The Power of 10: Talking transition

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The best awards not only demonstrate innovation and effort, and they don’t just provide the best solution for a producer, exporter or consumer. The best deals move the conversation in commodities and export finance market forward and open lenders’ eyes to new ways of doing business. 

The financing that National Grid closed for its Viking Link interconnector project attracted comfortably the largest number of votes of any deal that was up for consideration for a Perfect 10 Award in 2020. 

There are some standard reasons for that high vote count - 2020 levels of activity were very subdued and the Viking deal comprised two large ECA facilities. 

But the deal really did point the way for how export finance is likely to evolve over the next ten years. ECA-related business can be very carbon-intensive. Think of big-ticket oil & gas, aviation and cruise ship transactions. Viking points to a future where ECAs can be mobilised to support the decarbonisation of the electricity sectors across the world. 

Viking consisted of a $488 million financing covered by SACE, with SIMEST providing CIRR hedging and BNP Paribas and HSBC as lenders, and $255 million from Euler Hermes. The financing was National Grid’s debut green loan, and was a rare chance for two ECAs, and particularly those two ECAs, to collaborate on a green project. 

Viking is a 1,400MW, 765km electricity connector running between the UK and Denmark across the North Sea. The project is a joint venture between National Grid, the UK-listed operator of the UK’s high-voltage transmission network, and Denmark’s state-owned grid operator, Energinet. Energinet has adopted a slightly different financing strategy to fund its share of construction, closing on a €134 million initial loan with the NIB at around the same time as National Grid’s ECA package. 

Nearly two and a half years on from the close on the ECA package, construction is still proceeding on schedule, with completion destined for a December 2023 completion date. Energinet closed a follow-on financing in March of this year, a DKr1.5 billion (€201 million) 10-year loan, again from the NIB. 

What’s also changed since then is the interest of the export finance community in discussing the energy transition. ECAs have had some experience in onshore and offshore wind, but transmission, hydrogen and batteries all offer huge opportunities for higher volumes of ECA-backed debt - all of it with green labelling. 

National Grid is also potentially out to banks in the medium term with another large decarbonisation project. It has started consultations on the Humber Low Carbon Pipelines project. This would be a 120km twin carbon dioxide and hydrogen pipelines running through northern England between major industrial users and emitters and out to storage formations in the North Sea. 

The exact route and commercial framework for the project have yet to be set in stone, but the project would be an obvious candidate for a follow-on green financing. Judging from the reception that Viking received, the project should receive keen terms and a strong reception. 

If you would like to learn more about TXF’s Perfect 10 Awards, please get in touch.

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