Application of project financing for modernisation of power plants

Abstract

The Russian electric power industry faces an ambitious task to modernise the equipment of power plants at the curent development stage, which is due to their physical and moral deterioration. As a result, there are large reserves in the industry to increase energy efficiency by increasing coefficient of performance and reducing specific fuel consumption. However, the modernisation projects are costly and are financed by non-market mechanisms in the domestic practice – by increasing tariffs for consumers (special supplements to the power fee and payments under power supply agreements). In the foreign practice, when implementing large infrastructure projects, in particular, in the energy sector, project financing mechanisms are used, based on financing investments with borrowed funds secured by future cash flows of the project. Their successful application for the investment projects in the Russian Federation requires assessing the sufficiency of the effect of the power plants modernisation for repayment of borrowed funds and their maintenance. The paper analyses the foreign and domestic experience of the project financing of investment projects in the electric power industry. Using the example of the Khabarovsk combined heat and power plant, it is shown that the accumulated amount of fuel cost savings resulting from the modernisation of the plant makes it possible to compensate for a significant part of the investment costs.