Explaining the language

Financial speak is all very well for bankers and finance experts, but for the rest of the wind power business the specialised language of the money world tends to make quite simple concepts seem far more complicated than they really are. Definitions of the terms as they are commonly used in the wind business can help.

Project finance: loans for wind farms where, if the loan cannot be repaid, the lenders cannot look to the owners for their money. The lenders' only source of repayment is the wind farm itself -- its equipment, property, permits, bank accounts and contracts. This is called "non-recourse" financing, as opposed to "recourse" financing, where the lenders could look to the owners for repayment of the loan. Lenders are only willing to make non-recourse project finance loans when they are comfortable that the cash flows from sales of electricity generated by the wind farms will be stable and predictable so that loans can be repaid. The vast majority of major wind power stations, excluding some of those owned by utilities, have non-recourse project finance loans.

Corporate finance: the financing of investments, such as wind farms, as well as general corporate operations, by the companies themselves on a recourse basis (see above). Also, often incorrectly, referred to as "on balance sheet."

Debt: a loan, often from a third party such as a bank, to a company or a project, which must be repaid on a fixed schedule and on which interest is charged and must be paid. The two primary sources of debt are the banks and the bond market.

Bond: debt which is provided directly by investors, usually large institutions, rather than by banks. The bond market typically lends larger amounts for longer periods of time and has its own set of requirements.

Equity: an ownership investment in a company or project. There is no obligation to repay or pay interest, but the owner will expect to receive profits over time.

Limited partnerships: a structure through which equity investments are made. It is typically used to maximise the tax benefits of certain investments and is employed extensively in Germany (in "wind funds") and elsewhere.

Mezzanine: a hybrid between debt and equity. Its risk profile and cost is set between that of debt and equity.

Public equity: means the stock exchanges -- open markets on which companies can raise money by having their shares listed and traded.

Private equity: at its broadest it simply means any equity investment which is not done by the stock exchange, meaning that the entity into which an investment is made is not a publicly-listed company. In most common usage, private equity refers to equity investments made by specialised investors, usually institutions.

Capital: A general term which refers to both debt and equity together.