Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Clean technology financing received a boost 9 June as US-based
Dominion Energy and Italy-based Enel Group raised a combined $10.86
billion in sustainable financing deals.
US investor-owned utility Dominion Energy said it will, for the
first time, link the interest repayments for the majority of a
newly extended line of credit of $6.9 billion to both annual
renewable generation and diversity milestones as part of a
sustainable financing deal.
Across the Atlantic, Enel raised $3.96 billion in a
triple-tranche, sustainability-linked bond sale to move forward
with decarbonizing its assets.
Sustainability linked-debt is usually sought by companies that
are looking to decarbonize portfolios that traditionally relied on
fossil fuels. It is usually tied to pre-set, company-wide
decarbonization targets, with the borrower forced to make higher
interest repayments should it fail to meet the goals. Both Dominion
and Enel have committed to net zero by 2050 carbon goals.
Governments globally are increasingly pursuing policies that
will lead to more rapid decarbonization and green infrastructure
investment. Energy companies are moving away from their traditional
carbon-intensive power generation portfolios to low carbon sources,
and they are turning to sustainable financing to take advantage of
the low interest rates these debt instruments offer.
Sustainably financed decarbonization
For instance, Dominion is in the process of securing US
government approvals to design, build, and bring online as early as
2026 the largest US offshore wind project proposed yet—a 2.6-GW
facility off the coast of Virginia. It also is soliciting requests
for proposals to build 1 GW of utility-scale onshore wind and
solar, as well as 175 MW of small-scale solar projects and 8 MW of
community-scale solar projects in Virginia, where it is
headquartered.
More recently, it received federal approval to continue
operating both nuclear reactors at its Surry Power Station in
Virginia for another 20 years. The Biden administration has
identified nuclear power as one of the
approaches for reaching its net-zero goals for the power sector by
2035.
"These green financings support our corporate sustainability
objectives and complement our industry leadership around
environmental, social, and governance strategies, while providing
us with the flexibility to finance our $32 billion five-year growth
capital plan—over 80% of which is for emissions reduction or
enabling technologies," Dominion Chief Financial Officer James
Chapman said in a 9 June statement announcing the sustainable
financing agreement.
JPMorgan Chase Bank, Mizuho Bank, BofA Securities, The Bank of
Nova Scotia, and Wells Fargo Securities acted as co-sustainability
structuring agents in extending the $6 billion line of credit until
2026. For Dominion's supplemental credit facility of $900 million,
which expires in 2024, Sumitomo Mitsui Banking Corporation (SMBC),
Scotiabank, and TD Securities acted as joint lead arrangers and
joint bookrunners, while SMBC also acted as sustainability
coordinator.
Dominion said its agreement to meet annual renewable generation
and diversity targets for the $6 billion line of credit is, in its
opinion, the first time a pricing structure has been tied to a
company's social and environmental performance.
Diverse employees—defined by the company as non-minority
female, minority male, minority female, and undeclared
female—make up 34.6% of the workforce at Dominion, which said
it is committed to increasing diverse representation at the company
by 1 percentage point a year until it reaches at least 40%.
"If those commitments are met, we accrue a pricing benefit for
the cost of the facility to us. Alternatively, if those commitments
are not met, the cost of the facility will escalate to our
detriment," Dominion spokesman Steven Ridge told IHS Markit 10
June.
Where the supplemental credit facility is concerned, Ridge said,
"there are no performance metrics we are tracking, but rather our
cost of borrowing under the facility is lowered if we use borrowed
dollars for a variety of green or social initiatives."
Nearly zero-interest rate for Enel
In Enel's case, Banca Akros-Gruppo Banco BPM, Banco Bilbao
Vizcaya Argentaria, Banco Santander, BNP Paribas, CaixaBank, Crédit
Agricole, Deutsche Bank, Goldman Sachs, ING, Intesa Sanpaolo, JP
Morgan, Mediobanca, Natixis, Société Générale, and UniCredit acted
as joint bookrunners for the bond issuance and tender offer.
Under this deal, Enel has received near-zero interest rates for
the bond.
The company has tied its bond interest repayment to GHG
increases exceeding certain limits by the end of 2023. "Interest on
the bond will remain unchanged to maturity" if Enel meets its
targets. But if they are exceeded, Enel will see its payments on
the six- and nine-year bonds escalate by 25 basis points each, the
company said.
Global trend
Global issuance of green, social, and sustainability
bonds—or sustainable bonds, collectively—totaled a record
$231 billion in the first quarter of 2021, a 19% increase over the
previous quarter and more than three times higher than in the same
quarter a year earlier, according to a 10 May Moody's Investors
Service report.
Sustainability-linked bond issuance in particular jumped 57% to
a new quarterly high of $8.6 billion, with Moody's expecting the
sector to grow "as issuers seek access to sustainability-minded
investors while maintaining the flexibility of general corporate
purposes borrowing."
Sustainability-linked loans hit $97 billion in the first
quarter, 29% higher than the previous record from the fourth
quarter of 2020, Moody's said.
"Sustainable bond volumes are surging this year given strong
sustained interest among debt issuers and investors," Matthew
Kuchtyak, AVP-Analyst in the ESG Group at Moody's, said in a 10 May
statement. "A heightened level of governmental policy focus on
climate change and sustainable development globally will also spur
further market growth and harmonization."
Posted 10 June 2021 by Amena Saiyid, Senior Climate and Energy Research Analyst