Abstract
How commitments are funded is addressed by understanding the fundamental ways in which financial markets operate. Premised on a minimum of trust, governance and market rules dictate the transparency under which markets allocate risks and payoffs. Contrary to accepted wisdom, widely accepted financing structures embed risks that financiers often ignore. This chapter examines three cases. Project financing is characterised by rigid take-or-pay contracts that forego embedded real option value. The emergence of YieldCos’ “innovation sans governance” saw the erosion of value that led to substantial losses for investors. Policy’s best intentions in introducing price caps paradoxically sustain persistently higher prices. The chapter ends by highlighting how governance and adherence to ethical standards serve to facilitate capital market efficiency and access, and makes an initial attempt at quantifying the costs of defaults.
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Barcelona, R.G. (2017). Accessing Funding. In: Energy Investments. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-59139-5_11
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DOI: https://doi.org/10.1057/978-1-137-59139-5_11
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