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What is a greenfield investment?

A greenfield investment builds a new asset from scratch, such as a wind farm or data center on empty land, rather than buying one that already operates.

In practice

The opposite is a brownfield asset, which already exists and may be operating or need upgrading. Greenfield projects often line up contracted customers before building, and lenders may wait until those are in place. Delays and cost overruns are the main risks, and many investors sell or refinance once a project is operating.

An example

Round numbers, not a real fund

Say a fund commits $500 million to a wind farm before any turbine exists. It may earn nothing for years, then sell once the site is running.

Why it matters

It can offer higher returns than buying an operating asset, in exchange for permitting, construction and start-up risk before any revenue arrives.

Video

33 seconds, with sound

A definition, not advice; where usage varies the entry says so.

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Related terms

Take-or-pay contractA take-or-pay contract requires a customer to pay for an agreed amount of a product or capacity, whether or not it actually uses it.
ConcessionA concession is a contract in which a government lets a private company build or run an asset, such as a road or airport, for a set period, while public ownership usually continues.
Debt service coverage ratio (DSCR)The debt service coverage ratio, or DSCR, divides an asset’s income by the payments due on its debt, showing how comfortably it can pay what it owes.
J-curveThe J-curve is the usual pattern where a fund’s reported returns dip below zero in its early years, because of fees and costs before investments mature, and then climb.

The terms, in the news each morning.

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