Investors are snapping up so called ‘green debt’, as $613 million in solar-power bonds issued
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by Jeremy van Loon and Allison McNeely
A bond to fund Canada’s largest solar-power project, located on aboriginal land in Ontario, is proving a magic combination for investors who are scooping up the new green debt.
The $613 million of notes maturing in 2035 with a 3.926% coupon to finance the Grand Renewable Solar Project represent Canada’s largest solar-bond sale, according to data compiled by Bloomberg New Energy Finance. They were bought by institutional investors, said Gail Prins Visser of Connor, Clark & Lunn Financial Group Ltd., a partner in the project with Samsung Renewable Energy Inc. and Six Nations of the Grand River Development Corp.
This deal comes as solar-power projects expand globally, with as much as 15 gigawatts of new installations expected in North America alone this year - of an estimated total world clean-energy capacity of more than 830 gigawatts - said Carter Driscoll, an analyst at FBR Capital Markets in New York. Growth is being driven by investors demanding socially and environmentally conscious investments, supported by the declining cost of producing green power.
Solar-power debt can be “extremely attractive” for investors, especially when compared to sovereign debt of similar maturity, Driscoll said, because of the long-term power-purchase agreements that typically provide 20 years of guaranteed revenue from electricity production. “People are desperate for yield,” he said.
While renewable energy is still dwarfed globally by that produced from fossil fuels, the turning point is approaching. The peak year for coal, gas and oil will be 2025, according to BNEF. Clean-energy investment broke new records in 2015 and is now seeing twice the global funding as fossil fuels, which are being pummeled by stubborn low prices that discourage investment.
About $27.8 billion in green bonds have been issued globally this year, compared with $35.7 billion in all of 2015, according to data on credited issuance compiled by Bloomberg. BNEF forecasts a record $55.8 billion for this year.
That’s created an opening for developments like the Grand Renewable Solar Project, which is located near what was once Canada’s largest coal electricity generating plant southwest of Toronto near the shores of Lake Erie. The project, which began operations last year, generates enough electricity for about 17,000 homes and is built on land owned by the Six Nations of the Grand River, an aboriginal group of Iroquois communities.
Proceeds for the debt sale will be used to refinance bank debt and swap facilities, the partners said in a statement. The bonds, rated BBB by DBRS Ltd., were trading at 100.590 on the dollar with a yield of 3.815%.
Matt Jamieson, chief executive officer of the Six Nations Development Corp., didn’t respond to requests for comment. Samung Renewable Energy spokesman Simon Kim referred questions about the sale to Connor, Clark & Lunn.
Green bonds issued by developers of large renewable energy projects are “attractive and hard to come by” in Canada, said Jamie Bonham, manager of extractives research and engagement at NEI Investments in Vancouver, which oversees about $6 billion. NEI wasn’t able to purchase any of the green bonds because they were bought up.
“These kinds of bonds get scooped up by the bigger investors,” Bonham said. With more fund managers receiving mandates to invest in the transition to low-carbon energy, demand for these bonds will continue to grow, he added.
U.S. energy provider Southern Power Co. sold 1.1 billion euros ($1.2 billion) worth of green bonds on June 13 to finance renewable energy projects, including wind and solar. And Northland Power Inc. sold $157.5 million of convertible debentures in January 2015 to fund wind farms. That note with a 4.75% coupon due June 2020 was trading at 112.065 cents on the dollar with a 1.56% yield.
Ontario, which sold $750 million in its second green-bond offering in February, leads the country in installed solar capacity. Alberta, home to Canada’s oil industry, may be the next province where solar developers benefit from government policy favoring a shift to low-carbon energy.
That could mean $50 billion in investment, including neighboring Saskatchewan, Siemens AG estimates. Alberta has some of Canada’s best solar resources, helped by the often cloudless skies and wide-open fields in much of the province.
Not all things solar have shined lately. Shares of solar power-related companies that make up the NYSE Bloomberg Global Solar Energy Index, which includes Canadian Solar, have lost 22% this year. And SunEdison Inc. is working through a messy bankruptcy.
Yet with yields between 5% and 7%, according to Driscol, solar farms have become attractive to even solar-panel makers. Canadian Solar can “back-leverage” solar plants to finance projects, Chief Executive Officer Shawn Qu said in a June 8 interview on Bloomberg TV.
“You will probably see localized yieldcos first,” he said of the industry model in which developers create separate units to own and operate power plants. Qu predicts the cost of solar will drop 30 percent in 10 years.
Bloomberg News
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