Project Finance in Renewable Energy Projects - An empirical study on hydropower and wind power projects in Norway from 2010 to 2023

Abstract

This thesis explores the financing mechanisms behind renewable energy projects in Norway, focusing on the distinction between project finance (PF) vs. corporate finance (CF). Using a dataset of 75 renewable energy projects from 2010-2023, the study examines the factors influencing financing choices in a market dominated by hydropower and financially robust domestic utilities that favor CF. However, PF plays a significant role in large-scale wind power projects, particularly those involving foreign sponsors. By drawing on economic and financial theories alongside insights from prior research on Germany (Steffen, 2018), this study provides a comparative perspective to understand the drivers and limitations of PF in a stable, low-risk market like Norway.

Employing a Generalized Linear Model with a logit function, the thesis analyzes key factors influencing the choice between PF and CF. The findings challenge traditional drivers of PF, such as contamination risk and agency conflicts, showing that these factors are not decisive in Norway’s market. Instead, the financial strength and experience of Norwegian utilities enable them to rely on CF, even for larger wind power projects, by absorbing risks directly without the need for complex PF structures. However, PF remains relevant for high-risk wind projects sponsors by foreign utilities, where it mitigates information asymmetry and shields sponsors from liabilities through SPVs.

The findings highlight Norway’s unique energy landscape, where stable market conditions, public financing mechanism, and robust institutional frameworks favor CF. Nonetheless, PF plays critical role in managing risks for specific projects, particularly those involving foreign sponsors and financial investors. The research underscores the importance of contextual factors, such as market stability and sponsor capacity, over traditional PF drivers like project size or ownership structure. These findings contribute to a broader understanding of renewable energy financing in mature, low-risk markets and provide a foundation for future comparative studies.