The four pillars of a credible climate project finance model

In climate tech, developing a breakthrough technology is only half the battle; you also need to prove that your business can thrive in uncertain markets. How will you handle risks like supply chain roadblocks and policy headwinds? And can you present a credible path to repayment for lenders and investors? To weave these strands into a clear, convincing framework that connects strategy to financial outcomes, you need a first-rate project finance model.

Saqlain Lilani is a Lead of Financial Planning and Analysis at Enduring Planet. We sat down with him to find out how a well-built project finance model can help prove your project’s commercial soundness and attract capital.

Why you need a project finance model

Your project finance model’s job is to translate your vision into quantifiable results, both in terms of financial returns and environmental impact. But you should also think of your model as an opportunity to demonstrate a deep understanding of your project's core economic and operational drivers, building investors’ trust.

And, while essential for fundraising, the model's value extends far beyond the first check. Throughout the life of the project, it’ll chart a clear path for how you can sustain operations, cover costs, manage debt, and deliver long-term value.

So, what goes into a project finance model that can drive this type of decision-making? Think of the core components as four pillars:

Pillar 1: Laying down the building blocks 

First, you’ll need to establish the fundamentals: your projected revenue streams, a full breakdown of capital (CAPEX) and operating (OPEX) expenditures, and cash flow forecasts across the lifespan of the project.

These hard numbers will give financiers and investors a clear answer to their first burning questions: is your project profitable, and can it deliver a consistent cash flow? Will it be able to service the debt or deliver the returns they require? 

Focus on the right metrics. Investors will be looking at net present value (NPV) and internal rate of return (IRR) to evaluate potential returns, as well as KPIs such as payback period and ROI for insights into the project’s overall attractiveness and efficiency.  

If you have multiple projects, rather than just rolling up numbers at the portfolio level, break down each project on its own terms – its PPA, capacity factor, and operating costs. This granular approach will help you understand the nuances of why some projects outperformed others, and convince investors of both the strength of the whole and the value of each piece.

Pillar 2: Funding and financial structure

This pillar digs into the details of how the project is financed, and covers the mix of equity and debt, the structure of repayment terms, and the balance of risk and return. Your goal is convincing lenders and investors your project’s capital structure is solid, and you can be relied upon for repayments.

The metrics these parties will be interested in differ slightly. Lenders will be scrutinizing metrics like the debt service coverage ratio (DSCR) and loan life coverage ratio (LLCR) for evidence that the project can comfortably repay the debt.

Meanwhile, equity investors will zero in on the project IRR, which measures the asset’s overall profitability, and the equity IRR, which shows how leverage can boost their returns. This number is key for attracting equity capital.

To nail this pillar, connect each tranche of financing to its specific purpose and repayment source. For instance, time your construction loans to the build schedule, with repayments that only kick in once revenue starts to flow.

Pillar 3: Preparing for the unexpected

No project is free from uncertainty. Construction delays, unexpected cost overruns, and policy shifts can spring up at any time, forcing you to make reactive decisions under stress to keep things moving. While you can’t predict the future, you can build a model that anticipates these risks, and show your financiers and investors that you’ve considered every angle.

Incorporating sensitivity analysis (how changes in key variables impact your bottom line) and scenario analysis (best, worst, and base cases) will quell investors’ and lenders’ anxieties, showing that your project can still deliver regardless of unexpected turns of events. 

Keep in mind that downside scenarios rarely involve just one thing going wrong. Say you’re a solar company – bad luck could mean output falls short, O&M costs rise, and debt terms tighten, all at once. Layering in risk mitigation measures, like setting aside reserves, will give you a clear picture of exactly how much breathing room they’ll offer you.

Pillar 4: External factors and broader impact

External forces like inflation, taxation, or regulatory changes can deliver huge blows to your project, yet are practically inevitable at some point in its long lifespan. Understanding the influences your project is vulnerable to, and capturing them in your model, will prove a deep understanding of the factors that dictate its long-term profitability and viability.

For example, a major regulatory change like the OBBBA (One Big Beautiful Bill Act) will fundamentally alter a project's economics. In that case, your model needs to not only show upside potential, but also how returns will shift should those policies be scaled back. When doing so, include environmental outcomes like emissions avoided alongside the financials, giving stakeholders a full view of the project’s potential under different regulatory conditions.

By putting these four pillars into practice – which Enduring Planet can help you with – you’ll create a model that establishes credibility  and confidence in your business with investors and financiers alike. Far from just numbers on a spreadsheet, your model will establish your project’s viability, demonstrate risk preparedness, and prove its ability to deliver both financial returns and environmental impact