Risk mitigation in project finance for utility-scale solar PV projects
研究提出一种基于信用违约互换的金融工具，用于降低太阳能光伏项目融资中的违约风险，并通过10兆瓦电站案例验证其有效性，为银行、投资者和决策者提供参考。
This study explores strategies to de-risk renewable energy investments in project finance (PF) deals, primarily focusing on enhancing the prosperity of such deals by mitigating default risk. The success of PF deals is intricately linked to ensuring reliable future revenues, and by addressing default risk, the overall viability of the agreement is significantly improved. The primary objective of this research is to introduce a financial instrument leveraging credit default swaps (CDS) and to delineate its pricing methodology. The effectiveness of this financial instrument is demonstrated through its application to a 10 MW solar photovoltaic power plant project. The study reveals that the instrument efficiently transfers default risk to a protection seller at an affordable cost, showcasing the impact of using the instrument on the levelized cost of electricity (LCOE) for different leverage ratios. This outcome augments the viability of PF deals and mitigates the risks associated with long-term financing, particularly in high-leverage scenarios. Additionally, a comprehensive sensitivity analysis is conducted, examining the impact of default probability and the financial instrument price under varying financial leverage ratios, power purchase agreement (PPA) prices, and tax rates. The insights derived from this analysis provide valuable information for banks, investors, solar power plant developers, and policymakers, enabling them to make more reliable decisions in their decision-making processes. • A CDS-based financial instrument is developed to hedge default risk in solar PV projects. • A closed-form formula estimates default probability in high-leverage project finance deals. • Monte Carlo simulations validate default probability estimation under varying solar data. • Sensitivity analysis assesses PPA prices and tax rates on default probability, hedging. • Results demonstrate improved project feasibility and reduced default probability with CDS.