Every January, the project finance law team at Norton Rose Fulbright brings together infrastructure investment experts to discuss trends across the American energy finance landscape. These Cost of Capital Outlook reports have been a fount of information for our team’s energy finance modeling work. There’s no other source we’ve found that so succinctly covers trends in tax equity markets, tax credit uptake rates, construction and project development challenges, and movements in debt markets.
I recommend everyone read the transcript of this year’s Cost of Capital Outlook in full. You’ll certainly learn something you didn’t know! Below, I will summarize the takeaways that I think are worth stressing, and then provide a visual depiction of the panelists’ judgments of appropriate lending rates and debt service coverage ratios for various infrastructure projects.
Takeaways:
- Energy communities and domestic content: Over 60 percent of JP Morgan’s solar investments in 2024 were in energy communities. JP Morgan’s panelist stated that they prefer using the IRS’s safe harbor tables to calculate the domestic content percentages of their solar project as opposed to using input costs provided by manufacturers.
- Borrowing trends mostly don’t apply to project finance: The second half of 2024 saw a record issuance of bonds by corporations and municipalities, which were trying to avoid uncertainty surrounding the presidential election. Project finance debt, however, was not part of this wave. As Cho describes it, “The project finance market is financing assets with really long lead times. Lenders come into projects when projects are ready to be built or when projects are ready to be acquired. It is hard for borrowers in that market to accelerate borrowing.” Still, falling interest rates and high demand created some windfall financial benefits for developers: “We saw many refinancings and repricings last year. Some loans repriced multiple times as interest rates fell and spreads narrowed. It helps that the term loan B market has been super hot with lenders hungry for assets.”
- Gas and data centers dominate deal flow: Ralph Cho, the co-CEO of Apterra Infrastructure Capital, says that 2024 saw “almost $144 billion in total transaction volume.” Unlike 2022 and 2023, however, which “were anchored by mega-LNG deals,” “2024 was anchored by data centers and not as much LNG.” Cho continues: “This year, I think the market will go for broke. We should see not just the typical deals, but a return of LNG, data centers and new gas-fired power financings all come to market simultaneously this year. People are going to have to work around the clock to get the paper out.”
- Natural gas takes time, too: Cho expects a sizable natural gas pipeline next year, but MUFG Project Finance Director Beth Waters cautioned that gas also takes time: “Gas-fired projects will take time to advance. They take three years to build, and that is after an extended development period. I was on one of the last new builds. The financing closed two years ago, and the project is still not in operation.”
- Hydrogen hype is hot air: From Cho: “We have not yet seen any viable deal flow through our shop for these types of deals as of yet.”
- Human capital: Panelists stressed, for the second year in a row, that there are simply not enough people working in banking or private credit who can underwrite deals at the speed at which they now come to market.
- Bespoke liquidity problems: When she was speaking about gas project development, Waters mentioned that “sponsors [of energy projects] have to pay in advance for turbines and transformers,” presumably due to high demand and long lead times for these parts. She continues, “This is draining the liquidity of sponsors. They have to recycle capital. That is why you are seeing so many requests for pre-NTP loan facilities.” Waters suggests that project developers are increasingly seeking higher volumes of pre-development finance to accumulate inventory in advance of the project’s actual construction—representing yet another loan they need to put themselves on the hook for.
Construction finance summary statistics:
Cho and Waters both provided their judgments of appropriate lending standards for energy and infrastructure projects.
First they focused on tax credit bridge loan advance rates (loan-to-value ratios), or the percentage amount of a project’s construction costs that they are willing to lend to a developer given the project’s financials, including revenue (contracted or merchant) and creditworthiness. Advance rates on merchant projects, regardless of the type of tax credit, are far lower.

Second, they provided loan pricing data for construction loans to a variety of energy and infrastructure projects, also differentiated by those projects’ financials. The loan pricing is measured as the basis points above SOFR (the secured overnight financing rate, a common benchmark interest rate) that Cho’s and Waters’ firms are willing to lend at. Once again, creditors lend to merchant projects (and community solar projects, interestingly) at much higher overall spreads.


Finally, they listed the debt service coverage ratios (DSCRs) they judged that these projects should target. For projects with P99 levels of expected performance, target DSCRs are far lower than their P50 counterparts—save for contracted solar projects, where a stable offtake agreement allows even P50 projects to target extremely low DSCRs relative to other project types. That dynamic applies to contracted battery projects as well. (DSCRs are CPE’s preferred project viability criteria.)

What all three of these visualizations highlight is just how risky it is to have projects with uncontracted or merchant revenue streams.1 A lack of stable offtake significantly raises investors’ risk premia to such a degree that projects may fail to achieve stable debt service coverage ratios. The public sector can support project finance undertaken by both private and public developers by providing financial tools that undercut high private lending spreads and provide offtake support—as detailed in my colleague Chirag’s recent report.
- Waters at MUFG judged that a battery project counted as “merchant” if 40 percent or more of its revenue stream was uncontracted. ↩︎