Finance the Integrated Project

PROJECT FINANCE · CAPITAL MARKETS

FINANCE THE INTEGRATED PROJECT: WHAT LENDERS ACTUALLY NEEDS TO SEE

By David Swank, CEO, i3 Power & Energy

Project finance lenders have gotten measurably sharper about integrated energy infrastructure over the past two years. The conversations happening in credit committees today are qualitatively different from the ones happening in 2023. Lenders are asking harder questions about operational integration, interconnection risk, grid participation, and dispatch discipline than they were even a short time ago. Much of the developer community has been slower to adapt. Firms that structure their projects the way lenders now expect are moving faster and pricing better than firms still bringing the previous generation of project structures to the market.

This is not a story about lenders being difficult. It is a story about the capital markets catching up to the actual risk profile of energy infrastructure in a rapidly evolving grid environment. The old assumptions about what made a project bankable have been quietly updated. Developers who understand the update are being rewarded. Developers who do not are increasingly confused about why deals that would have closed easily two years ago are now taking longer and pricing higher.

WHAT HAS CHANGE ON THE LENDER SIDE

Several structural shifts have moved lender diligence forward. Interconnection risk, which used to be treated as procedural, is now treated as material. Dispatch performance, which used to be assumed from the design specifications, is now diligenced against realistic operating scenarios. Portfolio-level flexibility, which used to be a nice-to-have, now affects pricing directly. Operational track record, which used to be secondary to construction pedigree, now carries at least equal weight.

None of these shifts are unreasonable. Each of them reflects lessons the market has learned about projects that looked bankable at closing and underperformed in operation. The lenders are not being cautious for its own sake. They are pricing the difference between projects that will actually operate as modeled and projects that will not.

WHAT LENDERS ACTUALLY WANT TO SEE

The conversations that go well in credit committees today all share a set of features. Evidence that the project was designed against realistic grid conditions rather than idealized ones. Contractual clarity across every party who touches operation, from EPC through commissioning through utility and market participation. Flexibility built into the interconnection agreement and the operating protocols, not just claimed for the technology. An operator who was involved in project design before commercial operation date, whose commitments reflect their actual operating knowledge.

These features are not achievable by upgrading a data room. They require the project to have been developed in a coordinated way from the earliest phase. That is a structural feature, and it either exists in the project or it does not.

“The right question is not which party pays. It is how to design projects that create value for every party, so that the payment question stops being zero-sum.”

HOW INTEGRATED DEVELOPMENTS MEETS THE NEW STANDARD

Projects developed under the coordination model that i3 uses tend to satisfy the new lender expectations without special effort, because the features lenders now look for are the features integrated development produces as a matter of course. Coordinated planning means fewer contractual surprises because the parties agreed to the material terms early. Operator participation during design means the operating assumptions in the financial model reflect the operator's actual expectations. Utility partnership means the interconnection design reflects grid reality rather than an optimistic reading of it. Storage and flexibility integrated at the design stage mean the project has multiple value streams rather than one.

None of these are bolted onto the project for lender review. They are features of how the project was developed. Lenders can tell the difference between projects where these features are structural and projects where they are described in a marketing deck. The difference shows up in pricing, in terms, and in the depth of the capital pool that will engage with the project at all.

WHY BANKABILITY IS NOW A DESIGN CRITERION

Bankability used to be a threshold the project either cleared or did not. It has become a design criterion, meaning the features that make a project bankable have to be built into the project from the earliest planning phases rather than added at the end. A project that reaches financing conversations without those features cannot retrofit them cheaply, if at all.

This is one of the most consequential shifts in energy infrastructure development this decade. It rewards firms that treat coordination as central and penalizes firms that treat it as an add-on. The credit market has changed. The developer community will either change with it or lose access to the capital that funds this next era of infrastructure.

WHAT THE CAPITAL MARKET ALREADY KNOW

I can't emphasize enough how much the capital markets are already ahead of where much of the industry conversation still is. Lenders know what an integrated project looks like. They know how to diligence one. They know how to price the difference between a project that has done the coordination work and one that has not. The developers who understand this, and structure their projects to match, are closing deals. The developers who do not are increasingly discovering, at the worst possible moment, that their capital structure assumes a set of conditions the credit market no longer accepts. Bankable projects are not just the end goal. They are the design brief.