constitutes the smaller proportion of total funds in project financing, the indirect backup provided by the range of agreements and guarantees already mentioned is the equivalent of the support of substantial additional equity to the project’s security (though not of course to its planned cash flow). Equity for the SPS project might come from a variety of sources although not, one suspects, initially from the public. Such potential sponsors as government space research bodies, energy users, corporate suppliers of high technology equipment, of generating equipment and of fuel to existing power stations, have already been mentioned. Although the utilities as users would no doubt be required to provide the security of long-term offtake agreements as discussed above, they might also wish to take up some equity in order to have a say in the management of the project. A method of quasi-equity funding which could be particularly useful to the SPS project is that known as “Advance Payment Financing,’’ whereby a company makes an advance payment to fund the initial research and installation, bearing full risk of failure, and is rewarded with substantial repayments from the output, either in cash or in kind, for instance in the form of supplies at preferential rates on a long-term basis. DEBI All the types of funds that follow are forms of debt and are therefore lent to the project entity under an agreement or contract whereby they earn a specified type of interest, either fixed or floating, and are almost invariably repaid according to a predetermined schedule. Any default in such payments will normally entitle the lenders to invoke a clause whereby they can be split into official debt and commercial debt, whose various forms will be described first. Commercial Lending The first and most obvious form of commercial lending is that of the commercial banks who tend to provide funds swiftly. However, the commercial banks’ loans, in addition to being for a restricted period as mentioned, are expensive, being at the full market rate for a given type of project risk and their cost cannot be predicted accurately since they generally are at a floating rate. However, it seems very likely that this project would have to rely to some degree on borrowing from the large amounts of funds which can be mobilised by the commercial banks, by financing the later stage of the development with these expensive loans. Plat ings of Long-Term Debt Another potential source of funds are such major investors as the U.S. insurance companies, pension funds and mutual savings banks. These sophisticated investors may be willing to lend long-term funds to the project since they have become increasingly willing to fund major projects. However, their security requirements are considerable and the exact location of the project may be a difficult issue here. A successful placing with these investors has the dual purpose of providing long-term funds and of affixing their stamp of approval to the project. Bonds A third form of commercial funds might be tapped by issuing bonds in the public
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