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Project Finance Glossary

Every day CCC Training provides a definition of a different project finance term, so please bookmark this page to build up your own personal glossary.

Participants in CCC Training courses each receive the most up-to-date version of our comprehensive glossary – which covers the complete range of financing, documentation, ESG, sector and technical terminology.

TODAY’S DEFINITION

Sep 30

Independent Technical Consultant

By Glossary
A due diligence adviser working generally on behalf of the lenders in a project finance transaction. Also known as an Independent Engineer. The ITC’s costs are met by the Borrower. The scope of work of the ITC may cover only the period up to Financial Close, although lenders will wish…
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A-Z of Project Finance

Aug 01

Advance Payment Guarantee

By Glossary
Where a construction contractor receives an advance payment (often in the range of 10-20% of contract price) he will frequently be required to post a Bond for the same amount by way of security until the amount of work represented by the payment has been carried out. The bond will…
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Aug 02

Amortisation

By Glossary
With regard to loans, amortisation is the process of reducing the size of the loan by making scheduled repayments of principal (as opposed to the interest due on the loan outstandings). The amortisation schedule is thus the agreed series of repayments built into the loan agreement. In accounting, amortisation is…
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Apr 14

Anaerobic Digestion

By Glossary
A biological process which produces a gas principally composed of methane (CH4) and carbon dioxide (CO2) otherwise known as biogas. Organic material and/or waste is converted into biogas in a digester. Suitable feedstocks include agricultural residues, animal wastes, food industry wastes, sewage sludge, purpose-grown green crops and the organic components…
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Aug 03

Annual Debt Service Cover Ratio (ADSCR)

By Glossary
The ratio of Cashflow Available for Debt Service to interest payments and loan repayments in a given period. The most commonly used ratio for the sculpting and stress-testing of debt service payments and the setting / testing of cashflow-based covenants.
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Mar 17

Annual Energy Production or AEP (Wind)

By Glossary
The amount of energy generated in a year. Gross AEP is the predicted annual energy production based on the turbine power curve, excluding losses. Net AEP is the metered annual energy production at the offshore substation, so includes wind farm downtime, wake, electrical and other losses.
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Aug 04

Arrangement Fee

By Glossary
In project finance, usually the fee paid by the sponsor(s) of a project to the lender(s) acting as Mandated Lead Arranger(s) in return for structuring, documenting and syndicating the necessary loan facilities. From this fee the Mandated Lead Arranger(s) will typically pay Participation Fees to the lenders joining the transaction…
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Jul 22

Associated Gas

By Glossary
Associated gas is gas produced as a by-product of the production of crude oil. Associated gas reserves are typically developed for the production of crude oil, which pays for the field development costs. The reserves typically produce at peak levels for a few years and then decline. Associated gas is…
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May 02

Availability (kVA)

By Glossary
Availability (kVA) or Agreed Capacity refers to the limit of capacity for a site. E.g. if a site has an Availability of 150 kVA then maximum demand should not exceed that figure at any time. It is set and charged by the local Distribution Network Operator (DNO), according to the…
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May 04

Base Load

By Glossary
Base load is the level below which electricity demand never drops, e.g. a site with a high maximum demand of 750 kVA whose demand never drops below 250 kVA would have a base load of 250 kVA.
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Aug 05

Bid Bond

By Glossary
A bid bond is issued to the owner of a project (typically the SPV), as part of a supply bidding process, to provide assurance  that the winning bidder will undertake the contract under the terms at which they bid. The bond is subject to full or partial forfeiture if the…
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Apr 18

Biodiesel

By Glossary
Biodiesel. A fuel produced from oilseed crops such as soy, rapeseed (canola) and palm oil, and from other oil sources such as waste cooking oil and animal fats. Biodiesel is used in diesel engines installed in cars, trucks, buses and other vehicles, as well as in stationary heat and power applications.…
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Apr 20

Biofuel

By Glossary
Biofuel is a liquid or gaseous fuel derived from biomass, primarily ethanol, biodiesel and biogas. Biofuels can be combusted in vehicle engines as transport fuels and in stationary engines for heat and electricity generation. They can also be used for domestic heating and cooking (for example, as ethanol gels). Conventional…
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Apr 21

Biogas

By Glossary
Biogas is generated when bacteria degrades biological material in the absence of oxygen, in a process known as anaerobic digestion. Since biogas is a mixture of methane (also known as marsh gas or natural gas) and carbon dioxide it is a renewable fuel produced from waste treatment. Raw biogas can…
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Apr 22

Biomass

By Glossary
Biomass, also known as biofuels or bioenergy, is obtained from organic matter - either directly from plants or indirectly from industrial, commercial, domestic or agricultural products. The use of biomass is classed as a 'carbon neutral' process because the carbon dioxide released during the generation of energy from biomass is…
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Aug 08

Boilerplate

By Glossary
In contract law, the term "boilerplate language" or "boilerplate clause" describes the parts of a contract that are considered standard. In negotiations, the phrase “that’s boilerplate” can be used to mean that a clause is simply required and therefore not negotiable, does not need to be negotiated or is not…
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Aug 09

Bond

By Glossary
May have a range of meanings in the finance sector. In project finance the most common meanings are: A loan instrument used as an alternative or in addition to bank financing – a “Project Bond”. The project SPV raises debt by selling bonds to investors – usually through the intermediary…
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Aug 10

Borrowing Base Facility

By Glossary
A type of loan facility used in Reserve-Based Lending (RBL). The term may refer to either the US type of facility (US Borrowing Base) or the European / International variant (European Borrowing Base).
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May 05

British Thermal Unit (BTU)

By Glossary
The British thermal unit (BTU or Btu) is a unit of heat; it is defined as the amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit. One Btu is approximately: 054 to 1.060 kJ (kilojoules) 2931 W⋅h (watt hours) 252 to 253…
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Aug 12

Business Interruption Insurance

By Glossary
Business interruption insurance is a type of insurance that covers the loss of revenue relating to delay, suspension or closure of a project facility , provided that such interruption is caused by (or tied to) a claim for physical damage to the underlying project.  It is limited in duration, typically…
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May 06

Capacity

By Glossary
The rated power of a heat or electricity generating plant, which refers to the potential instantaneous heat or electricity output, or the aggregate potential output of a collection of such units (such as a wind farm or set of solar panels). Installed capacity describes equipment that has been constructed, although…
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May 09

Capacity Factor

By Glossary
The ratio of the actual output of a unit of electricity or heat generation over a period of time (typically one year) to the theoretical output that would be produced if the unit were operating without interruption at its rated capacity during the same period of time.
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Aug 15

Capacity Payment

By Glossary
Part of an offtake arrangement – such as a Power Purchase Agreement – which is structured so as to cover the fixed costs of a project SPV, including its Debt Service. Sometimes referred to as an Availability Payment. The payment is made to the SPV regardless of actual offtake, so…
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Feb 08

Carbon Credits

By Glossary
A credit or permit arising from a greenhouse gas emissions reduction scheme, such as emissions trading, JI or CDM. Emissions are controlled by setting a cap on total emissions and allowing the market sector(s) to reach an economically balanced response via trading of emissions allowances.
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May 10

Carbon Dioxide Equivalent (CO2e)

By Glossary
There are six main greenhouse gases which cause climate change and are limited by the Kyoto protocol. Each gas has a different global warming potential. For simplicity of reporting, the mass of each gas emitted is commonly translated into a carbon dioxide equivalent (CO2e) amount so that the total impact…
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Feb 09

Carbon Footprint

By Glossary
A measure of the amount of carbon dioxide (CO2) emitted through the combustion of fossil fuels; can be measured on a personal or national level, or according to a specific activity, such as taking a flight to go on holiday.
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Feb 10

Carbon Neutral

By Glossary
An activity or process which does not add to the net amount of carbon dioxide (CO2)  in the atmosphere. As the organisation or product will typically have caused some greenhouse gas emissions, it is usually necessary to use carbon offsets to achieve neutrality.
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Feb 11

Carbon Storage

By Glossary
Sometimes called ‘carbon sequestration’, this is the long-term storage of carbon dioxide (CO2) in the forests, soil, ocean, or underground in depleted oil and gas reservoirs, coal seams, and saline aquifers. Carbon Capture and Storage can be referred to as CCS
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Feb 15

Carbon Trading

By Glossary
The trading of personal, corporate or national credits to maintain and gradually reduce carbon emissions. Companies, nations or individuals who beat the targets can sell the balance as credits to those who exceed their limits.
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Feb 16

Carbon Value

By Glossary
In order to encourage individuals to reduce carbon dioxide emissions a value has been placed on carbon. The more you produce the more you pay. Within the EU, the Emissions Trading Scheme provides a mechanism for capping total CO2 emissions and generates a carbon value, as market participants are given…
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Aug 16

Cash Sweep

By Glossary
A mechanism used in project finance debt structures where projected revenue / cashflow is inherently unpredictable. Following scheduled Debt Service and any required transfers to reserve accounts, some or all of the remaining Cashflow Available for Debt Service – which would usually be distributed to the sponsors of the project…
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Aug 17

Cash Trap

By Glossary
Any feature of a loan facility which permits lenders to hold cash within the SPV rather than releasing it to the project Sponsors as a Distribution. An example would be a Distribution Lock-Up Ratio. Cash traps are viewed negatively by sponsors – who therefore tend to negotiate them heavily –…
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Aug 18

Cashflow Available for Debt Service (CFADS)

By Glossary
The cashflow remaining in a given period (either historical or projected) after cash operating costs and taxes have been deducted from operating revenues. It is emphasised that this is a cashflow – rather than revenue statement (P&L) – concept, so items such as provisions and depreciation are not taken into…
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Aug 19

Cashflow Waterfall

By Glossary
The pre-agreed order in which payments will be made from available cashflow by the SPV – typically operating costs (including taxes), then debt service payments and transfers to reserve accounts and then distributions to Equity. Also known as the Cashflow Cascade.
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Jan 26

Clean Development Mechanism

By Glossary
One of the Flexible Mechanisms defined in the Kyoto Protocol (IPCC, 2007) that provides for emissions reduction projects which generate Certified Emission Reduction units (CERs) which may be traded in emissions trading schemes.
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May 12

Clean Technology

By Glossary
A range of products, services and processes which reduce the use of natural resources and cut or eliminate emissions and waste. It was considered a niche area of investment two decades ago but has become a focus for most major companies.
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May 13

Coal Generation

By Glossary
Coal is ground to fine powder and then burned in huge boilers to heat water. The steam produced passes through a turbine, making it rotate and generating electricity which is then fed into the national grid. Coal powered plants have been the mainstay of the industry for decades and account…
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May 17

Combined Cycle Gas Turbine (CCGT)

By Glossary
A form of electrical power generation which uses two generating methods (cycles) in tandem to achieve higher generation efficiency. The first cycle is based on a high-speed turbine, which burns fuel (typically gas) to generate power. The hot exhaust gases from the first cycle are fed to a steam turbine,…
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May 18

Combined Heat and Power (CHP)

By Glossary
When electricity is generated up to 60% of the energy produced can be wasted as lost heat. Combined Heat and Power schemes are designed to recover most of this waste heat and use it to power a turbine and generate more electricity. In well-designed installations these can contribute to lowering…
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Aug 23

Commitment Commission

By Glossary
Otherwise known as Non-Utilisation Fee. A fee charged by lenders on the unutilised portion of a committed loan facility – such as a project financing – to compensate them for the capital which they need to set aside on the unused portion of a committed transaction. In project financing transactions…
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Mar 30

Concentrating Photovoltaics (CPV)

By Glossary
Technology which uses mirrors or lenses to focus and concentrate sunlight onto a relatively small area of photovoltaic cells which generate electricity . Low-, medium- and high-concentration CPV systems (depending on the design of reflectors or lenses used) operate most efficiently in concentrated, direct sunlight.
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Apr 01

Concentrating Solar Thermal Power (CSP)

By Glossary
Also called concentrating solar power or solar thermal electricity, STE. Technology which uses mirrors to focus sunlight into an intense solar beam that heats a working fluid in a solar receiver, which then drives a turbine or heat engine/generator to produce electricity. The mirrors can be arranged in a variety of…
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Aug 25

Conditions Precedent

By Glossary
A condition precedent is an event or state of affairs that is required before something else will occur. In contract law, a condition precedent is an event which must occur, unless its non-occurrence is excused, before performance under a contract becomes due, i.e., before any contractual duty exists. In project…
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May 20

Contract for Differences (“CfD”)

By Glossary
A contract between two parties, stipulating that each will pay to the other the difference between an agreed price and the market price on a given payment date, depending on the market price at the time. A good example in project financing is the CfD mechanism used to support renewable…
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May 23

Conversion Efficiency

By Glossary
The ratio between the useful energy output from an energy conversion device and the energy input into it. For example, the conversion efficiency of a PV module is the ratio between the electricity generated and the total solar energy received by the PV module. If 100 kWh of solar radiation…
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Aug 26

Cover Ratio

By Glossary
A form of calculation used in the structuring and stress-testing of project financing debt facilities – the most common being the Annual Debt Service Cover Ratio and the Loan Life Cover Ratio. Cover ratio values are frequently also incorporated into loan agreement Covenants and Events of Default.
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Mar 23

Crew Transfer Vessels (CTV)

By Glossary
A vessel used to transport wind farm technicians and other personnel to the offshore wind farm turbines either from port or from a fixed or floating base. Vessels operating today are typically specially-designed catamarans that accommodate around 12 passengers.
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May 24

Curtailment

By Glossary
A reduction in the output of a generator, typically on an involuntary basis, from the level at which it could otherwise produce given the resources available. Curtailment of electricity generation has long been a normal occurrence in the electric power industry and can occur for a variety of reasons, including…
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Aug 29

Debt Service Undertaking

By Glossary
A commitment by a project Sponsor to meet scheduled interest payments or interest and principal repayments on a project which has not been completed by a defined date, until the date that completion is actually achieved.
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Sep 01

Disbursement Account

By Glossary
A Control Account, which receives loan drawdowns and equity injections and which is mainly used to make payments to the construction contractor(s) against appropriate evidence that construction milestones have been met.
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May 25

Dispatch

By Glossary
“Despatch” sometimes in UK English usage. A power station is said to be “despatched” when it receives an instruction to generate from an offtaker or from a grid operator. Who controls when a power station is despatched is an important factor in many power station projects. Renewable projects sometimes “self…
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May 26

Distributed Renewable Energy

By Glossary
Energy systems are considered to be distributed if: the systems are connected to the distribution network rather than the transmission network, which implies that they are relatively small and dispersed (such as small-scale solar PV on rooftops) rather than relatively large and centralised; or generation and distribution occur independently from…
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May 27

Distribution Grid

By Glossary
The portion of the electrical network which takes power off the high-voltage transmission network via substations (at varying stepped-down voltages) and feeds electricity to customers.
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Sep 02

Distribution Lock-Up Ratio

By Glossary
A Covenant which requires a project SPV not to pay Distributions unless a pre-agreed Cover Ratio is met. Typically distributions will not be allowed unless three conditions are met: No Event of Default outstanding; Debt Service Reserve Account fully funded as required; Distribution lock-up ratio test met.
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Sep 05

Distributions

By Glossary
Payments by a project SPV to its Sponsors by way of dividends on equity ordinary shares and / or by way of interest and principal repayments in respect of equity subscribed as subordinated inter-company loans. Such payments typically occur on a Repayment Date, at the bottom of the Cashflow Waterfall.
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Apr 25

Electric / Electric-Drive Vehicle

By Glossary
A vehicle which uses one or more electric motors for propulsion. A battery electric vehicle is a type of EV that uses chemical energy stored in rechargeable battery packs. A plug-in hybrid EV can be recharged by an external source of electric power. Fuel cell vehicles are EVs which use…
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Feb 18

Emissions Trading

By Glossary
A market mechanism which allows emitters (countries, companies or facilities) to buy emissions from or sell emissions to other emitters. Emissions trading is expected to bring down the costs of meeting emission targets by allowing those who can achieve reductions less expensively to sell excess reductions (e.g. reductions in excess…
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May 30

Energy Efficiency

By Glossary
The measure which accounts for delivering more services for the same energy input, or the same amount of services for less energy input. Conceptually, this is the reduction of losses from the conversion of primary source fuels through final energy use, as well as other active or passive measures to…
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Sep 07

Equator Principles

By Glossary
The Equator Principles provide a risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in project finance. It is primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making. The Equator Principles, formally launched in Washington DC on…
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Sep 09

Equity

By Glossary
The Sponsors’ share of the cost of construction, which is typically injected into the SPV partly by the purchase of ordinary share capital in the SPV and partly by way of so-called “Inter-Company Loans” from the Sponsor(s) to the SPV. It is common for the amount of inter-company loan funding…
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Sep 12

ESG Considerations/ Engagement and Investments

By Glossary
A method of running businesses and select investments which takes into account the Environmental, Social and Governance impacts of business and investment decisions. “E”: concerns issues related to resource use, pollution, climate change, energy use, waste management and other physical environmental challenges and opportunities. “S”: impact on Social, inclusion, economic…
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Jun 07

Ethanol

By Glossary
A liquid fuel made from biomass (typically corn, sugar cane or small cereals/grains) which can replace petrol in modest percentages for use in ordinary spark-ignition engines (stationary or in vehicles), or which can be used at higher blend levels (usually up to 85% ethanol, or 100% in Brazil) in slightly-modified…
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Sep 14

Event of Default

By Glossary
An occurrence which gives lenders under a project financing arrangement the right to declare the Borrower in default of its obligations under the financing agreements and to require immediate repayment of the debt in full. While project lenders rarely exercise this right, they will use their ability to do so…
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Sep 15

Export Credit Agency (ECA)

By Glossary
An export credit agency (or ECA) or investment insurance agency is a government-owned or government-supported institution which provides export financing and / or credit insurance or guarantees to lenders. The objective of ECAs’ activities is to encourage exports and thereby to stimulate activity within their own economies. Examples are Euler-Hermes…
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Feb 24

Feed-In Policy

By Glossary
A policy which typically guarantees renewable generators specified payments per unit (e.g., USD per kWh) over a fixed period. Feed-in tariff (FiT)policies also may establish regulations by which generators can interconnect and sell power to the grid. Numerous options exist for defining the level of incentive, such as whether the…
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Sep 16

Feed-In Tariff

By Glossary
A policy mechanism designed to accelerate investment in renewable energy technologies. It achieves this by offering long-term contracts to renewable energy producers, typically based on the cost of generation of each technology. Rather than pay an equal amount for energy, however generated, technologies such as wind power and solar PV, for instance, are awarded…
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Sep 20

Fixed Price Turnkey (FPTK) Contract

By Glossary
For most practical purposes in project financing, a FPTK contract is the same as an Engineering Procurement & Construction (EPC) Contract. The contract requires the contractor to deliver a project by a date certain and for a price which may not increase without the approval of the project owner. The…
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Mar 28

Floating Foundation

By Glossary
A buoyant foundation structure anchored to the sea bed via mooring lines. The term includes several foundation types including spar buoys, tension leg platforms and semi-submersibles.
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Jun 02

Flue Gas Desulphurisation (FGD)

By Glossary
Burning coal produces sulphur dioxide which is emitted through the chimney of the power station. To reduce these emissions - which contribute to acid rain - Flue Gas Desulphurisation units can be fitted to coal powered plants. These work by capturing the gases in an absorber, and then mixing them…
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Sep 21

Force Majeure (FM)

By Glossary
Force majeure is generally intended to cover occurrences beyond the reasonable control of a party to a contract. It is a common clause in contracts that essentially frees parties from liability or obligation when an extraordinary event or circumstance beyond the reasonable control of the parties, such as a war,…
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Sep 22

Front-End Engineering & Design (FEED)

By Glossary
An engineering design approach much used in process and power plant projects to control project expenses and thoroughly plan a project. It may also be referred to as Pre-project planning (PPP), front-end loading (FEL), feasibility analysis, or early project planning. The FEE is basic engineering which comes after the conceptual…
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Jun 08

Gas-Fired Generation

By Glossary
Combined Cycle Gas Turbine (CCGTs) and  Open Cycle Gas Turbines burn natural gas to produce electricity. They emit carbon dioxide, but the emissions are significantly lower than those from coal-burning stations.
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Sep 23

Gearing

By Glossary
The ratio between Equity and project finance debt within the financing structure. Usually given as Debt : Equity – thus “80:20 gearing” means 80% debt and 20% Equity. This ratio is also referred to as the project’s “Leverage”.
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Apr 26

Geothermal Energy

By Glossary
Heat energy emitted from within the earth’s crust, usually in the form of hot water and steam. It can be used to generate electricity in a thermal power plant or to provide heat directly at various temperatures.
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Sep 27

Green Certificate

By Glossary
A green certificate is a tradable commodity proving that certain electricity is generated using renewable energy sources. Typically one certificate represents the generation of one Megawatt hour of electricity. What is defined as "renewable" varies from certificate trading scheme to trading scheme. Green certificates represent the environmental value of renewable…
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Mar 02

Green Energy Purchasing

By Glossary
Voluntary purchase of renewable energy – usually electricity, but also heat and transport fuels – by residential, commercial, government or industrial consumers, either directly from an energy trader or utility company, from a third-party renewable energy generator or indirectly via trading of renewable energy certificates (such as renewable energy credits,…
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Jun 13

Heat Pump

By Glossary
A device which transfers heat from a heat source to a heat sink using a refrigeration cycle which is driven by external electric or thermal energy. It can use the ground (geothermal/ ground-source), the surrounding air (aerothermal/air-source) or a body of water (hydrothermal/water-source) as a heat source in heating mode,…
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Sep 30

Independent Technical Consultant

By Glossary
A due diligence adviser working generally on behalf of the lenders in a project finance transaction. Also known as an Independent Engineer. The ITC’s costs are met by the Borrower. The scope of work of the ITC may cover only the period up to Financial Close, although lenders will wish…
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Jun 15

Infrastructure Costs

By Glossary
These relate mostly to the costs of providing the infrastructure required to deliver power. They include the cost of energy lost as heat as it travels from the power station down the transmission and distribution wires to the consumption point.
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Nov 04

Intercompany Loans

By Glossary
Usually the largest part of the equity funding injected by the Sponsors into the SPV. For the Inter-Company Loans to be treated as Equity by the lenders, they will need to be subordinated to the debt provided by the external lenders.
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Nov 05

Intercreditor Agreement

By Glossary
An agreement between / among the main creditors of a project Borrower governing the relationships among those lenders in respect of the borrower’s obligations. Typically such an agreement will contain provisions regarding matters such as: Common terms Order of drawdown Cashflow waterfall Limitation on ability of creditors to vary their…
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Nov 08

Interest During Construction (IDC)

By Glossary
The interest which is due on project financing loan facilities during the construction period, but which cannot be paid since the Borrower is not generating cash. This interest is generally added to the loan or “capitalised”. IDC is in effect therefore a cost of construction.
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Apr 04

Inverter (and micro-inverter)

By Glossary
Inverters convert the direct current (DC) generated by solar PV modules into alternating current (AC), which can be fed into the electric grid or used by a local, off-grid network. Conventional string and central solar inverters are connected to multiple modules to create an array which effectively is a single…
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Mar 29

Jacket Foundations

By Glossary
A type of foundation with a cylindrical tube (normally steel) that is normally driven tens of metres into the sea bed, although it can also be inserted into pre-drilled holes. A collective term used to describe all steel foundations other than monopiles. Includes braced, welded, space-frame structures (collectively called ‘jackets’),…
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Jul 25

Japan Customs-Cleared Crude (JCC)

By Glossary
The Japan Customs-cleared Crude (JCC) is the average price of customs-cleared crude oil imports into Japan (formerly the average of the top twenty crude oils by volume) as reported in customs statistics; nicknamed the "Japanese Crude Cocktail". It is a commonly used index in long term LNG contracts in Japan,…
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Nov 10

Know Your Customer (KYC)

By Glossary
Know your customer, alternatively known as know your client or simply KYC, is the process of a business verifying the identity of its clients and assessing their suitability, along with the potential risks of illegal intentions towards the business relationship. The term is also used to refer to the bank…
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Jan 31

Kyoto Protocol

By Glossary
In 1997, representatives from over 170 nations met in Kyoto, Japan to put together a new global treaty - the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) - laying down legally binding reductions in greenhouse gas emissions throughout developed countries emissions by an average of…
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Jun 17

Levelised cost of energy/electricity (LCOE)

By Glossary
The cost per unit of energy from an energy generating asset which is based on the present value of its total construction and lifetime operating costs, divided by total energy output expected from that asset over its lifetime. Levelised cost of energy is a commonly used measure of the cost…
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Nov 11

Limited-Recourse Loan

By Glossary
In a project financed structure, the Sponsors will not normally be under any obligation to provide further financing support to the SPV once they have injected their base Equity. The Lenders are therefore said to have limited recourse to the balance sheets of the Sponsors. In practice it is common…
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Jul 26

Liquefied Natural Gas (LNG)

By Glossary
Liquefied natural gas (LNG) is natural gas (predominantly methane, CH4, with some mixture of ethane C2H6) that has been cooled down to liquid form for ease and safety of non-pressurized storage or transport. It takes up about 1/600th the volume of natural gas in the gaseous state (at standard conditions…
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Nov 12

Liquidated Damages (LDs)

By Glossary
A fixed level of damages payable to the project company/SPV– typically by a construction or operation & maintenance contractor – as a result of the contractor failing to meet contractual obligations. In the case of a construction contractor these will typically be Delay LDs and / or Performance LDs. An…
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Jun 20

Load & Load Factor

By Glossary
The amount of electric power delivered or required at any specific point or points on an electrical system. The requirement originates at the energy-consuming equipment of the customer. Load Factor measures the relationship between unit consumption and maximum demand and is the percentage capacity utilisation figure of a site's power consumption.…
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Nov 15

Loan Life Cover Ratio (LLCR)

By Glossary
The ratio of the net present value of CFADS during the remaining loan life to the amount of the loan which is still outstanding at the time the calculation is made. A common ratio for the sculpting of debt and the setting / testing of covenants in minerals-based project transactions, such as…
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Nov 16

Loan Market Association (LMA)

By Glossary
The Loan Market Association (LMA) was formed in December 1996 and is based in London, UK. Its initial aim was to assist in the development of the secondary loan market in Europe, which was in its infancy at that time. Its intention was to develop industry best practice and standard…
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Feb 01

London Climate Change Agency (LCCA)

By Glossary
A body set up to work closely with the private sector to tackle climate change. The LCCA has been formed as a Mayoral led agency by the London Development Agency to enable and deliver sustainable and renewable energy and energy efficiency projects that will lead to a reduction of carbon…
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Nov 17

Loss Payee Clause

By Glossary
A loss payee clause (or loss payable clause) is a clause in a contract of insurance that provides, in the event of payment being made under the policy in relation to the insured risk, that payment will be made to a third party rather than to the insured beneficiary of…
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Mar 04

Marine Generation (Tidal And Wave)

By Glossary
The principle behind tidal generation is similar to wind turbines, except that instead of wind turning the turbine blades, the process uses underwater current caused by tides. One of the benefits of tidal power over wind power is the predictability of tidal currents, enabling the developers to know exactly when…
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Jun 21

Market Concession Model

By Glossary
A model in which a private company or non-governmental organisation is selected through a competitive process and given the exclusive obligation to provide energy services to customers in its service territory, upon customer request. The concession approach allows concessionaires to select the most appropriate and cost-effective technology for a given…
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Jul 28

Methane

By Glossary
A chemical compound with the chemical formula CH4 (one atom of carbon and four atoms of hydrogen). It is the simplest alkane and the main constituent of natural gas. At room temperature and standard pressure, methane is a colourless, odourless gas. The familiar smell of natural gas as used in…
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Jun 23

Micro-Generation / Mini-Grid / Micro-Grid

By Glossary
For distributed renewable energy systems for energy access, a mini-grid/micro-grid typically refers to an independent grid network operating on a scale of less than 10 MW (with most at very small scale) which distributes electricity to a limited number of customers. Mini-/micro-grids also can refer to much larger networks (e.g.,…
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Jun 24

Molten Salt

By Glossary
An energy storage medium used predominantly to retain the thermal energy collected by a solar tower or solar trough of a concentrating solar power plant, so that this energy can be used at a later time to generate electricity.
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Nov 22

Multilateral Agency

By Glossary
An international organisation owned by three or more countries which exists to encourage the development of productive private enterprise through the provision of financing, guarantees and other support mechanisms. Examples are the International Finance Corporation (IFC) - a member of the World Bank Group -  the African Development Bank and…
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Jun 22

Nameplate Capacity

By Glossary
Nameplate capacity, also known as the rated capacity, nominal capacity, installed capacity, or maximum effect, is the intended full-load sustained output of a facility such as a power plant, electric generator, a chemical plant, fuel plant, metal refinery, mine, and many others. Nameplate capacity is the number registered with authorities…
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Nov 23

Negative Pledge

By Glossary
A provision in a contract which prohibits a party to the contract from creating any security interests over certain property specified in the provision. Negative pledges often appear in project finance security documents, where they operate to prohibit the person who is granting the security interest from creating any other…
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Feb 02

Netback Pricing

By Glossary
A pricing method or formula where the price to be received by a producer or supplier is based on the market price for the commodity or product to be sold minus one or more agreed deductions. For example, liquefied natural gas (LNG) netback prices may be determined by the market…
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Nov 24

Non-Recourse Loan

By Glossary
The difference between a Limited-Recourse Loan and a Non-Recourse Loan is really one of emphasis. The term Non-Recourse Loan tends to be used by Sponsors, who are thereby emphasising that once they have injected their base Equity there is no further obligation on them. Lenders tend to use the term “Limited-Recourse Loan” rather than “Non-Recourse…
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Mar 07

Ocean Energy

By Glossary
Energy captured from ocean waves, tides, currents, salinity gradients and ocean temperature differences. Wave energy converters capture the energy of surface waves to generate electricity; tidal stream generators use kinetic energy of moving water to power turbines; and tidal barrages are essentially dams that cross tidal estuaries and capture energy…
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Mar 08

Offshore Substation

By Glossary
The structure used to transform and transfer the energy collected by the wind turbines to land in the most efficient manner. It may involve increasing the voltage, providing reactive compensation and converting the current from AC to DC. Some wind farms may have more than one offshore substation and equipment…
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Mar 09

Offshore Wind

By Glossary
Windfarms constructed in bodies of water offshore, where higher wind speeds are able to generate greater electric energy. Wind turbine generators (WTGs) in any marine environment count as “offshore”
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Nov 25

Offtake

By Glossary
The arrangements for the disposal / use of the goods or services to be produced by a project. Many projects have a formal offtake contract (e.g. a power purchase agreement) with a contractual Offtaker. Others have no formal offtake agreements – e.g. where a commodity (such as oil) is sold in…
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Nov 26

Open Book Contract

By Glossary
In an open-book contract, the buyer and seller of work/services agree on: a) which costs are remunerable; and b) the margin that the supplier can add to these costs. The project is then invoiced to the customer based on the actual costs incurred plus the agreed margin. It is essentially…
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Jun 27

Open-Cycle Gas Turbine

By Glossary
A gas turbine generating unit where the exhaust gases from the turbine are not employed to generate additional power by means of a steam turbine – as they would be in a Combined Cycle Gas Turbine.
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Mar 10

Operation Maintenance & Services (OMS)

By Glossary
OMS includes wind farm OMS and onshore transmission OMS. Definitions of O, M and S are as follows: Operation: day-to-day management including all the work not covered under maintenance and service. For wind farm OMS, this includes cost for port facilities, buildings, management personnel, environmental monitoring and community engagement; Maintenance…
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Mar 11

P Factor

By Glossary
A value which refers to the probability of an outcome. The higher the “P” factor, the more likely that a certain outcome will be met or surpassed. Commonly used in wind or solar resource studies, a P factor may represent the minimum number  kWh which WTGs or solar panels of a certain nameplate rating at…
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Nov 30

Participation Fee

By Glossary
A fee paid by the Mandated Lead Arranger(s) of a financing to other banks taking part in the transaction. This is a one-off payment, typically a flat percentage of the participant’s contribution to the loan (the participant’s “ticket”).
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Jun 30

Peaker Generation Plant

By Glossary
Power plants which run predominantly during peak demand periods for electricity. Such plants exhibit the optimum balance – for peaking duty – of relatively high variable cost (fuel and maintenance cost per unit of generation) relative to fixed cost per unit of energy produced (low capital cost per unit of…
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Dec 01

Performance Bond

By Glossary
When a contractor’s tender for a construction project is successful, he will be released from his obligations under his Bid Bond once he has submitted a performance bond as security for completion of the work. If the contractor fails to construct the project according to the specifications laid out by…
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Apr 05

Photovoltaics (PV)

By Glossary
The direct conversion of solar radiation into electricity by the interaction of light with the electrons in a semiconductor device or cell. Solar PV cells are constructed from semiconducting materials that use sunlight to separate electrons from atoms to create an electric current. Modules are formed by interconnecting individual cells.…
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Dec 02

Political Risk Insurance (PRI)

By Glossary
A type of insurance which covers the risk that losses will be caused by country or political issues, such as: Political violence - revolution, insurrection, civil unrest, terrorism or war; Governmental expropriation or confiscation of assets; Governmental frustration or repudiation of contracts; Wrongful calling of letters of credit or similar…
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Jul 01

Power Curve

By Glossary
Graph showing the capacity of a wind turbine to generate energy at different wind speeds. By taking the forecast of wind speed as measured in hours per year and aligning it with the power curve as measured in kilowatts the total kilowatt hours per year which can be generated by…
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Dec 03

Power Purchase Agreement (PPA)

By Glossary
A structured – typically long-term – offtake arrangement between a power-generator SPV and a power Offtaker. The offtaker may be a public or private sector entity. A wide range of such instruments exists, but the PPA incorporating a Capacity Payment tends to be the offtake structure of choice in project-financed…
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Dec 06

Prepayment Penalty / Fee

By Glossary
A fee which requires a payment by the Borrower to the parties financing a project (typically banks) in the event that all or a part of a financing is repaid by the borrower in advance of its scheduled final maturity date. The payment is typically a percentage of the amount repaid. If…
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Dec 07

Price Deck

By Glossary
The price assumption being used at a particular point in time by a bank financing oil & gas projects for projected production which is not subject to a hedge such as a swap, option or collar. The price deck assumption will be revised by a lender on a regular basis…
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Dec 08

Principles for Responsible Investments (PRI)

By Glossary
The world’s leading organisation for responsible investment. The PRI is truly independent and acts in the long-term interests of its signatories, of the financial markets and economies in which they operate and ultimately of the environment and society as a whole. The PRI is supported by the United Nations.
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Dec 09

Project Documents

By Glossary
The commercial contracts and other agreements relating to a project to which the lenders are NOT party and which have been identified as “Project Documents” in the loan and security agreements. Once a document has been classified as such, it will be impacted by provisions in the loan documents, including…
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Dec 10

Project Life Cover Ratio (PLCR)

By Glossary
The ratio of the net present value of CFADS during the remaining project life to the amount of the loan which is still outstanding at the time the calculation is made. Much used in the sculpting of debt capacity in upstream oil &gas lending, but also used as an additional…
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Dec 13

Regulator

By Glossary
A state-appointed individual or body with oversight powers in industries such as gas, water and electricity generation / distribution – where the services are provided by one supplier (e.g. a power grid operator) or a very limited number of suppliers. The role of the regulator usually includes ensuring that monopoly…
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Dec 14

Representations & Warranties

By Glossary
Clauses in project financing agreements where the Borrower – and potentially also the Sponsor(s) – confirm the accuracy and sufficiency of information or assurances provided to the lenders. Certain representations and warranties are deemed to be repeated at each drawdown or roll-over of a loan. If it can be shown…
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Dec 15

Reserve-Based Lending (RBL)

By Glossary
A form of lending against petroleum reserves which uses some aspects of project finance structuring (notably discounted cashflow of Cashflow Available For Debt Service) but which: a) is not structured as a Term Loan; and b) is not specifically dedicated to the development of particular petroleum assets. RBL facilities are…
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Dec 16

Retention Bond

By Glossary
A form of surety provided by a contractor so as to avoid deductions (retentions) being made from the milestone payments under a construction contract. Thus rather than receiving 90% of a stage payment due to him when a milestone is passed (with the other 10% being payable at completion of…
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Dec 17

Revenue Account

By Glossary
A Control Account. The account which is opened in the name of the Borrower in the books of the agent bank for a transaction into which are paid the proceeds of sale of the project’s output. Also known as a Proceeds Account.
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Dec 20

Revolving Credit

By Glossary
A form of financing facility where a Borrower who repays an amount borrowed under the facility will have the right to draw that amount again. Revolving credits contrast with Term Loans, which have a drawdown period and repayment period. Amounts repaid under a term loan structure are not available for…
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Dec 21

Sale & Purchase Agreement (SPA)

By Glossary
A contractual agreement for the sale to a buyer of physical goods or other assets – most often encountered in the project financing field in the context of LNG. SPAs are the usual method for the long-term sale of LNG and frequently incorporate take-or-pay provisions.
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Dec 22

Single-Purpose Vehicle (SPV)

By Glossary
The company which is established to construct, own and operate the project in question. The SPV will in almost all cases be the borrower of project loan facilities. NB – occasionally the SPV may be a limited partnership, but a limited company is the norm.
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Jul 06

Smart Energy System

By Glossary
An energy system which aims to optimise the overall efficiency and balance of a range of interconnected energy technologies and processes, both electrical and non-electrical (including heat, gas and fuels). This is achieved through: • dynamic demand- and supply-side management; • enhanced monitoring of electrical, thermal and fuel-based system assets;…
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Jul 07

Smart Grid

By Glossary
Electrical grid which uses information and communications technology to co-ordinate the needs and capabilities of the generators, grid operators, end-users and electricity market stakeholders in a system, with the aim of operating all parts as efficiently as possible, minimising costs and environmental impacts and maximising system reliability, resilience and stability.
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Jul 11

Smart Inverter

By Glossary
An inverter with robust software capable of rapid, bidirectional communications, which utilities can control remotely to help with issues such as voltage and frequency fluctuations in order to stabilise the grid during disruptive events.
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Apr 06

Solar Collector

By Glossary
A device used for converting solar energy to thermal energy (heat), typically used for domestic water heating but also used for space heating, for industrial process heat or to drive thermal cooling machines. Evacuated tube and flat plate collectors that operate with water or a water/glycol mixture as the heat-transfer…
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Apr 07

Solar Pico-System

By Glossary
A very small solar PV system – such as a solar lamp or an information and communication technology (ICT) appliance – with a power output of 1-10 watts which typically uses a voltage of up to 12 volts.
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Apr 08

Solar Tower

By Glossary
A type of solar furnace which uses a tower to receive the focused sunlight. It uses an array of flat, movable mirrors (called heliostats) to focus the sun's rays upon a collector tower (the target). Early designs used these focused rays to heat water, and used the resulting steam to…
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Apr 11

Solar Trough

By Glossary
A type of solar thermal collector which is straight in one dimension and curved as a parabola in the other two, lined with a polished metal mirror. The sunlight which enters the mirror parallel to its plane of symmetry is focused along the focal line, where objects are positioned which…
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Jul 12

Spark Spread

By Glossary
A form of analysis used to compare gas prices with electricity prices, by converting the gas price into a price per MWh and subtracting it from the electricity price in that period, taking into account power station efficiency. A negative spark spread indicates that it is more beneficial to sell…
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Dec 23

Standby Letter of Credit

By Glossary
A financial instrument (typically issued by a bank) which is issued for the benefit of a party to a contract, who can claim  payment under that instrument if, for whatever reason the beneficiary is not paid under that contract . The issuing bank must pay upon receipt of a completed…
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Dec 24

Subordinated

By Glossary
An instrument (usually a debt or obligation) which ranks lower than / behind some other instrument in terms of interest payment, debt repayment, access to cashflow or access to security. If debt instruments are of equal rank they are “pari passu”.
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Dec 27

Subrogation

By Glossary
Subrogation is the right to “step into the shoes” of a third party (such as a creditor or an insurance company) and assume their right to collect a debt or damages. Subrogation is an equitable remedy, having first developed in the English Court of Chancery. It is a familiar feature…
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Dec 28

Super Majority

By Glossary
An increased majority percentage requirement which is incorporated into a loan agreement for the approval of particular issues – usually those which are complex or contentious.
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Mar 15

Supervisory Control and Data Acquisition system (SCADA)

By Glossary
Data acquisition, transmission and storage system covering all wind farm assets. The SCADA system enable individual wind turbines, the wind farm substations and associated wind farm equipment to communicate operational status including faults. This allows operators to remotely diagnose faults and issue commands to stop, start and reset turbines and…
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Jul 13

Syngas

By Glossary
Syngas, or synthesis gas, is a fuel gas mixture consisting primarily of hydrogen, carbon monoxide, and very often some carbon dioxide. The name comes from its use as intermediates in creating synthetic natural gas and for producing ammonia or methanol. Syngas is frequently a product of coal gasification and the…
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Dec 29

Take or Pay

By Glossary
Take or pay is a contractual provision, whereby one party has the obligation of either (i) taking delivery of the product, goods or service or (ii) paying a specified amount.  Take or pay contracts ensure a predictable level of revenues, since they are not dependent on demand and therefore will…
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Jul 14

Tendering

By Glossary
A procurement mechanism by which renewable energy supply or capacity is competitively solicited from sellers, who offer bids at the lowest price that they would be willing to accept. Bids may be evaluated on both price and non-price factors.
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Dec 30

Term Loan

By Glossary
A financing facility, typically with a maturity greater than 3 years, with an agreed availability period (when the funds may be drawn) and a predetermined repayment schedule / arrangement. Amounts drawn under term loans may not be redrawn following repayment. Term loans are not typically repayable on demand. An Event…
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Dec 31

Term Sheet

By Glossary
May be seen as a memorandum of understanding, setting out the terms and conditions of a financing which will in due course be incorporated into a full loan agreement. Term sheets may be “uncommitted” or “committed”. The former will normally be subject to: lender credit committee approval; formal loan documentation…
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Jan 08

Tolling

By Glossary
Refers generally to a contractual arrangement whereby an Offtaker (the “toller”) agrees to make payments to an SPV in return for the provision of services – e.g. refining of crude, power generation, regasification of LNG. The payments tend to be availability / capacity based and therefore such structures frequently transfer…
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Jan 11

Transition Risks

By Glossary
The financial risks which could result from significant policy, legal, technology and market changes as we transition to a lower-carbon global economy and climate resilient future.
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Jul 19

Transmission

By Glossary
The transfer of electricity at high voltage from the power stations across the country through wires on pylons to points where it can be distributed to users.
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Jul 21

Turbine Rated Power

By Glossary
The nominal maximum power output from a wind turbine. Sometimes referred to as capacity. The wind turbine is limited to this power output, which typically applies when the wind speed at the hub height exceeds about 12m/s and continues until about 25-30m/s when the wind turbine stops generating to avoid…
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Jan 13

UN Sustainable Development Goals (SDGs)

By Glossary
A collection of 17 goals reflecting the biggest challenges facing global societies, environments and economies today. Many investment decisions are now driven by the willingness to meet those SDGs.The 17 SDGs are: no poverty, zero hunger, good health and wellbeing, quality education, gender equality, clean water and sanitation, affordable and…
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Jan 14

Underwriting

By Glossary
In syndicated loan transactions the Mandated Lead Arrangers may agree, for an underwriting fee, to provide the full amount of the loan facility if it proves impossible for them to syndicate the transaction to other lenders. The name derives from the Lloyd's of London insurance market. Financial bankers, who would…
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Jan 17

US Borrowing Base

By Glossary
A form of Reserve Based Lending which is used in North America. US Borrowing Base structures typically require 100% approval by all lenders for any increases in debt capacity (as opposed to 2/3 in European Borrowing Base Structures). US-style facilities generally also give only very limited debt value to probable…
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Jan 18

Variation Order

By Glossary
A variation (sometimes referred to as a variation instruction, variation order (VO) or change order), is an alteration to the scope of works in a construction contract in the form of an addition, substitution or omission from the original scope of works. Lenders (and sponsors) are acutely aware that any…
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Mar 16

Wake Effect

By Glossary
Wind turbines extract energy from the wind and downstream there is a wake from the wind turbine, where wind speed is reduced.  As the flow proceeds downstream, there is a spreading of the wake and the wake recovers towards free stream conditions.  The wake effect is the aggregated influence on…
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Jan 25

Warranty Bond

By Glossary
A  Bond issued to an SPV at the instruction of a construction contractor (usually by a banker to that contractor) which guarantees the obligations of the contractor up to the amount of the bond during the warranty period.
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Apr 13

Wind Turbine Generator

By Glossary
A wind turbine is a rotating machine which transfers kinetic energy from the wind into mechanical energy. If the mechanical energy is instead converted to electricity, the machine may be called a wind turbine generator (WTG)
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