Principles of Project Finance

for much longer than the debt the investors may make windfall profits at the

Power Purchaser’s expense from refinancing the debt already paid for in the

Tariff (cf. §6.9).

Therefore the ideal term is probably about 1–2 years longer than the ex-

pected term of the debt, to leave lenders with a “tail” (cf. §12.9.4 and §13.2).

The residual value of the plant. In a BOOT/BOT/BTO project, the Power

Purchaser may be happy with a shorter term for the Project Agreement since

the plant is taken over at the end of the term and the Power Purchaser can

thus benefit from its residual value (i.e., ability to continue to operate

efficiently and profitably) at that time.

Conversely, in a BOO project the Offtaker or Contracting Authority loses

this residual value, and a longer ...