By Beate Sonerud, Climate Bonds Policy Analyst
Nord-Trøndelag Elektrisitetsverk (NTE), a Norwegian utility, has issued NOK750m (US$110.2m) of corporate green bonds in 3 tranches with varying maturity and floating coupons:
- NOK250m (US$36.7m) with 3-year maturity, coupon 3-month NIBOR + 48bps;
- NOK400m (US$58.8m) with 5-year maturity, coupon NIBOR +67bps;
- NOK100m (US$14.7m) with 7-year maturity, coupon NIBOR +79bps.
Nordea Markets was sole underwriter of the bond. The bonds were oversubscribed in two hours.
DNV GL provided a second opinion on the bond, focused on compliance with the Green Bond Principles. The proceeds of the bond will be used to refinance a specific chunk of existing debt, which was used to finance the acquisition of four hydropower plants in 2004. This very specific identification of assets is good to see, as it makes it simple for investors to identify the impact of their investment.
In terms of the green credentials of these clearly identified assets, we see NTE’s hydro projects to have strong green credentials from a climate perspective, providing substantial emissions reductions. This is also the verdict from DNV's review, which states hydro to have strong environmental benefits as a renewable energy source. We think some more in-depth asset specific analysis on the environmental benefits of NTE's 4 hydro plants would have been useful to see from DNV, as the environmental benefits from hydro are not the same across all countries and projects: For example, in tropical countries, emissions reductions of hydro projects that are not run of the river can be minimal, or even negative, due to methane released from the reservoirs. Although this is not a problem applicable in Norway and for this green bond issuance from NTE, it's important that analysis of green credentials is provided at this level of granularity in second opinions.
It’s also great to see green bonds being issued to refinance existing debt that has financed green projects. Now, you might be wondering how refinancing provides additional investment to low-carbon assets on the ground if NTE already has that hydropower in operation. The crucial thing to remember here is that the primary role of bonds, any type of bonds, green or otherwise, is to refinance debt, particularly bank loans. This indirectly leads to new investment in assets in the real economy by freeing up space on issuers’ balance sheets, allowing them to take on fresh loans to invest in new projects. Sure, it would be ideal for issuers using proceeds for refinancing to make commitments for these new loans to be used exclusively for green projects, but also without such commitments, we have no reservations in defining the bonds as green.
Understanding that green bonds can be used to refinance debt that has funded green projects that are already in operation drastically increases the pool of assets that can be linked to a green bond issuance, which again increases the range of potential issuers with enough green assets to issue a green bond of the size required by the market. Investor demand should not be a worry for issuers: Investors are snapping up green bonds, whether they are for refinancing or new assets.
NTE’s bond is the second corporate green bond from Norway, only a couple of months after the first issuance, also for hydro. With 99% of Norway’s electricity generation from hydro, there are heaps of assets to refinance, and lots of room for more issuances of green bond in the future.
