Project Preparation

CO-CHAIRS

The Project Preparation Action Group, supports the Alliance’s members in identifying, coordinating and accelerating existing Preparation Facilities (PPFs) for low-carbon and climate-resilient urban infrastructure projects. It focuses on enabling implementation, supporting local metropolitan and regional governments and their partners to build capacity and to scale up planning, project preparation and financing of their projects.

The Action Group also plans raise awareness on the value of Project Preparation Facilities, as well as accelerate replication and innovation; and finally encourage and promote greater cooperation between the Alliance members involved in suchmechanisms.

FEATURED WORK

The Landscape of Project Preparation: A Gap Analysis

The aim of this discussion paper is to map the PPF landscape and identify gaps in the project preparation offering to cities for sustainable and resilient infrastructure, using information gathered for the Green City Finance Directory.

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What is Project Preparation?

DEFINITION

Project Preparation is the process of defining, studying, refining, and developing an infrastructure project concept to the point that it can raise implementation financing from public or private sources.

NEED

There is a great need for sustainable urban infrastructure that is resilient to climate change impacts. In 2017 and 2018, city climate finance averaged just USD 384 billion annually, a fraction of the estimated USD 4.5 to 5.4 trillion needed. Despite the urgency and growing investor appetite for low-carbon infrastructure investments, a lack of bankable projects limits increased investments from public and private financiers. Projects that reduce greenhouse gas emissions or adapt to climate change impacts have unique challenges that lead to a greater need to thorough preparation to attract financing.

BANKABILITY

A project is bankable, whether from public or private sources, when its risk-return profile meets investors’ criteria. Key criteria include probability of success, sufficient estimated cash flows to cover costs and produce returns that meet investor expectations, and whether the project will be implemented by a creditworthy entity. Though the assessment of whether a project is bankable may differ between specific financiers, they all need confidence that the regulatory, environmental, social, and economic factors are unlikely to prevent the project from being completed. Bankability is influenced by project level, city level, and national level factors.

Enabling environments and capacity development are critical to cities’ ability to prepare bankable projects but are not usually considered part of project preparation. A supportive enabling environment and well-developed capacity will make it easier to prepare bankable projects but will not guarantee bankability. Conversely, a project can be made bankable despite a poor enabling environment and weak capacity. Project preparation, enabling environment, and capacity development are all closely linked and positively reinforce each other, but address distinct roadblocks to project bankability and implementation, and have distinct support needs.

What is a Project Preparation Facility?

DEFINITION

Project Preparation Facilities (PPF) are organizations, initiatives, or institutions that support cities in developing bankable, investment-ready projects, typically from a project’s concept, design, or scoping stage up to the financial close. A PPF may provide technical and/or financial support. PPFs can provide a wide range of support depending on a project’s stage and sector.

The overarching goal of PPFs is preparing bankable, or investment-ready, projects. A project is bankable, whether from public or private sources, when its risk-return profile meets investors’ criteria. Key criteria include the probability of success, sufficient estimated cash flows to cover costs and produce returns that meet investor expectations, and whether the project will be implemented by a creditworthy entity. Though the assessment of whether a project is bankable may differ between specific financiers, they all need confidence that the regulatory, environmental, social, and economic factors are unlikely to prevent the project from being completed. Bankability is influenced by project level, city level, and national level factors.

There is a wide variety of specialization among PPFs. Some facilities are generalists with a global focus and a wide range of sectors, while others are geographically or sectorally focused. Some PPFs are tied to a specific fund or development bank and serve as a project pipeline for that fund or bank. Certain PPFs also specialize in projects with private project sponsors and Public-Private Partnerships (PPPs). Most PPFs provide technical assistance or grants for the preparation activities in some or all of the project preparation phases.

Assisting cities in project preparation is a key enabler of the project delivery process and advancing new financing models for sub-national low carbon infrastructure projects. It is also a way – from an early stage – to aggregate cooperation efforts and commitments coming from a wide range of stakeholders, in particular public and private investors and financing institutions.

Resources