Risk factors influencing the debt leverage of project financing initiatives in the energy industry

Purpose – This paper aims to contribute to understanding the crucial influence of risks on the capital structure of project financing (PF) initiatives in the energy sector. Design/methodology/approach – The debt leverage of a capital investment is selected as the response variable, and its relation with select identified risk factors is examined using a regression analysis on a data set of 72 projects carried out all over the world in the energy industry. Findings – Results have highlighted that the debt leverage is significantly influenced by several sources of risk measured through specific indicators, namely, country stability index, the construction duration, the concession period and the average size of partners. Therefore, country, project and special purpose vehiclerelated risks have been shown to have an impact on the debt leverage of a PF scheme. Research limitations/implications – The results could support both investors and lenders to better define the financial leverage of projects delivered under a PF mechanism. In particular, the study could help to have a better understanding of the main factors that influence the debt leverage in PF initiatives. Originality/value – This paper contributes to filling the lack of works addressing the relationship between risk factors and capital structure in PF projects. In this way, this research leads to a better understanding of the risk factors that influence the capital structure of a PF initiative, and they have, therefore, been proposed as a basis for the establishment of improved methods to design refined capital structures.