Drivers of offtake contract adoption in project financing deals: The case of solar and wind power plants

Abstract

This study investigated the determinants of the adoption of offtake contracts for financed projects that involve solar and wind power generation across various countries. Using a dataset comprising 2327 project tranches (811 loans) for solar and wind power generation projects over the period 1996 to 2015, we employed a logit regression model to analyze the likelihood of offtake contract adoption based on host country factors, such as natural resource potential, CO2 emission, electricity consumption, GDP per capita, and energy intensity. Our findings indicated that favorable natural conditions, such as high solar irradiance and wind speed, significantly increase the likelihood of adoption. Particularly, in a country with high CO2 emissions, GDP, and energy demand, favorable natural conditions disproportionately drive renewable project investments. The results also highlighted significant regional variations in the adoption of offtake contracts, emphasizing the need for tailored renewable energy policies that consider local conditions. Policy implications include the importance of incentivizing offtake agreements in high CO2-emission countries, addressing energy intensity challenges, and supporting renewable energy in countries with high electricity consumption. Enhancing project financing mechanisms and promoting international cooperation are also critical for advancing the global energy transition.