Hydropower Project Finance – What is it, How to get it

capital corp merchant banking power project financingToday we’re continuing on our green power project finance series and moving on to hydropower, or hydroelectricity.  Hydroelectricity is electricity generated by hydropower, where electrical is produced through the use of the gravitational force of falling or flowing water (think of a dam). It’s a vast source of renewable energy and today hydro-powered electricity accounts for 16% of global electricity consumption.

Hydroelectricity is part of the growing green energy trend that’s becoming part of the social consciousness.  What’s great about hydropower projects (what’s indeed great about most green energy projects) is that you can sell that energy to the grid, and governments and utility companies are very eager for that extra energy that they can distribute due to the exponential increase in energy demand every year.  In fact, it’s worked out great in the Asia-Pacific region, which now generates 32% of the world’s hydropower.  There are today a total of 150 countries that produce some type of hydroelectricity.  And the numbers are growing steadily, though these projects are not as popular as, say, solar or wind projects.  Why? Location, location, location.

There are a lot of hydroelectricity projects that are popping up (micro hydro power plants (100 KW) or small hydro power plants (10 MW)) and that’s because you need a steady flow of water and road access for all the equipment that’s needed.  Having said that, one of the great advantages of hydroelectricity power plants is that they have a more predictable load factor. If the project has a storage reservoir, it can generate power when needed and these power plants are generally flexible enough that they can be regulated to follow variations in power demand.

So you’ve done your homework, you’ve got a survey of the land and waterway that you can use and you’ve got your data, and you have a great location for your hydropower plant. Now what? Well you need an off-take agreement. What’s an off-take agreement, you ask? It’s an agreement where a third party (government/ private power and utility company) will guarantee by signature that they will buy your output for a certain amount of time in the future.

Why is that such a good thing? Because for the investor(s) it’s a guarantee of return on their investment. It’s also a guaranteed steady payment on your loan debt because the energy the solar farm produces is sold over the long term. Guaranteed income is a nice magic word that investors like to hear.

So now that you’ve got all this, the rest is really not that hard. You need to put together a good Business Plan, a Feasibility Plan, and find a good equipment manufacturer and supplier.  Don’t go for what’s cheapest here; you need this to be solid and last a long time without requiring maintenance every other day.  We’ll be telling you our recommendations for hydroelectricity equipment manufacturers/suppliers later on in another blog.

So now what? Go and get funded!  But still…

Always make sure that you make an informed decision in all cases,

All the Best,

The Capital Corp Team

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