Debt for Brands - Tracking Down a Bias in Financing Photovoltaic Projects in Germany
Journal of Cleaner Production, 2011, Vol. 19, No. 12, pp. 1356-1364
25 Pages Posted: 27 May 2011 Last revised: 27 May 2012
Date Written: 2011
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 stricter. 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 debt investors prefer projects with the highest Debt Service Cover Ratio (DSCR), they favour projects with lower DSCR, as long as those projects include premium brand technology. We find that, if premium brands were engaged, debt investors 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 model, conjoint analysis
JEL Classification: Q42, M31, G32, O22, O16
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