Austrian power company Verbund AG released a EUR 500m ($623m) green bond last week. The use of proceeds bond is rated BBB+ by S&P and has a 10 year tenor. The joint lead managers for the deal were Commerzbank AG, JP Morgan, Raiffeisen Bank International, Societe Generale and UniCredit Bank Austria AG.
Proceeds will be allocated to two energy efficiency project in hydro power plants and two wind projects. 88% of proceeds will be used to refinance the existing projects immediately and the remaining 12% will be allocated to the projects over the next two years. The disbursement timeline of proceeds and a second opinion on the green credentials of the assets is set out in the Oekom review.
Oekom, as a Climate Bonds Standards verifier, confirmed both of Verbund’s wind projects comply with the CBI Standard for Wind; these Standards are a public resource developed by scientific and industry experts provide confidence to investors and can enable the market to gain scale. The two projects funded by the bond operate a total of 3 wind farms in lower Austria and 5 in Germany. Investors can have confidence in the green credibility of these assets since they adhere to the standard.
Since CBI does not have standards for Hydro (they are under development) Oekom could not verify compliance for the remaining projects. Instead Oekom provide analysis on the individual assets. Both hydro projects will improve the energy efficiency of existing plants in Austria. Improvements are to be achieved through the addition of a new pump storage unit at Reisseck II and modifications of the Danube hydro plant. Energy efficiency will be annually verified and reported on by Oekom. Ongoing reporting on the green performance of assets is important for investors of green bonds. Investors often want to know the green impact of investing. Verbund have committed to making the annual reporting by Oekom public – brilliant!
Verbund has made a strategic move towards renewable energy. Over the past year it has sold the gas power plants in France and announced the closure of coal and oil fired power plants in Dürnrohr and Neudorf/Werndorf II. The remaining coal fired power plant is bound by a gas supply agreement with the local government – once completed it will also be closed. According to Verbund “we are working towards increased use of water, wind and sun for cleaner energy” – sounds great to us! This shows green bonds can be used to fund green transition of companies with mixed assets (brown and green). Moreover it shows green bonds is a great marketing tool to highlight a strategic shifts to green to investors. Hopefully other companies considering climate business streams can learn from and copy Verbunds’ excellent green bond.
