In this edition of New Energy Expert Insights, we sat down with Viet Pham from Sumitomo Mitsui Banking Corporation (SMBC) to explore project finance for renewable energy projects in Australia, examining how lenders are adapting to the sector’s unique challenges and what developers need to know to secure optimal financing.
Viet is the Head of Renewables, Australia at SMBC Group, where he leads the bank’s renewable energy financing activities in Australia.
How has SMBC’s approach to renewable energy project finance evolved over the years?
SMBC’s renewable energy financing business has evolved significantly over the past 15+ years in the Australian market. The bank initially focused on greenfield wind farm projects before broadening its portfolio to include solar projects, and more recently, battery energy storage system (BESS) and hybrid projects.
SMBC has participated in the majority of landmark transactions in the Australian market since 2010 and remains keen on supporting sponsors who are committed to investing in Australia’s energy transition.
Today, the portfolio encompasses an array of sophisticated structures. As a market leader in this space, SMBC has appetite to consider novel transactions in addition to the traditional singleasset and portfolio financings in the renewable energy sector.
What are the key differences between portfolio financing and single asset project finance?
Portfolio financing is more akin to corporate financing, as it provides borrowers with greater flexibility to manage individual assets within agreed portfolio parameters. Larger portfolios underpinned by a diversified pool of operational assets are typically more bankable by a wide range of lenders, as opposed to traditional single-asset project finance which tends to be highly bespoke with extensive due diligence requirements, lender controls and security arrangements.
The portfolio approach offers a critical risk management advantage. When you have a portfolio and one asset breaks down, the overall financial damage is mitigated by cashflows from the other operating assets. However, if you are looking at a singular project and something important such as the PPA becomes ineffective, the project may have lost its primary revenue source to pay Principal and Interest or to repay debt at the maturity date. Typically projects that have encountered such difficulties have been consolidated into portfolio financings or sold to larger platforms.
What makes a renewable energy project bankable from a lender’s perspective?
Whilst project finance is theoretically based on a non-recourse structure with no recourse to sponsors, the reality is that the identity of the sponsors is of key importance to lenders. In addition to the identity of the sponsors, the identity and credit rating of the offtakers, the tenor and structure of those offtakes, and the identity of key suppliers all contribute strongly to bankability.
Early engagement with key stakeholders, from landowners to government to offtakers, combined with advice from experienced legal advisors and financiers, is where developers can maximise the bankability of their projects from the outset. The ability to consult with lenders depends significantly on existing relationships and the developer’s successful track record.
A key issue to avoid is procurement of an “unbankable PPA”, which requires developers to renegotiate with the tenderer on terms that have already been agreed, either directly or through a tripartite agreement. Similar issues can also arise with land documents and network connection arrangements.
What are the main challenges facing renewable energy projects today?
The main challenges include:
- project delays;
- cost blowouts;
- commissioning risk;
- curtailment risk; and
- forecasting errors baked into assumptions.
The biggest challenge for Australia is the sheer scale of the construction task ahead with a limited labour force. The ability to construct projects will be constrained by the available labour force and credible construction players in the market. Multiple large-scale projects are being constructed across Australia and it will be a challenge to ensure there is enough labour for such projects.
From a financing perspective, whilst it is difficult for investors to over-size equity to meet their required investment returns, higher equity cheques are probably the easiest way to maximize lender interest in a project because they show valuable ‘skin in the game’ which should assist in addressing any unforeseen issues.
How have EPC contracting arrangements changed?
The EPC landscape has fragmented significantly. Historically, arrangements involved one counterparty to cover the whole build. Now arrangements typically involve separate contracts for the technology provider, connection, balance of plant and others. Instead of just two counterparties (owner and EPC contractor) responsible for risk, the owner now needs to separately manage multiple contract streams, meaning that the owner may need to hire additional resources or contract these to external consultants – these all add to the cost of build despite falling costs in some areas (e.g. price of BESS cells or solar panels)
What distressed asset situations are you observing in the market?
A large number of distressed assets are being observed, most commonly single asset solar farms without BESS. Some are over-contracted with up to 100% contracting on their solar farm but constrained to only exporting ~30% of their capacity in certain situations, creating a large shortfall on their obligations to the offtaker. In partially merchant situations (e.g., 50% contracted, 50% merchant), projects may satisfy the 50% portion of obligations to the offtaker, but the other 50% which may have been banked by lenders could be struggling to provide any additional positive cash flow. These cash flow issues flow through to compliance certificates, meaning projects may be in default and asking banks for forbearance whilst they understand their cash flow position.
How do regulatory changes impact project financing?
Regulatory changes can significantly impact project economics and financing. For example, the ‘solar sharer’ program.[1] This adds complexity to modelling and forecasting, as prior models would not have known about these arrangements. All projects that have already procured PPAs and market forecasts now need to revisit what the market forecast looks like going forward.
The risk is that there could be further announcements, so from a lender’s perspective one way to address this would be to undertake a regulatory review event, where if there is a change, the financing documents can accommodate the impact.
Developers must pragmatically acknowledge that regulatory changes may happen. If revenues are 20% below what was projected at financial close, the banker’s response would be that the financial model should be rerun to incorporate updated forecasts. If the ratios are too low and debt sizing criteria is not met, equity needs to come in to right-size the debt so the debt number is not too high.
What is SMBC’s appetite for emerging technologies like hydrogen and long duration storage?
SMBC is actively engaged in emerging technologies across the long duration storage spectrum including a current role as FA for one emerging technology player.
Success in these sectors is underpinned by strong, experienced sponsors who have long-term PPAs or strong government support. Projects with these components are in theory bankable by lenders in the market. The key challenge is that emerging technologies and hydrogen projects struggle to procure PPAs or government support, which has been the missing piece of the puzzle for many.
There is very strong interest in the biofuels space, particularly sustainable aviation fuel (SAF). Key offtake counterparties are the most important factor for success. Examples of buyers include large airlines who are highly rated, well known, and have strong requirements for the product. Government mandated requirements also assist with the bankability of these sectors.
What due diligence issues require particular attention?
Due diligence expectations from a project financing perspective have increased over the years. Due diligence on land arrangements is of key importance – the more landowners that are involved, the more complicated things become.
Critical issues that may arise include security arrangements or lease problems with original developers, and situations where one landowner could potentially halt part of the project by imposing additional restrictions. These issues should be resolved well in advance of financial close.
What is SMBC’s approach to Queensland projects and merchant renewables?
SMBC still has a very strong appetite for Queensland projects, particularly those with good PPAs (availability based or tolling). SMBC has limited appetite for fully merchant renewables given the continued prevalence contracted transactions available in the market.
What advice would you give to developers seeking project finance?
Developers should position their projects to be easily bankable, which would also make projects more attractive to other equity investors and the project finance market. Developing a project with too bespoke a risk profile restricts financing to a small pool of potential lenders and often results in a longer than expected process. Given the higher level of uncertainty in global financial markets, projects considered risky from a technical or financial perspective will need access to an experienced ecosystem of legal and commercial advisors and lenders or risk not achieving Financial Close in 2026.
The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Jo Ruitenberg and Hannah Jones.
[1] The Solar Sharer programme is an Australian government initiative announced in November 2025 that provides households with at least three hours of free electricity during the middle of the day when solar generation is at its peak.
