EMA to issue bonds as part of $2b programme to finance green energy transition

Proceeds from the programme will be used to finance infrastructure and investment projects, as well as refinance existing borrowings. ST PHOTO: LIM YAOHUI

SINGAPORE – To finance the Republic’s green energy transition and ensure the stability of the electricity market, the Energy Market Authority (EMA) is looking to launch green, sustainable and transition bonds as part of a $2 billion multi-currency medium-term note programme, The Straits Times has learnt.

Green bonds are financial instruments used to fund projects with environmental benefits, and provide investors with regular or fixed-income payments. Markets and regulators are currently moving towards tightening the definition of projects that can qualify for green bonds.

Sustainable and transition bonds, on the other hand, are targeted at helping carbon-intensive companies or governments to cut their greenhouse gas emissions.

These bonds could involve projects relating to natural gas, such as retrofitting existing natural gas plants to lower their emission intensity.

These would otherwise not qualify for the issuance of green bonds, said OCBC Bank’s credit research analyst Ezien Hoo.

Ms Hoo also noted that the bonds, if launched, would be EMA’s inaugural bond issuance, and come after a number of public agencies have done so to finance various types of sustainable infrastructure.

According to EMA’s tender in relation to the set-up of a multi-currency medium-term note programme, which was launched on government portal Gebiz, the proceeds from the programme will be used to finance infrastructure and investment projects, as well as refinance existing borrowings, among other things.

The programme must also allow for foreign investments and for financing in foreign currencies.

EMA declined to elaborate when queried on the scope of projects it is seeking to finance with the programme.

With the power sector currently accounting for 40 per cent of Singapore’s carbon emissions, EMA is looking to decarbonise its energy sector, with a view to reaching net zero by 2050 without compromising Singapore’s energy security or affordability.

When asked about the type of projects that could be financed by green bonds, Ms Hoo said that according to the current draft of Singapore’s green taxonomy (a framework for defining environmentally sustainable investments) that will be finalised this year, projects involving low-carbon gases, such as hydrogen, can qualify.

These include electricity generation from low-carbon hydrogen and projects that facilitate a full transition away from natural gas, she added.

For example, eligible projects include the conversion of natural gas plants to green hydrogen ones, which would lead to a lower carbon emission intensity of 100g carbon dioxide (CO2) emissions per kilowatt hour during the life cycle of the plant.

Hydrogen is considered a clean fuel as it does not produce CO2 when burnt. When produced through the electrolysis of water using renewable energy such as solar, hydrogen could have close to zero emissions and is thus considered green.

New natural gas power plants would not be considered green in Singapore’s current draft taxonomy, she noted.

Eastspring Investments’ portfolio manager Rong Ren Goh, however, said the European Union taxonomy – which is widely considered to be the most authoritative set of standards in the green space – has recently classified investments in natural gas plants as a “green activity”.

Acknowledging that the green transition pathway is “highly challenging”, Mr Goh said that it is therefore critical for the bond issuer to “sufficiently demonstrate” that the proceeds are used to finance projects with environmentally sustainable benefits.

Experts pointed out that EMA’s inaugural bond issuance would allow the agency to hasten its renewable energy transition, while tapping private funds to augment public financing.

Professor Lawrence Loh, the director of the Centre for Governance and Sustainability at the National University of Singapore’s Business School, said that by issuing its own bonds for its own projects, EMA would be able to mitigate the risk exposure to geopolitical energy-based vagaries brought about by tensions such as the Ukraine crisis.

He noted that medium-term notes are more attractive to investors due to the better returns and longer time horizon, which means constant renewals are not required, unlike with short-term financing instruments.

“The flexibility for multiple currencies permits the tapping of global funds beyond the local currency,” he added.

Ms Hoo said that while the investor market is familiar with power-related bond issuers, such as SP Group and Sembcorp Industries, there are currently no EMA bonds outstanding in the market. Its inaugural issuance, if successful, will provide diversity for investors to choose from.

“As it stands, bonds issued by statutory boards are highly concentrated to those issued by the Housing Board,” she noted.

Along with bonds issued by the National Environment Agency, the national water agency PUB and the Significant Infrastructure Government Loan Act (Singa), EMA’s bonds, if they do get priced, would further expand the use of the bond market to fund Singapore’s infrastructural needs, said Ms Hoo.

In 2021, NEA issued its debut green bonds to fund the Tuas Nexus Integrated Waste Management Facility to treat incinerable waste, while PUB issued green bonds in 2022 that could fund projects such as the Tuas Water Reclamation Plant.

Proceeds from the Singa bonds, which were launched in August 2022, will be used for financing major long-term infrastructure, including the new Cross Island and Jurong Regional MRT lines, as well as pumping stations and tidal walls to protect the island against rising sea levels.

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