Financing a turbine slot reservation

A slot reservation agreement is a contract for a place in a manufacturer's future build sequence. It is not an order. The buyer pays a deposit, generally a substantial share of the eventual contract price and generally nonrefundable, and receives a right to convert that position into a firm order within a stated window — at which point specification, price mechanics and delivery dates are settled and an ordinary supply contract comes into existence.

The arrangement exists because manufacturing capacity for long-lead generation equipment is periodically scarcer than demand for it. When a build sequence is full, the constraint on a project is not price and not selection; it is whether there is anywhere in the sequence to stand. Buyers who wait until their project is fully developed find the position gone, so they buy the position first and develop into it.

The manufacturer's reasons are equally rational, and they explain the terms. A reservation fills the sequence without committing the manufacturer to a specification it cannot yet build or a date it cannot yet hold. It puts customer money at risk, which filters enquiries from buyers who will not proceed. And it transfers the timing risk of a build sequence to the party best able to absorb it commercially, which is the buyer that wants the equipment. The nonrefundability is the mechanism, not an incidental term — a refundable reservation would not filter anything and would not be worth granting.

What the buyer holds afterwards is therefore an option on manufacturing capacity, bought with cash it does not get back, exercisable only if a project materialises around it in time. Everything difficult about financing it follows from that sentence.

What is deliberately not on this page is anything about the equipment itself. Specification, selection and engineering belong to the hardware side of the fleet; this page is about what capital can and cannot do with a position in a queue.

Capital of every kind asks a short list of questions before it commits. A slot reservation answers almost none of them well, and the same questions answer cleanly once the reservation converts. Setting the two stages side by side is the clearest way to see what is actually missing.

Because the position fails the asset tests, it is funded against people rather than against things. In practice a small number of sources recur.

Sponsor or developer balance sheet. The most common answer, and the reason slot reservations concentrate among buyers who can write the cheque without asking anyone. This is not a financing structure so much as the absence of one, and it is why capacity in a constrained sequence tends to accrue to the best-capitalised developers rather than the best projects.

Development capital already at risk. Where a developer is funded at the corporate or platform level for pre-construction spend, a deposit is one more at-risk development cost alongside land options, study deposits and permitting. It is underwritten the way the rest of that spend is underwritten: against the sponsor's track record and the portfolio, not against the individual position.

The offtaker or anchor tenant. A counterparty that needs power on a date has a direct interest in the position existing, and will sometimes provide or reimburse the deposit in exchange for rights — priority on the capacity, a credit against future payments, or a claim on the position if the project does not proceed. This is the arrangement that most changes the structure downstream, because it puts a third party's rights over an asset a later financing will want to be clean.

The manufacturer's own terms. Payment timing, staged deposits and credits against the eventual contract price are commercial terms of the reservation itself, and negotiating them is frequently more productive than trying to finance the amount as originally proposed.

A corporate facility at the level above the project. Where borrowing supports a deposit at all, it generally sits at holding-company level and is underwritten against the group rather than the slot. The position may be referenced in the documents; it is rarely what the credit decision rests on.

The common thread is that the obligor is the sponsor. That has a consequence worth stating at the outset: the deposit sits a level above where the project financing will later sit, so the entity that paid for the position is not the entity that will own it. Migrating it down later requires the supplier's consent and, where an offtaker helped pay for it, that party's agreement as well. The same problem, on the layer below, is the subject of [who holds the interconnection position](who-holds-the-interconnection-position), and deciding it deliberately is cheap at the outset and expensive afterwards.

The useful way to hold this is as a conversion problem. The reservation is not financeable; the firm order inside a developed project is. What sits between them is a list, and the list is knowable in advance.

• A firm order. Specification fixed, price mechanics settled, delivery dates contractual, remedies attached. This is the single largest step, because it is what creates a supply contract capable of being assigned and secured — the starting point of [equipment finance for turbines and gensets](equipment-finance-for-turbines-and-gensets).
• The deposit credited rather than lost. Whether the amount already paid is applied against the purchase price on conversion, and on what conditions. A deposit that credits is equity already contributed to the project; one that does not is a sunk development cost.
• A project entity that can hold both. The order, the site rights and the permits in one place, so that a financing party can take security over a coherent position rather than over pieces held by different companies.
• Assignability established, not assumed. Whether the reservation can be transferred to the project entity, on what consent, on what timescale, and whether a change of control of the holder counts as a transfer. This is read at signature or it is discovered at the worst moment.
• Site control and a permit path that reach the delivery window. Two clocks run independently here and neither waits for the other. The reservation window is set by a manufacturer's sequence; entitlement and permitting are set by processes nobody in the transaction controls. A delivery slot that arrives before the site can accept equipment produces units in storage; a site that is ready before the slot produces a building waiting for power. The gates that govern the second clock are set out in [what makes a site financeable](/sites/what-makes-a-site-financeable).
• A contracted use for the output. The project-level view of what the equipment is eventually financed against is [financing on-site generation](financing-onsite-generation); until something is contracted to take the power, there is a machine and no cash flow.

The practical discipline is to write the conversion conditions down at reservation, not at conversion — including what happens to the position if any of the other clocks slips. A reservation negotiated as a procurement item and a reservation negotiated as the first step of a financing look identical on the day they are signed and behave very differently two years later.

The recurring ways this stage disappoints:

• The project does not proceed and the deposit is simply gone. The base case, and the one the terms are designed to produce. The only mitigations are commercial: transfer rights, the ability to move the position to another project the same sponsor controls, or a resale of the position where the agreement permits one.
• The position cannot be transferred. A reservation with no assignment right is stranded in the entity that bought it. Where that entity is a holding company and the project sits below it, the structure ends up financing equipment held by the wrong party, or renegotiating with a supplier that has no reason to agree.
• The clocks diverge. The slot arrives and the site is not permitted, or the site is ready and the slot is not. Both leave capital committed against a schedule it cannot influence, and the second is why [the bridge to energization](bridge-to-energization) exists as a separate instrument downstream.
• The reservation lapses unconverted. Conversion windows expire. A position held past its window without a firm order can be lost outright, and the deposit with it, without any counterparty behaving badly.
• The deposit does not credit. Discovered on conversion rather than at signature, this turns money the sponsor treated as equity into a development expense, and the project's capital requirement grows by the same amount at the least convenient moment.
• Somebody else's rights sit over the position. Where an offtaker or a partner funded the deposit, its rights over the slot survive into the financing, and a later lender finds the equipment position encumbered by an arrangement made years earlier for good reasons.
• Slots are accumulated as inventory rather than for projects. Positions bought speculatively, on the expectation that scarcity will make them saleable, are a trading view rather than a development one. They are financed accordingly, or not at all.
• The position is treated as an asset on a plan. A reservation described to capital as secured equipment is a misdescription that survives exactly until diligence, and it discounts everything else in the same package.

Continuum structures and arranges equipment transactions and coordinates the parties in them. It does not supply, own, lease or operate equipment, is not a bank, a broker-dealer or a direct lender, and does not hold client funds.