Best stock to invest in –
by the Climate Bonds Team
Hannon Armstrong’s (HASI)
second green ABS, $118.6m, will save 0.39 tons of GHG annually
per $1,000! ($100.5m, 4.28%, 19 yr, A and $18.1m, 5.00%,
19 yr, BBB)
Hannon Armstrong (NYSE:HASI)
closed its second green ABS bond (Sustainable Yield Bond)
following its inaugural issuance in December 2013. The ABS was a
private placement split into two tranches with different credit
ratings (from Kroll Bond Credit Rating Agency): $100.5m with a
rating of A and 4.28% interest rate, and $18.1m with a rating of
BBB and 5.00% interest rate. Both tranches have a 19-year tenor.
Similar to its first green bond, the green ABS is a securitization
of ground lease payments for the land used by solar or wind
operating assets. Most large scale US wind and solar projects do
not own the land on which the assets are installed and operated.
Instead it is essential for long-term leases to be agreed to
enable stable cash flow of on-shore renewable projects.
For every $1,000 invested in the bond 0.39 tons of carbon will
be saved annually according to a CarbonCount
review. CarbonCount was originally pioneered by Hannon
Armstrong and further developed by the Alliance to Save Energy
as part of the BNEF FiRE initiative.
Now, it may spring to mind, how do leases for land relate to a
direct carbon saving of 0.39 tons annually?
CarbonCount uses a 1:1 ratio between project emission
savings and total capital costs, therefore every $ spent on
capital cost, from buying the hardware to renting the land, is
linked to an equal proportion of the carbon emissions saved by
the entire project.
Here is a brief overview of how it works: independent audits of
each project determine the expected energy output. This is then
fed into the US Environment
Protection Agency (EPA) energy-to-emissions model to
estimate the amount of carbon displaced by producing renewable
energy rather than non-renewable, based on the existing energy mix
of the State where the project is.
The total annual carbon saved is then split across the total
capital cost of the project. The capital cost covers all aspects
of the projects (from the wind turbines or solar panels, to the
contractual ground leases). The result: for each dollar spent on
capital costs of green projects, the amount of carbon saved is the
same. So, the score of this bond is based on the emissions saved
associated with the total amount of ground lease payment.
Now, this is a really exciting step in transparency of green bonds
as it gives investors a tangible impact of their investment per
dollar. Other green bonds can leverage CarbonCount, but at the
moment the tool seems to be limited to US based renewable energy
projects because of the dependence on the US EPA model (we expect
this will change in time as CarbonCount grows). Though, we still
need to keep our collective eyes on the prize – it’s about a rapid
transition to a global low carbon and climate resilient economy.
That means we need to think about carbon emissions (absolutely!)
but we also need to include assets that are even more complex to
define such as sustainable water across broader geographical
——— The Climate Bonds Team
includes Sean Kidney, Tess Olsen-Rong, Beate Sonerud, and
The Climate Bonds
Initiative is an “investor-focused” not-for-profit
promoting long-term debt models to fund a rapid, global
transition to a low-carbon economy.
– Best stock to invest in