In Europe, the share of renewable energy in total consumption has doubled since 2004, representing over 18% of the gross final energy consumption in 2018. If, however, the European Union is to meet its 32% binding target by 2030, significant investment will be needed.
Sustainable finance innovations in the transition bonds, loans, and project finance landscape are fuelling the renewable energy revolution across Europe.
Sustainable finance will play a vital role in the next decade. How will it drive forward efforts to grow and develop renewable energy infrastructure? What are the latest sustainable finance mechanisms being deployed in 2020? And which have been the most prominent renewable energy transactions supported by BNP Paribas?
Project finance: Fécamp – a French milestone in power generationAnnounced by EDF, Enbridge and Wpd Offshore in June 2020, Fécamp's 500MW offshore windfarm became the largest French project financing transaction ever completed in power generation, raising more than €2 billion. BNP Paribas acted as sole financial adviser and hedge execution bank, and was one of three underwriters alongside the European Investment Bank. The 71 wind turbines will start generating clean energy in 2023, supplying green electricity to over 700,000 people.
" If the EU is to meet its 32% renewable energy target by 2030, significant investment will be needed. "
Project finance is an important tool for renewable energy development, channelling capital to long-term infrastructure projects, including creating serviceable revenue streams from the energy generated once constructed. Romain Talagrand, Head of Power and Renewables EMEA at BNP Paribas, explains that project finance also ensures a stable and moderate cost of capital over the long term, enabling renewable electricity to become more competitive for the end users.
This type of financing has proved popular in European wind energy. In 2018, new asset financing represented 40% of wind energy investment, according to Wind Europe. Offshore wind also has significant potential: while it currently provides only 0.3% of global power generation, the International Energy Agency (IEA) estimates it could supply more than 18 times the current global electricity demand.
Transition Bonds: SNAM €500 million 0.750% 10 yearIn June 2020, Italian energy company SNAM launched a €500 million transition bond to support its goal of a 40% reduction in direct CO2 emissions by 2030 (BNP Paribas was joint bookrunner).
This transaction represents the second European benchmark transition bond after Cadent's transition bond debut in March and follows SNAM's Climate Action Bond issued in February 2019. BNP Paribas lead managed all 3 transition bonds issued in Europe to date.
Transition bonds aim to nudge high carbon-emitting (so-called "brown") companies shift to greener business activities through the earmarking of proceeds that target decarbonisation. These differ to green bonds.
SNAM's transition bond framework outlines the following targets to investors:
- Carbon and emission reduction projects
- Renewable energy projects
- Energy efficiency projects
- Green construction projects
- Retrofit of gas transmission network
This new asset class remains in its infancy, but investors have already recognised their role, with AXA noting that "there is an opportunity to provide finance to companies, which are 'brown' today but have the ambition to transition to green in future."
First multi-export credit agency green loan: National Grid's Viking LinkIn June 2020, UK utility company National Grid announced the first ever multi-export credit agency (ECA) covered green loan, a $743 million ECA-backed financing package. In line with National Grid's Green Financing Framework, it will help fund a €2 billion sub-sea electricity cable interconnector between the UK and Denmark. The "Viking Link" interconnector will supply renewable energy to 1.4 million households.
The loan comprises a $488 million financing from SACE Export Credit and a $255 million financing from Euler Hermes Export Credit. BNP Paribas teams acted as structuring bank, bookrunner, mandated lead arranger and lender of both facilities.
Export credit agencies support exports and cross-border investments by domestic companies by granting credit enhancement and interest rate stabilisation on eligible project-related loans. This type of financing supports international trade, and collaboration between countries. The transaction marks the first time multiple ECAs have come together to finance a green project of this size.
Sustainability-linked guarantee facilities: Siemens GamesaSiemens Gamesa, a specialist in wind power, debuted a €600 million sustainability-linked syndicated guarantee facility, which supports the construction of components for the world's largest offshore wind farm.
The facility incorporates a dual environmental and social sustainability purpose, with premiums linked to defined ESG targets. The mechanism means Siemens will pay a premium if it fails to achieve the ESG targets. Should it meet those targets, the premium will be paid by the banks on the syndicated guarantee facility. In either case, the established premium is used to support a cancer research project at the Hospital La Paz Institute for Health Research in Madrid, Spain. BNP Paribas acted as sustainability global adviser and mandated lead arranger on the transaction.
This type of guarantee facility works similarly to sustainability linked loans (SLLs) – a corporate loan in which the interest paid by the borrower is linked to sustainability key performance indicators (KPIs). The SLL market grew by 96% from 2018-2019.
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