“Infrastructure is the term for the basic physical systems of a business or nation. Transportation, communication, sewage, water and electric systems are all examples of infrastructure. These systems tend to be high-cost investments and are vital to a country’s economic development and prosperity. Projects related to infrastructure improvements may be funded publicly, privately or through public-private partnerships.” – Investopedia
For our purposes, Electrify! considers as “government backed” projects, those which are “funded publicly” in the definition above. Although our “government backed” category of project bears resemblance to a “public-private partnership”, the distinction that we make has to do with little or no funding being put up by the private commercial or private financial sectors.
A government backed infrastructure project can have a budget of 100 or 200 million dollars on up to billions of dollars.
An example of such a project would be the development of a network of plants which produce both electricity and potable water. If such a network were to have 10 or 12 or even 15 plants, it would result in hundreds of megawatts of grid ready electricity and hundreds of millions of liters of potable water per day. The price tag of this example project would likely be in the range $3 to $5 Billion.
The project will essentially run like a textbook business. The revenue will be generated from the sale of electricity on a Power Purchase Agreement (PPA), and the sale of water on a Water Purchase Agreement (WPA). Simplified considerably, expenses will usually include the costs associated with operating the facilities, along with repayment of debt.
Where does this kind of money come from? Electrify! works with a variety of funding sources looking to invest or loan money in scenarios where there will be no investment made by the private sector. Projects backed by an acceptable form of government guarantee are the easiest to fund. Many government funding sources offer debt-based funding with repayment of principle and interest, and do not look for equity in the project.
Examples of acceptable government guarantees are: Sovereign Guarantees, Ministry of Finance Guarantees, and Central Bank Guarantees. There are also other types of acceptable guarantees that can be used to finance government backed projects. The guarantees put in place are monetized, and become the basis for a Structured Project Funding package, where the project will receive a contractually specified number of tranches of funding, over a contractually specified period of time, until the entire project budget has been released.
An example of the terms of one “Government Guarantee” program are: 100% funding, at 1 to 2%, with a repayment term of 10 to 15 or 20 years, and a 2 to 5 year ramp-up grace period. To be considered for this program, a project budget must be at least $250,000,000.
Global “humanitarian” funds with money set aside for “green & sustainable” projects are a consideration. In addition to funding projects as loans which must be repaid, some of these organizations offer grants and other “non-recourse” funding methods where the repayment of some or all of a project budget is waived.
Some governments will provide the project budget, and raise their funds by making a bond offering.
There are also resources for funding in the commercial financial sector, and with private investors, where Electrify! would consider a project to meet our “government backed” status.