TenneT’s sustainable funding for growth
A €1 billion inaugural dual-tranche Green Bond issue by European transmission system operator TenneT has enabled the company to meet the growing pace of demand for energy, while supporting the sustainable energy policy objectives of its markets.
TenneT is the first non-financial company in the Netherlands to issue euro-denominated Green Bonds. As a top 5 European player, TenneT operates a high-voltage grid some 21,000 km long across the Netherlands and a part of Germany. The funds raised are being used to finance projects dedicated to the transmission of renewable electricity from offshore wind farms to the onshore electricity grid using direct current technology DolWin1, DolWin2 and Dol3win3.
The Green Bond issue by TenneT is opening doors to new investors and helping financial markets support energy transition.
TenneT has held a longstanding presence in the debt capital markets to meet its significant CAPEX programme in the Netherlands and in Germany of more than € 20 billion over the next 10 years.
Its decision to seek financing via Green Bonds marks a new stage in its approach, and one that is underpinned by its broader sustainability ambitions. TenneT aims to be among the best CSR performing transmission operators in Western Europe and is continuously looking for innovations and opportunities to improve its level of CSR.
“The time seemed right for trying an approach like this on the financial side, because sustainability is one of the guiding principles in our daily work,” says Jeroen Dicker, group treasurer at TenneT. “The majority of projects we are currently involved in support the transition to renewables, especially those relating to offshore wind programmes. We also report our performance in an integrated way, incorporating our financial and non-financial performance.”
Green Bond Principles
In preparing for the transaction TenneT took the Green Bond Principles as main guidance; a set of industry guidelines aimed at promoting transparency, disclosure and integrity in the market. ING acted as joint bookrunner and arranger to ensure its DCM value chain was fully focused on the execution process. It coordinated the documentation process, set up the online order book and coordinated the payment and delivery of the bonds.
“We really embraced the Green Bond Principles and gave a lot of guidance up front to our potential investors as to what we were intending to do,” explains Dicker. “This was especially important for those parties that could only invest because we were offering a Green Bond. In this instance we linked it to specific projects to avoid misunderstandings, and to convey that these are projects that are transmitting only 100% green electricity.”
TenneT saw a surge in interest from its existing institutional investors, in addition to new investors focused on green bonds and CSR-related financings. These engagements have encouraged the company to establish wider relationships than before, including a number of sizeable dedicated SRI funds.
“The experience has gained further insight in all different stakeholders involved in CSR-related financing,” says Dicker. “We’ve come to realise that if we, for example, talk about offshore in the Netherlands then there’s a bigger audience out there that is relevant for us, such as dedicated SRI analysts. In addition, we’ve also begun speaking to NGOs that are relevant to our industry.”
The growth of green financing is also having an impact on the buy side, notes Dicker, with institutions adopting diverse approaches. During TenneT’s roadshow, many of the funds based in Amsterdam and Paris seemed more focused on environmental criteria of the projects to be funded, while meetings in Germany and London were often conducted with conventional credit analysts.
Although TenneT’s first-ever Green Bond launch was a success, Dicker is of the opinion that this type of funding does not yet necessarily create a measurable pricing advantage compared to plain vanilla paper. Although the recent experience showed that a Green Bond can lead to bigger orders from SRI funds during the book building process, as they look to allocate funding that is earmarked for carbon-neutral projects.
“The Green Bond gave us a lot of comfort early on as we had certain SRI funds signing up for large amounts – this gives you the confidence to go towards the low end of the price range,” says Dicker. “That said, it is also true that green bonds cost more to prepare and launch, so really the question each company has to answer is whether or not it is worth it. In our case it certainly was.”
Dicker hopes that if the green bond market continues to mature, there may come a day when it is more expensive not to have green credentials behind a bond, as investors will only invest in companies that support society’s sustainability goals.
Partnering for growth
TenneT’s relationship with ING has developed over the years, in DCM in particular, where ING has repeatedly advised it on strategic financing decisions and the structuring and successful placement of instruments since 2010. ING is also the arranger of the company’s € 8 billion medium-term note programme.
“To sustain our required levels of funding we need knowledgeable and sustainable financial partners that have the financial strength to support us,” says Dicker. “ING has extensive knowledge of the utilities sector and is a strong DCM player. They have also been an important relationship bank for many years and supported us in acquiring German transpower. They are currently supporting us with the organic growth that we are going through.”
Jeroen Dicker / TenneT
Jeroen Dicker has been group treasurer of TenneT since September 2011. The company has required large-scale investments in recent years resulting from the rapid transition to renewable energy that has taken place in Germany and the Netherlands. Financing this growth has been a strong area of attention along with the development of TenneT’s focus on CSR. Both these themes were brought together in the recent Green Bond as Dicker and his team succeeded in linking the company’s CSR efforts to the capital markets.