Playbook of Solutions

mobile image

Counterparty Guarantees

Description

A counterparty guarantee is a form of assurance provided by one party (the guarantor) to another party (the beneficiary) to perform the obligation of a third party if the third party fails to perform its obligation. Generally, counterparty guarantees are financial obligations that require the guarantor to make a payment on behalf of the guaranteed entity (e.g., service debt), but they can also require other compensation (e.g., termination payment) and cover operational obligations (e.g. supply of materials, construction).

 

Benefits

Counterparty guarantees cover counterparty risk (i.e., risks arising from an entity’s – often the utility’s – poor credit quality). In project finance, counterparty guarantees facilitate the financing of projects that would otherwise be considered too risky. Such guarantees can increase investor confidence, broaden the pool of potential financiers, and improve financing terms by reducing costs, increasing available funds, and extending loan maturities. This in turn reduces the annual debt service costs for project users.

 

Case Study

Fund for the Development of Renewable Energy (FODER) guaranteeing Argentinian national utility’s payments

Argentina's RenovAr initiative, launched in 2016, aimed to increase the share of renewable energy from 2% to 20% by 2025. It addressed financing and sector risks through mechanisms such as the Fund for the Development of Renewable Energy (FODER), which guaranteed payments from CAMMESA, the national utility.

FODER ensured compliance with power purchase agreements (PPAs) and provided a counterparty guarantee in the form of a put option that could be exercised by Independent Power Producers (IPPs) if CAMMESA failed to pay for the contracted off-take. The World Bank Group (WBG) provided support to FODER, further enhancing investors’ confidence by reducing country risk. The innovative financial structure notably included a USD 480 million WBG termination guarantee, which was critical in mitigating political risks. Strong government support and collaboration with IFC ensured rapid implementation and attracted more bids than expected. RenovAr attracted over 2,400MW of projects, mainly wind and solar, through four successful tenders.

However, economic crises, high inflation and the impact of COVID-19 hindered full target achievement with only 32.6% of the private capital mobilisation and 57% of the renewable energy capacity targets achieved by December 2021. Despite these setbacks, RenovAr's design effectively encouraged private investment, marking significant progress in Argentina's renewable energy sector, while demonstrating the importance of effective de-risking mechanisms. 


Additional Sources

Locations
Latin America, Argentina
Year published
01 January 2016
De-risking tool
Guarantees and insurances
Risk category
Counterparty risk

Playbook of Solutions

A World Economic Forum Initiative
© 2026 All rights reserved
Privacy Policy & Terms of Service