Lending over the technology lifecycle: Strategies for information search by banks in renewable energy project finance

Abstract

Commercial bank credit is pivotal for the development of large-scale assets. However, technological immaturity may hinder access to bank capital, particularly when banks lack information on a new technology’s history and investment risk profile. We currently lack an understanding of how the banking sector can overcome this hurdle. Thus, this study examines the strategies banks use to gather information and develop a financial understanding of emerging technologies. Using two-part fractional response models and data on 7826 project finance deals in renewable energy, we find that, under technological uncertainty, banks gain confidence through brownfield lending, syndication, and information sourcing from borrowers until a strong banking network is formed. Furthermore, ownership and past lending relationships influence bank decisions. The dynamic results emphasize the importance of early bank entry and relationship building. The study concludes with policy implications, underscoring the need for greater coordination of public finance and formation of intermediation platforms.