How do project finance structures differ between renewable energy projects and traditional fossil fuel projects?

Without any claim to exhaustiveness, we want to briefly highlight below some important points that are sometimes not reflected upon enough (with an international point of wiev) regarding the project financing of electricity generation projects. Particularly when analyzing the difference between project financing structures in renewable energy projects and traditional fossil fuel projects.

Many energy projects are made possible by the use of so-called export credits that most manufacturing countries establish for exporting their products to other countries. To use these credits, a specific analysis of the risks that must be faced in all phases of project implementation is necessary. Obviously a project is more financeable the more its risk profile is sustainable by the financiers and promoters of the project.

So the question: How do project finance structures differ between renewable energy projects and traditional fossil fuel projects?

The different economic and temporal dimensions (investment costs and duration as usually  pointed out) is correct but does not explain completly the question. In fact, for instance, there is also a natural difference on the physical dimension of the projects which has important implications. In one case (especially for photovoltaics) these generally involve many small electricity generation projects mainly for self-consumption (and feeding surpluses into the grid, if it exists) spread over a vast territory. Thus there is no risk of failure to withdraw production, which for large plants may instead require a specific "take or pay" contract to limit the risk. While in the case of fossil fuels these are generally large projects concentrated on a relatively small territory (usually two or four twin plants built together to save on construction costs). In this last case we are also subject to the availability of a transmission and distribution network, which conditions the withdrawal of production by users and affects the market and trade. All this also implies a difference in risks (financial, environmental, technological, economic, insurance, political and currency, etc.) which inevitably reflect on the "security package" necessary to finance the project. So in one case (renewables) there can be a lot of similarity in the procedures required for a normal mortgage (except benefiting from any incentives if provided for by local legislation). In the other case, however, since it is a large investment, the risks are much broader, including the risk of political instability, which can usually go as far as implying the sovereign guarantee on risks relating to the country promoting the project and also preventing the possibility of using the credits for the export of the machinery, plants and systems necessary for the plant by the producers. 

To complete the explanation, it should not be forgotten, finally, that "take or pay" contracts are usually also required for fossil fuel to power the electricity generation plant and avoid supply and market risks for the necessary fuel. This is not required for renewable plants, however, because light, wind and water are made available by natural cycles evaluated during the design of the plant itself. We could thus hastily conclude that renewable energy plants are immune from energy crises due to market effects, conflicts, or cartel operations that afflict primary fossil fuels, of which we could do without. But it would be a partial and untruthful reasoning, since the volatility of renewable production, which can vary moment by moment, requires primary regulation in voltage and frequency (i.e. in available power). This regulation in the domestic system can take place through accumulation (i.e. accumulator batteries), But on configurations of national plants connected to the grid, large power plants that carry out the base load service are still necessary (and to date only fossil or nuclear energy plants can carry out this service); just as medium-large power hydroelectric plants are needed which will entrust the primary regulation of the entire national system. It is concluded that, beyond small domestic systems, not even renewable energy can be self-sufficient and functional in solving energy problems. Therefore the stability of an energy system can only be based on a well-calibrated energy mix of all primary sources aiming at the global and local situation simultaneously. 

Refer also to:   

https://zenodo.org/records/8430982

https://zenodo.org/records/11182244

https://zenodo.org/records/10071687