable energy project ﬁnance in practice and research

Keywords

Project ﬁnance, renewable energy, photovoltaic, business models, conjoint analysis

Reference

Lüdeke-Freund, F. & Loock, M. (2011): Debt for Brands: Tracking Down a Bias in Financing Photovoltaic Projects in Germany, Journal of Cleaner Production, Vol. 19, No. 12, 1356-1364.

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