0191-9067/83 $3.00 + .00 Copyright " 1983 SUN SAT Energy Council FINANCING A SOLAR POWER SATELLITE PROJECT C.A.S. FAWCETT* Morgan Grenfell & Company, Ltd. 23 Great Winchester Street London, England EC2P 28X The solar power satellite project constitutes a unique financial challenge in that it is probably the first attempt to exploit extraterrestrial sources commercially. A salient feature of the project is its ability to make electricity available to all nations from sources which are outside the claim of any nation. This transnational character in itself points to the desirability for international involvement in the financing of the project. Quite apart from this characteristic of the project, the sheer magnitude of the project costs point to the need for international funding. Cost estimates appear to vary appreciably but the project will undoubtedly be in the multibillion dollar category. Projects of this magnitude have become increasingly common due to worldwide inflation, and the desire to maximise economies of scale. However, governments have become generally less willing to fund such projects directly in order to protect their borrowing limits. Corporations, for their part, have been incapable and/or unwilling to fund projects of such a size on the strength of their own balance sheets, and they have become increasingly shy of bearing the full risks themselves. Accordingly a technique known as “project financing’’ has been developed in the world's financial community specifically for the purpose of funding these very large ventures. Project financing is very frequently international in that the project participants, be they sponsors, users or providers of funds, originate from different nations. Project financing as it is known is not a term of art; it may be used to convey a varying range of concepts, and is therefore better described than defined. The need for project financing arises where the financial magnitude of the borrowing, together with the project risks and the insufficient security provided by the project’s assets, cause the lenders to require additional security. In a traditional financing this would be provided by the project sponsors, but as I have just pointed out, corporations seek to avoid bearing the full risks of a major project. It is to cope with this situation that project financing provides a method of sharing risks amongst the parties to the project by including indirect financial support from participants other than just the sponsors, for instance users. The aim of these provisions is to apportion risk in a manner commensurate with the benefits which each party stands to gain from the project. The interests of all the parties must therefore be openly assessed before the project is commenced so that the security package is designed to reflect these interests. Whatever security package is finally agreed to, it can only be a function of the relative perceived gains of the parties which in turn determine their willingness to provide security. Moreover, the financing plan should be as closely suited to the *Present address: Fawcett & Fawcett. 30 Sheffield Terrace, London. England W8 7NA.
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