A Flurry Of Green Muni Bonds

"by Tess Olsen-Rong" Green municipal bonds are set to take off in 2015 after a flurryof issuances in the latter half of 2014. With interest rates at anall time low, this is the time to finance the vast backlog ofinfrastructure upgrades and developments needed - and to greenthat infrastructure. This, accordingto the Financial Times, is especially so in the US. With green muni growth has come a growing diversity in the use ofproceeds. Some green municipal bonds are using proceeds forprojects where the green credentials are more complex to analysethan say a wind or solar plant. Recent bonds have used proceedsfor heat recovery from natural gas generation, biomass powerplants, car parks and clean water. Things are getting complicated. Jefferson County NY 20.1m biomass-to-energy - thisreally needs feedstock certification Let's start with a renewable energy green muni bond issued by JeffersonCounty in the State of New York. Proceeds from the 20.1m bond will go to a 60 MW capacitybiomass power plant. The plant was coal-fired until 2013 when itwas converted by ReEnergy Black River LLC. Biomass, likealmost all green categories, is not automatically a green project.Unsustainable sourcing of biomass can lead to deforestation andtherefore have a negative effect on carbon emissions. FortunatelyJefferson County "primarily burn sustainably harvested biomassresidues and other waste fuels" - great! But investorsshould be looking for accreditation from a suitable feedstockstandard to confirm that the issuers' definition of "sustainablyharvested" really does fit the bill. In this case the majority isderived wood with the remaining 20% recovered wood (i.e.chippings). Another area of concern with biomass is the air pollution generated in the burningprocess. Jefferson address this in part by committing to reportingon the annual air emissions (and water use) of the plant. Watchout for the public consultation for the Climate Bonds BioenergyStandard in February that will address these issues. Mass State College 91.4... mostly sort of pale green...but a car parking station? Really? Green munis in Massachusetts were coming thick and fast in2014 with bonds from Massachusetts state and MIT. Not wanting to miss out on the fun, Massachusetts StateCollege Buildings (MSCB) joined the club with an inaugural 91.4m green bond. The bond issplit across multiple tranches with tenor ranging from 2 to 20years and a credit rating of AA from S here the buildingswill be Silver LEED rated - a good start. However, this is the first time we have seen a green bond usedfor an indoor "car park,"based on energy efficiencymeasures. This threw us a bit, especially as LEED certification does not apply for car parkstructures. The (new) car park will achieve bronze level"Green Garage Certification" under a scheme run by the GreenParking Council - we've tried to find out what that actuallymeans and are still in the dark. Of course, if the whole parkingstation was an electric car charging station.... Hartford County in Connecticut goes for green (water)bonds Next, water. Florida's East Central, Spokane and Connecticut all issued green watermunicipal bonds in the last quarter of 2014. Hartford County inConnecticut also joined the ranks with a 140m bond across 24 tranches with tenorranging between 1-23 years and AA/Aa2 rating (SP/Moodys). Proceeds from the bond will go to stormwater projects, pipe repair andreplacement, and waste water (pollution) control. Nowthese are pretty standard project types when it comes to thewater bonds we have seen so far. Adaptation to climate changerequires water infrastructure to be ready to deal with, forexample, bigger surges of stormwater. The treatment of wastewater, when there is no energy, is not necessarily green becauseof the environmental footprint it creates. This is why athorough second opinion on the green credentials of a water bondis essential. However this is currently missing from the greenmuni market; Spokane did lead the way with a secondopinion; but its review did not cover the green credentials ofthe bond, only adherence to Green Bond Principles. In 2015 we need to see a green review for water that takes allthese topics into account to provide investors with aninsightful analysis of the topics. UTAH POWER 21.39M - NOT SURE ABOUT THE GAS ASPECT Finally, UtahAssociated Municipal Power System's (UAMPS) 21.39m green bond was issued across 20tranches in November 2014. Tenor ranged from 3 to 20 yearsacross the tranches and achieved an A- rating from Sinstead the bond is funding a project to recycle excess heatenergy created by the gas turbine. Once completed the heatrecovery power plant will generate up to 7.5 MW and has the potential to remove 737,000tonnes of CO2 (when replacing gas-fired power generation)over its 30 year life. When taken in isolation (from the gas turbine) it can bedescribed as a "green" project - but its entire process isdependent on gas, where the jury is still well and truly outabout what you could call "green". The project could be comparedto a refurbishment or energy efficiency project in a gas powerplant which would elongate the life of the gas generator. Hmm... not quite convinced on the green credentials of this oneyet, although we do appreciate there's a complex argument aboutgas as a transition investment in "some" countries - butthat needs careful analysis as it doesn't always stack up. (He amusingly quotes a banker: "The markets are very like sheep- if one sees a rival doing something they immediately look atit and think should we do the same." That BTW is one of therationales for promoting a green bonds market.)
Tess Olsen-Rong ia ananalyst at the ClimateBonds Initiative, an "investor-focused" not-for-profitpromoting long-term debt models to fund a rapid, globaltransition to a low-carbon economy. Sean Kidney and BeateSonerud also contributed to this post.