Financing Energy Projects
This free online course on energy projects finance introduces the concepts of risks, returns and financial calculations.Publisher: NPTEL
CertificationView course modules
This course in basic project finance will introduce you to the concepts of risk, return and debt-equity in the context of energy projects. Energy projects are capital intensive, hence requiring a high level of investment. Like any undertaking, such projects also face uncertainties in a dynamic political, economic, ecological, technological, socio-cultural or legal environment. It is imperative, therefore, to understand how to assess risks and calculate the return on investment. This course will give you an insight into the meaning of positive and negative externalities associated with the production or consumption of any product or service. Externalities arise when an economic actor does not receive or face the "correct" price or the marginal social cost for a specific action. This happens due to factors which are beyond the control of any actor. Ronald Coase had challenged the prevailing economic reasoning on externality in his 1960 paper– "The Problem of Social Cost". You will learn about Coase theorem which addresses the social cost and externality. You will also understand the calculations behind private marginal cost and marginal external cost and assess the ethical issues associated with property rights.
A pertinent question is – How do we finance or get the investment required to implement or initiate a large energy project? You will be able to answer this question as you get introduced to the concept of financing the investment needed to implement or initiate a large energy project. Basic project finance entails calculation of return on investment and assessing various types of risks. You have to know how to evaluate the trade-offs between the risk and the return. There might be a credit risk, where you have no guarantee whether the individual or company will return your money once they get the revenues. There could be commercial risk, where a technology might become obsolete. This course will explain these risks with relevant examples and cases. Next, you will be presented with the environmental problems of certain projects, the operational maintenance requirements and some financing instruments. You will also learn about the different kinds of financing available for green energy and the energy efficiency renewables project. You will acquire a knowledge of the kind of investments required for reducing CO2 emissions and mitigating climate change along with the sources of finance available and the characteristics of the funding.
When financing a project or a business, the measurable expense of obtaining capital is 'cost'. The interest that the business pays on the debt is the cost of debt. When the cost of capital refers to the claim on earnings offered to the shareholders on the basis of their ownership stake in the business, this is known as equity. Debt financing is usually obtained at a lower effective cost, if the project is implemented successfully. You will learn how much debt and equity should be taken on and how to configure it in our calculations. You will get a step by step explanation of the calculation for loan repayments, the duration of the loan. the tenure of the loan and the capital recovery factor. Finally, you will learn the detailed calculations for energy project financing, the overnight cost and the internal rate of return. Financial literacy is useful for all mid to senior level professionals, who are expected to be the key decision makers. Understanding the key concepts of project finance may open up new career or growth prospects for those with technical knowledge. So, make a smart move and start learning!
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By the end of this course, you will be able to:
- Explain the externalities in a production and consumption function of any individual or company
- Analyse the externalities and their relationship with the property rights and Coase theorem
- Describe project energy financing and how to get the investment required to implement a large energy project
- Discuss the difference between corporate finance and project finance
- Outline the renewable investment trend for recourse and non-recourse project
- Calculate debt and equity ratio for financing any energy project
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