How transition finance is powering the UK into the future

National Grid's Viking Link green loan marks yet another milestone in sustainable financing. Will it propel the UK to a low-carbon economy?

With the UK government setting out an ambitious plan to achieve net zero by 2050, National Grid’s recent $743 million green loan supported by export credit agency (ECA) financing may be a showcase example of what transition finance could look like.

Are sustainable finance mechanisms set to play an ever more important role in the UK’s decarbonisation journey? Are such ECA-backed green loans the model for driving forward the energy transition? Will they succeed in scaling up investment in renewable energy?

National Grid Viking Link interconnector

National Grid’s $743 million export credit agency ECA-backed financing package is the first ever multi-ECA green loan and is in line with National Grid’s Green Financing Framework. The loan will help fund the “Viking Link”, a €2 billion sub-sea electricity cable interconnector between the UK and Denmark.

The Green Financing Framework was introduced as part of National Grid’s drive to accelerate a low carbon economy, and supports several UN Sustainable Development Goals related to the climate and environment:

  • Renewable energy: investments in projects to increase the share of low-carbon electricity
  • Energy efficiency: projects to reduce energy consumption including power control devices, storage systems, retrofits and smart equipment
  • Green buildings: energy efficiency improvements in buildings
  • Clean transport: infrastructure for clean transport
  • Pollution prevention and control: reduce waste and greenhouse gas emissions
  • Environmentally sustainable management of living natural resources and land use

 The “Viking Link” interconnector will supply renewable energy to 1.4 million households, helping to support further integration of renewable energy into the UK electricity mix, which in 2019 stood at 54% in terms of the proportion of UK electricity coming from low-carbon sources.

The deal was a collaborative transaction across multiple BNP Paribas teams in the UK, Germany and Italy, as 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.

The latest National Grid loan follows the company’s inaugural €500 million green bond in January 2020, in line with the Green Financing Framework and supporting National Grid’s strategy on climate change, responsible resource use, and caring for natural environment. (BNP Paribas was sole green structuring adviser and joint book runner.)

Transition finance supports UK corporates on climate action 

Another landmark moment for sustainable finance in the UK in 2020 was the UK’s first ever transition bond from gas distribution network provider Cadent in March 2020. Proceeds from the €500 million 12-year bond will contribute towards the retrofit of Cadent’s gas transmission and distribution networks, renewable energy, clean transportation, energy efficient buildings. The bond is aligned with the EU Sustainable Finance Taxonomy and the UK’s National Adaption Plan. It was 8.5 times oversubscribed, highlighting strong investor appetite to support the energy transition in the UK. (BNP Paribas was transition framework sole structuring adviser and joint lead manager.)

Policy support and corporate engagement post Covid-19

In June 2019, the British Government passed legislation committing the UK to net zero greenhouse gas emissions by 2050. Furthermore, in January 2020 the UK government re-introduced the Environment Bill, which set out a plan to protect and improve the natural environment in the UK. The latest policy developments address biodiversity loss, climate change and environmental risks to public health.

In the wake of the coronavirus crisis, corporate leaders have engaged with policymakers to ensure that a green recovery remains a priority, and supports the transition towards a low carbon economy. This included a recent co-signed letter from over 200 representatives from the University of Cambridge Institute for Sustainability Leadership (CISL) Corporate Leaders Group (CLG) to the UK government, urging policymakers to deliver a clean, inclusive and resilient recovery plan.

Amongst the signatories was BNP Paribas UK Country Head, Anne Marie Verstraeten, who said: “Our actions will shape progress on climate change in decades to come. We must remain focussed on creating a greener, fairer and more resilient economy. As a sustainable bank, committed to accompanying our clients as they transition towards a low-carbon economy, we are proud to stand with other UK leaders supporting this call to action.”

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Cadent launches the first ever UK transition bond