This paper explores the preference for and the features unique to project finance, one of the favoured vehicles for funding energy development. Our main focus is on the interests of project sponsors, commercial banks and host governments, Inclusion of the latter reflects the fact host governments are often leading participants in primary energy and energy-related projects; more recently, they have come to use limited recourse structures to finance local infrastructure development. Traditional analyses, whilst providing useful insights into the interests of leading project participants, are incapable of isolating a single motive or set of motives that can comprehensively account for all of the features common to this form of debt. Within an options-theoretic framework, most of these ambiguities are resolved. Risk management, long recognised as one of the primary reasons for choosing project finance over rival debt structures, is affirmed as a key explanatory factor. On the other hand, options pricing theory provides a radically different perspective on how project finance contributes to the realisation of these objectives.