Energy project finance reference. This educational resource covers project investment and financing concepts. It is separate from Jaken Energy’s commercial electricity and natural gas procurement service; it is not a financing offer or a promise of funding.
Letters of credit and energy-project liquidity
A letter of credit provides a beneficiary with a bank-backed payment mechanism under specified terms. It can support performance, credit or reserve obligations. Issuing it uses credit capacity and may require cash collateral or other security.
What to evaluate
Review amount, expiry, automatic renewal, draw documentation and replacement requirements. Confirm whether the instrument is standby or another form, and identify the governing terms. A commitment that expires before the underlying obligation creates renewal risk.
Build a defensible comparison
Include bank fees and any collateral in the project’s liquidity model. Stress a full draw and the borrower’s reimbursement obligation. A letter of credit is not unrestricted operating cash and should not be counted twice in sources and uses.
Documents and questions to prepare
- Beneficiary and supported obligation
- Draw conditions and expiry
- Collateral and reimbursement
- Replacement and liquidity stress
For commercial property owners
Start with the property’s actual accounts, lease responsibilities and plans for ownership or sale. Keep commodity procurement, building improvements and project investment as separate decisions. Include the costs you retain and the savings you retain after tenant reimbursement. An improvement that lowers a tenant-paid expense may benefit tenants without producing the same increase in owner income.
Prepare a base case and a downside case using dated evidence for costs, revenue and funding. Any financing rate, tax benefit or return is a project assumption until supported by current documents. Legal, tax, engineering and lender review should follow the actual transaction.
For the existing property’s supply-cost decision, use the contract-cost calculator or request a property energy review.
Primary sources
Reviewed October 12, 2026. Program rules, tariffs and financing terms should be checked again before a transaction.