An overwhelming majority (86%) of industry experts believe project finance as a method of financing large scale infrastructure projects will grow in use over the next two years. This is according to a major new global study1 commissioned by CSC, the world’s leading provider of global business administration and compliance solutions.
North America, benefitting from the Inflation Reduction Act (IRA) among other tailwinds, is predicted to see the most significant uptick in project finance activity over the next two years, selected by over a third (39%) of respondents.
On a sectoral level, renewable energy projects such as wind and solar are seeing the most activity, representing the primary focus area for over half (55%) of respondents. This is followed by infrastructure, including roads, bridges and airports (29%). Within renewables, solar is expected to see the biggest increase in deals over the next 24 months.
CSC’s Project Finance Report 2024 focuses on the outlook for project finance deal activity across regions and sectors globally. The findings are based on the views of industry professionals working in project finance across North America, Europe, the U.K., Latin America, and Asia Pacific (APAC), in industries including banking and finance, development and construction, power and energy.
Corresponding with these findings, CSC has anecdotally observed a recent increase in project finance related deal flow.
“We’re seeing renewed momentum for project finance deals across various markets as pandemic-related obstacles recede and supportive regulatory changes and legislation take root,” says Bryan Gartenberg, managing director at CSC. “Growing urgency to invest in renewable energy infrastructure coupled with global demographic shifts and rising prosperity are all driving demand for project finance, giving rise to new opportunities and challenges for market participants.”
Regional growth
While deal growth is expected in all surveyed regions, North America is predicted to be the most dynamic. This is, in part, due to the IRA, though Export Credit Agencies (ECAs) are also seen as being central to driving sponsorship of project finance structures and attracting institutional investors.
North America is followed by Latin America, Europe—which is enjoying supportive regulation in the form of European Long-Term Investment Funds (ELTIF 2.0)—and the U.K., with 29% of those surveyed expecting each of these regions to see an increase in activity.
In line with the report’s findings, CSC has observed conditions for growth in the Latin American market.
“While Latin America is slightly behind globally when it comes to the investment in the infrastructure and energy sectors, investment in the sector is a key objective for many of the regions’ administrations, and will fuel economic and GDP growth,” says Michael Morcom, managing director, Latin America at CSC. “Countries such as Brazil have introduced new regulations for infrastructure debentures and have allowed power purchase agreements (PPAs) to be denominated in U.S. dollars with the goal of attracting more foreign investment, and we’re seeing stirrings in other markets such as Colombia, Argentina, and Peru, following a few years of under-investment.”
APAC, meanwhile, was cited by just over a quarter (26%) of those surveyed.
“APAC is increasingly active in project financing, particularly in Australia where there is a strong commitment to net zero, and in Japan, which is exporting capital through its large banks to projects in the APAC region,” says Con Kleanthous, managing director, APAC at CSC.
Sector growth
The top four industries respondents are currently focused on are renewable energy projects (cited by 55% of respondents); infrastructure (29%); oil and gas (25%); and real estate development (24%).
Within the renewable energy project space, respondents believe solar will see the biggest increase in deals over the next two years, followed by wind (24%), fuel cell (14%), and green hydrogen (12%).
“Wind and solar are at the forefront because of their proven track record on bankability, but as emerging technologies are proven to be successful from a financing perspective, we can expect to see more growth in newer asset classes like hydrogen. This is, in turn, engendering ever-complex project finance structures needed to accommodate them,” says Gartenberg.
“As these structures grow in complexity, it’s increasingly important to ensure that all parties involved have the right levels of experience and knowledge—particularly when a project goes across multiple countries and local financial and regulatory expertise is needed,” continues Gartenberg. “Engaging a trust and agency service provider with a robust understanding of local markets, a strong track record, and the ability to take on various roles—including that of collateral agent, account bank, administrative agent, and inter-creditor agent—can thus play a key role in minimizing risks and ensuring that a deal runs smoothly and protects stakeholders’ interests.”
