INTERVIEW: Masdar's green bonds to help address climate inequality

The UAE's state-owned renewable energy company Masdar tapped into the global green finance market mid-July with a $750 million, 10-year green bond offering on the London Stock Exchange which was more than five times oversubscribed.

In town to "ring the bell" at the LSE's 8 am market open Aug. 7, Masdar CFO Niall Hannigan told S&P Global Commodity Insights the funding was the first step in a $3 billion program as the company seeks to grow its global portfolio to 100 GW by 2030.

"The green bond allows us to tap into a completely new pool of liquidity for greenfield wind, solar and battery projects, many of which are located in developing or climate-challenged economies," Hannigan said.

That liquidity was taking Masdar risk, not developing economy risk, he said.

"That's us using the green bond and taking money to markets it otherwise would not get to," he said.

A key theme at recent UN climate summits, and one that will likely dominate COP28 in Dubai later this year, is the inequality in global north-south financing, the CFO noted.

"Green bonds have a significant role to play here, but you also have to look at how you can bring more liquidity to developing markets where investors have traditionally been absent," Hannigan said.

Open book risk sharing

Masdar's 500-MW Zarafshan wind farm in Uzbekistan was a case in point.

Here, Masdar brought in Natixis and First Abu Dhabi Bank as the first commercial lenders to participate in non-recourse financing in Central Asia for a renewables project.

"We worked with export credit agencies to find appropriate risk allocation solutions for everyone. We're trying to diversify the project finance pool away from the traditional development finance institutions [DFIs], introducing commercial banks to that equation," Hannigan said.

Masdar has started to bring DFIs, notably the Asian Infrastructure Development Bank and the European Investment Bank, into geographies in central Asia where they've not been active.

"Collaboration remains a challenge -- what we're trying to do is bring governments and regulators together with the financial institutions and the developers, to work with them on an open book basis to create a bankable framework for projects," Hannigan said.

Integral to the success of this was ensuring optimal risk allocation to those best placed to manage it.

"We're having conversations with governments in Africa where we are doing exactly this on an open book basis, saying we can deliver competitive renewable power. This is the price we need, and we [government, regulator, developer] have to work together. The idea is to create a sustainable model for others to follow."

Broad diversification

As noted, the LSE green bond is Masdar's first step in a program to raise up to $3 billion to meet equity funding commitments on new renewable energy projects at home and abroad as it seeks to grow its portfolio from approaching 20 GW today to 100 GW by 2030.

It also aims to be producing 1 million mt of renewable hydrogen by then, first and foremost in the UAE (with an agreement with Engie), as well via international hubs such as in Egypt for exports into Europe, and collaborations in Europe itself, as with BP in the UK.

"We're not overly exposed to any one technology or geography -- investors in the bond were interested in the fact that we have a globally diversified portfolio," Hannigan said.

"The Gulf is a huge growth market for us, covering generation capacity for green hydrogen in the UAE and Saudi Arabia. MENA is another key geography, and through our joint venture Infinity Power Holdings we acquired a platform with projects in Egypt, South Africa and Senegal," he said.

In June Masdar, Infinity Power and Hassan Allam Utilities signed land agreements for a $10-billion, 10-GW mega wind project in Egypt, Africa's largest, capable of producing 48 TWh/year and reducing Egypt's annual carbon emissions by 9%.

Last year, during COP27, the three partners had signed renewable hydrogen agreements with Egyptian state-backed organizations, targeting 4 GW of electrolysis by 2030 with output of up to 480,000 mt/year.

Integrating storage

Elsewhere the UK was also a strategic market, with Masdar involved in fixed and floating offshore wind projects and targeting 1 GW plus of battery storage via Masdar Arlington (nuclear, Hannigan confirmed, is an excluded technology for Masdar).

Final investment decisions would be taken later this year on Masdar's first UK battery projects, which once operational would be managed using Octopus' Kraken technology platform.

"Ultimately we want to take that knowledge and use it across the rest of the portfolio. In acquiring Arlington, we acquired the skill sets in a complex market. In the UK these first projects are standalone, but across the portfolio our more recent projects seek to co-locate battery assets with intermittent solar or wind plants."

For instance Masdar recently won a tender for a 250-MW solar project with integrated battery storage in the Bukhara region of Uzbekistan.

Elsewhere, Masdar was developing offshore wind in Germany and would look to take that knowledge to the US and Asia, while onshore renewables would continue to be developed in Southern Europe, down into the Balkans and into Eastern Europe.

M&A to build pipeline

"To get to 100 GW you need access to capital, capabilities and opportunities," Hannigan said.

The capital was there, as proved by the bond issuance. Opportunities and capabilities were the two greatest challenges.

"It's competitive out there. We'll continue to participate via government tenders and we'll engage in M&A to address capability. To achieve scale in the US, for instance, we'll look to acquire operating assets, project pipeline and people with local expertise."

Finally, supply chains were showing early signs of diversification with capacity being developed in India, the US and Europe, providing some re-balancing of China's dominance.

"Pricing has been volatile for two years, particularly for solar panels. You need more stability to put in bulk orders, and we're just beginning to see that. Turbine and panels prices are higher -- but you can get validity for long enough now to lock in a price," Hannigan said.