Alternative risk transfer. Generic phrase used to denote various non-traditional forms of re/insurance and techniques where risk is transferred to the capital markets. More broadly, it refers to the convergence of re/insurance, banking and capital markets.

Annual rate of discount or discount rate. The discount factor is the reciprocal of 1 plus the rate of return (the reward that investors demand for accepting delayed payment). For investment appraisals, the rate of return can be the investor's marginal rate (the lowest acceptable rate of return on that investment) or the investor's opportunity cost of capital, being the return forgone by investing in the project rather than investing in securities (investments deemed to have minimal risk) or the average cost of debt. Generally the average cost of debt is the rate of return used to determine the discount rate for calculating lenders' control ratios.

Appraisal. The process of clarifying objectives, identifying and assessing available options and examining the costs and benefits, analyzing risks and uncertainties before a decision is made.

Bankability. The extent to which a proposal for which credit facilities are sought will be considered a creditworthy transaction. Before issuing their investment or loan commitments, investors and lenders will have gained a sufficient level of comfort with the key features of the proposal and the risks associated with the transaction and the host country.

Base case. A cashflow model using a combination of factual data based on the contractual payments and obligations set out in the project contracts and finance documents and a range of macroeconomic, technical, commercial and financial assumptions reflecting a prudent projection of likely project cashflows. Downside cases use adverse assumptions either singly or in combinations.

Basis points or bp. A term used to refer to percentage points when used to express interest and fee rates used in financing arrangements. For example, an interest rate of 0.175% pa is customarily referred to as 17.5 bp pa.

Blended Cover. Typically a combination of traditional re/insurance product lines with other risk management products in a single aggregated policy. These are commonly arranged on a multi-year basis.

BI or business interruption insurance. Cover during the operations phase for events causing disruption and damage to the project company's operations and cashflow.

Bond. The paper evidence of a legal promise by the Issuer to pay the Investor on the declared terms. Bond are usually Negotiable. Bonds are customarily longer-term, say 5-25 years. Short-term bonds are usually referred to as Notes

Bot & Boot or Build-Operate-Transfer and Build-Own-Operate-Transfer. A contractual arrangement between a project company and a party with the power to grant rights to carry out or commission a project. The scope of that arrangement will usually also include the provision of finance for the project by way of equity funding and debt facilities.

Capacity. Amount of reinsurance that can be underwritten by an entity or market.

CAPEX. Capital expenditure including site costs, project preparation costs, payments to contractors including the turnkey construction contractor, professional fees, financing costs and fees, and interest during construction.

Cashflow model. A financial model based on a projection of the project cashflows during the construction and/or operation phases, usually prepared using a computer spreadsheet programme like Microsoft Excel or Lotus 123. The model will incorporate factual data obtained from project designs and equipment specifications, commercial agreements and financing documents together with key assumptions including macroeconomic, technical, commercial and financial information.

Concessional lending. Loans that are given by through the International Development Association (IDA). IDA provides long-term loans at zero interest to the poorest of the developing countries.

Conditionality. Conditionality in adjustment lending is important to ensure funds are channeled to countries with strong policy performance. Conditionality also can improve the transparency of donor decisions, and enhance government credibility.

Conditions precedent or CPs. Documents or other evidence in form and substance acceptable to the party to a project contract or finance document who has required their receipt as a pre-condition of the contract or document becoming effective. With loan agreements borrowers will usually have to obtain a number of CPs to satisfy the initial drawdown preconditions and thereafter satisfy a smaller number prior to submitting each request for an advance under the loan agreement.

Control ratios. Lenders usually require project companies to provide financial information which includes calculations of specified control ratios as at the calculation dates stipulated in the loan agreement. Those requirements usually include an annual debt service cover ratio (actual or forecast or both) and a loan life cover ratio.

Combined heat and power or CHP. Generation plant which supplies electricity and utilises the waste heat for heating business and domestic accommodation and hot water supplies. The net effect is to achieve appreciably higher overall plant efficiences and consequentially lower costs for heating and power.

Cost-benefit analysis. A type of analysis that tries to determine if a project is economically worthwhile. The benefits (translated into dollars) should be greater than the costs. All dollars used are converted back to their present value so they are compatible.

Creditworthiness. The extent to which any party or transaction is judged sufficiently worthy of credit facilities or financial support by a lender or other creditor. In making that judgement, the lender or other creditor will examine the background (experience and capability), standing (reputation and integrity) and financial substance of any party involved and make an appraisal of the proposed transaction for which the credit facilities or financial support are required.

DBFO or Design-Build-Finance-Operate. One of a number of terms used to describe the main features of types of concession or implementation arrangements used for projects being encouraged and/or carried out as a PFI or PPP.

DCMF or Design-Construct-Maintain-Finance. Another term describing the main features of another type of PFI arrangement.

Debt equity ratio. A measure of the borrowed funds to total funds, usually expressed as a percentage - for example, a debt equity ratio of 80% would exist where a company's funding comprises 20% equity and 80% short or medium term loans.

Debt service. Principal repayments plus Interest payable; usually expressed as the annual dollar/currency amount per calendar or financial year.

Demand side management or DSM are measures taken to reduce consumer electricity demand through the introduction of pricing incentives, free or reduced cost energy saving equipment or energy use training or promotions.

Derivative. A financial contract whose value is derived from another (underlying) asset, such as an equity, bond or commodity.

Discount rate. See annual rate of discount above.

Debt service cover ratio or DSCR. Debt service cover ratio is a measure of the project's net revenues before debt costs as a multiple of the debt service for the period. Sometimes the term is abbreviated to cover ratio since it is a measure of the cushion or safety cover margin the borrower has to meet its debt service costs. Net revenues are gross revenues less all operating costs before debt service.

DSU or delay in start up insurance. Cover during the construction phase for events causing delay to commencement of commercial operations of the project.

ECA. An export credit agency providing political and/or commercial risks cover and support to exporters of eligible goods and services from the host country of the ECA to overseas buyers. In some cases the eligible goods and services content may include third country supply. Most OECD countries have agreed to coordinate and to a large extent standardise the financial support that their ECAs offer exporters and participate in the arrangement on guidelines for export credits.

Environmental audit. An environmental audit is conducted to assess the impact of past and current operations of existing projects and company facilities and is applicable, for instance, in company mergers or acquisitions and otherwise when the risk of environmental liabilities is present.

Equity. Risk capital provided by sponsors and investors in the form of funds subscribed for shares and/or subordinated loans or other credit facilities.

Experience account. Reserve fund set up to hold the premiums for finite reinsurance from a single insured party. Earns interest over the fixed term, and through an agreed profit commission formula returns to the insured whatever principal and interest is not paid out as losses and net of a risk premium that will be charged by the reinsurer for assuming the timing/investment risk due to a loss frequency or severity that was not anticipated.

Feasibility. Practicability and ability to be done or carried out.

Financial close. This term will be defined in most project agreements but can mean either the date when all project contracts and financing documents are signed or the date when all project contracts and finance documents become unconditional and all conditions precedent to the project loan agreement are satisfied or waived.

Gearing. See Leverage.

Grants are funds disbursed by one party, such as a multilateral or bilateral institution, to a recipient for the purpose of project related funding.

IDC. Interest during construction.

Internal rate of return or IRR. This measure of project profitability or return is based on discounting cashflows which recognises that project receipts at the beginning of the payback period are worth more than those received later. The IRR is defined as the rate of discount which makes the NPV equal to zero - in effect when the discounted outlays have been recovered by the discounted receipts. The IRR is not always a reliable criterion and it may be necessary to calculate the NPV for a project as a check.

Load life cover ratio or LLCR. Loan life cover ratio is a measure of the project's ability to repay the outstanding debt from the projected net revenues. The comparison is the discounted present value of the future net revenues with the outstanding debt at the date of the comparison. For project financings, lenders will expect to see minimum LLCRs of around 1.2 to 1.3 depending on the nature of the project and the gearing.

Loan. In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. Typically, the money is paid back in regular installments, or partial repayments; in an annuity, each installment is the same amount. The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan.

Leverage. Leverage is a term used to measure the ratio of borrowed funds to either total funds or shareholders' capital, usually expressed as a ratio of borrowed funds to total funds. Income leverage is a term used to measure the extent to which the income stream of a company or project is taken by debt service and loan repayments. Leverage may also be called "gearing".

Limited recourse. A general principle behind limited recourse project financing is that lenders are only entitled to look to the assets of the project company (acting as borrower) covered by the security arrangements. The assets of the project company include the project documents and the obligations of the various project parties which may include performance and payment obligations of the sponsors and shareholders. Typical project financing structures will provide lenders with recourse to sponsors and shareholders for unpaid equity subscriptions, support for the performance and payment obligations and liabilities of their subsidiaries with contractual roles in the project, for example as plant operator or turnkey construction contractor.

Net present value or NPV of an investment project is the value today of the surplus the investment is expected to make, calculated as the present value of the projected net cashflows over the life of the investment less the present value of the anticipated investment outlays. Present values are calculated by applying an annual rate of discount.

Official Development Assistance. Loans, grants, and technical assistance that governments provide to developing countries; may be abbreviated as ODA.

Offtaker. The purchaser of product produced by a project.

OPEX. Operating expenditure including debt service (interest and fee payments and repayments of loan principal), raw materials, supplies and energy costs, operating and maintenance costs, spares and replacement parts and project company administration costs

Payback period. A measure of the project's ability to repay the investment and debt funding, usually expressed in years.

PFI. Private Finance Initiative is a long term contractual public-private partnership under which the private sector takes on agreed technical, commercial and financial risks associated with the delivery and financing of public facilities and services in exchange for payments tied to agreed standards of performance and quality. It is one of the main mechanisms through which the public sector can secure improved value for money in partnership with the private sector.

Power purchase agreement, often referred to as a PPA or power offtake agreement, is a contractual arrangement between a provider of electricity (often an electricity generator) and a purchaser (often an electricity supply company or an industrial power user), usually for a term of years (typically 5 - 20 years). The essential features of a PPA are the purchase quantity of electricity (often described in terms of a minimum take in a period, for example over 12 months), the initial price, the subsequent price adjustment mechanism, the payment terms and any associated corporate or host government credit and performance support or undertakings, and the scope and nature of the corporate supply obligation of the power provider.

Present value of an investment is the aggregate value today of the projected net cashflows expected in each period over the life of the investment. The present value for each period is calculated as the projected net cashflow for the period times the discount rate for that period.

Project company. Usually a special purpose company formed to carry out the project as a self standing venture so the project is isolated from the other assets and liabilities of the sponsors and fellow shareholders. This structure also provides a vehicle (sometimes referred to as a special purpose vehicle company or SPV) for sponsor equity funds and additional investment funds from third party investors.

Private sector. Parties not in the public sector including sponsors (manufacturing, trading, fuel and energy groups, transport groups, international utility companies, contracting and service companies), investors (investment groups, venture capital trusts, insurance companies, sponsors and private individuals), contractors (construction groups, equipment manufacturers, facilities management groups) and debt providers (commercial lending banks and leasing companies).

Private sector participation or PSP. Usually an arrangement whereby private sector investors, sponsors, contractors, operators or lenders participate in the provision of services for the public sector. The range of options includes service contracts (covering the provision of general or specialist services under contract), management contracts (with greater responsibilities for operations and maintenance in the delivery of services), leases (covering the provision of facilities and the delivery of services, usually with a greater allocation of risks), various forms of concession arrangements (covering the creation of new or upgraded facilities with responsibility for providing operational management and maintenance services, investment and the transfer of substantial technical, development, operational, commercial, financial, funding and environmental risks to the private sector) and divestitures (transfer of state-owned assets to the private sector as part of a privatisation programme).

Privatisation. Is the transfer of state-owned assets to private sector ownership. For the most part this has involved the sale of by government of nationalised industries to the general public as shareholders. While in the public sector, most of the nationalised industries are organised as public corporations, responsible to central government. Shortly before privatisation, the legal status of these industries is usually changed from public corporation to private sector limited company with the state initially owning 100% of the share capital. Those companies own the property and business assets and carry on the business operations and commercial activities previously provided as public sector services. They are structured with independent management control and accounting systems to private sector quoted company standards.

Public Private Partnership (PPP) is a model in which a public service is funded, implemented and operated through a partnership of government and one or more private sector entities. These partnerships can take many forms, and can be as simple as grants or as complex as B-O-T schemes.

Public sector. Government, governmental agencies, local authorities and municipalities in the host country.

Purchase agency. An entity, established as part of the structural arrangements required on creating a liberalised electricity sector, with the responsibility for purchasing all power dispatched by the market operator and/or purchased under power purchase agreements between generators with stranded costs and the purchase agency.

Regulator. An individual or commission created by government with duties and authorities to promote competition, provide regulation of matters relating to the control of market power (particularly those of natural monopolies), undesirable changes to the structure of the utility sector, prices and service quality standards and investment in infrastructure capacity and renewal. An important feature is the independence of the regulator from government direction, control or undue influence and from industry, particularly the avoidance of regulatory capture.

Retail market. A competitive market for the supply of electricity to industrial, commercial and domestic consumers by the incumbent supply company and competing suppliers, typically generators, other suppliers outside the incumbent's geographical area, electricity traders and suppliers in other provinces or countries.

Sponsor. A private sector commercial party, acting alone or with others, introducing and promoting a project idea, preparing technical and commercial proposals, negotiating contractual arrangements and arranging equity and debt funding. In certain cases public sector entities act as co-sponsors. Private sector sponsors are usually shareholders and equity providers in the project company and leaders of the preparation and development phases of a project.

TPL or third party loss insurance cover.

Tradable green certificates. TGCs are generated by the certification of RE production. Certificates are tradable and consumers are required to prove that they have reached renewable energy production quotas by purchasing certificates.

Tranche. Term to describe a specific class of bonds within an offering. Usually, each tranche offers varying degrees of risk to the investor and is priced accordingly.

Turnkey construction contract. Contractual arrangement with a construction group or consortium (comprising construction contractors and often equipment manufacturers or suppliers) covering the detailed design, procurement, construction, testing and commissioning of a project in accordance with an outline or schematic design and specification (usually prepared in terms of the minimum performance outputs required of the project) provided by the project company, for a fixed price and with an undertaking to deliver the completed and fully operational project by a date certain.

Viability. Feasibility and practicability of a plan, especially from an economic viewpoint.

Wholesale market. The competitive market for the supply of power from generators and other producers through transfers over inter-connectors from regions (provinces) or other countries.