Infrastructure & Project Finance Underwriters
Key Information & Criteria: Infrastructure and project finance underwriters (banks, project finance funds, etc.) treat climate tech projects like other capital projects, but with extra scrutiny if technology is newer. They require comprehensive due diligence packages, typically:
Cash-Flow Projections & Offtake Contracts: Detailed financial models showing projected revenues, operating costs, and returns. Long-term contracts (e.g. power purchase agreements or offtake agreements for a new energy product) are crucial to demonstrate stable cash flow. Underwriters will ask: is there a creditworthy buyer for the project’s output? Guaranteed offtake significantly lowers risk.
Capital Structure & Credit Enhancements: Information on the proposed debt/equity mix and any credit support. Traditional project finance expects sponsors to contribute ~30-50% equity to absorb first losses. Climate tech projects often secure loan guarantees or subordinated debt from government programs (e.g. DOE Loan Programs Office) to enhance creditworthiness. An underwriter will need to see that equity commitments are in place and any public incentives (tax credits, grants) are accounted for. The U.S. DOE LPO, for instance, typically finances up to 50–70% of project costs, requiring the rest as equity and looks for evidence of robust sponsor backing early in the application.
Technical Feasibility & Independent Engineering: A third-party engineer’s report is usually required to vet the technology and design. Underwriters need to know the project’s technology is proven at sufficient scale to perform as expected. DOE LPO’s engineers generally look for 1,000–2,000 hours of pilot operation and at least one or two full operating cycles to prove the tech works reliably before financing a first commercial-scale plant. Completed Front-End Engineering Design (FEED) studies and signed EPC (Engineering, Procurement, Construction) contracts are reviewed to ensure the project can be built on time and on budget. Essentially, the project should be at Technology Readiness Level ~8+ (final demo or early commercial stage) before debt underwriters are comfortable.
Risk Mitigation Structures: Project financiers evaluate construction risk, operational risk, supply chain risk, offtake risk, policy risk, etc., and will ask what mitigants are in place for each. They typically require: fixed-price date-certain construction contracts or contingency reserves (to manage construction risk), experienced operators or O&M agreements (to manage operational risk), diversified or local suppliers (supply chain risk), and supportive regulatory context (since many climate projects depend on policies like tax credits or carbon pricing). If a risk is significant, underwriters look for transfer mechanisms – e.g. political risk insurance for emerging-market projects, weather derivatives for renewable variability, or government/grant support for first-of-kind costs. In climate tech, policy uncertainty is a noted risk – e.g. hydrogen projects depend on future regulations and infrastructure, which underwriters factor into required return premiums.
Risk/Return Profile: Infrastructure underwriters traditionally seek stable, long-term yields (often high single-digit % returns) and low default risk. Climate tech projects can eventually offer infrastructure-like profiles (once technology is proven and revenue contracts secured), but early deployments carry higher perceived risk than typical infrastructure (e.g. a novel carbon capture plant vs. a mature solar farm). This creates a financing gap: many capital-intensive climate tech companies graduating from venture stage aren’t yet de-risked enough for standard project finance. Underwriters often deem them “too risky” for infrastructure capital without additional support. To bridge this, blended finance approaches are emerging – public entities or mission-driven investors take subordinate positions or insure certain risks to de-risk the deal for private lenders. For example, the DOE LPO provides loan guarantees to help finance projects with innovative tech, effectively absorbing some risk that commercial banks won’t. Underwriters also increasingly consider carbon credit revenues or contract-for-differences as new cash-flow sources to improve returns. In summary, infrastructure underwriters need assurance that a climate tech project can achieve predictable, contracted cash flows post-construction and that all key risks are mitigated or backstopped – only then will they price the debt similar to conventional projects. Until then, they will demand higher returns or support from other stakeholders.
