Green Evaluation TenneT Holding B.V. Green Bonds Transaction Overview TenneT Holding B.V. (TenneT) is a transmission system operator (TSO) headquartered in the Netherlands. On June 12, 2017, TenneT issued 1 billion of labelled green bonds under their existing green bond program. It is a dual tranche financing of 500 million per tranche with maturities of eight years (coupon 0.75%) and 12 years (coupon 1.375%). Entity: ICB subsector: Location (HQ): Financing value: TenneT Holding B.V. Renewable Energy Equipment The Netherlands 1 billion Amount evaluated: 100% Evaluation date: August 25, 2017 Contact: Jessica Williams +44 (0)207 176 3884 jessica.williams@spglobal.com Green Evaluation Overview Transparency Use of proceeds reporting Reporting comprehensiveness 96 100 E1 E2 Overall Score E1/95 Governance Management of proceeds Impact Assessment Structure 97 0 E3 E4 Weighted aggregate of three (Transparency + Governance + Mitigation) Mitigation Sector Net Benefit Ranking Hierarchy adjustment Green Energy Offshore Wind Generation Carbon Adaptation 95 NA
Project Description The bonds issued on June 12, 2017 are part of TenneT s 8 billion medium term note programme. The bonds were issued by TenneT Holding B.V., the group holding company, with no operations and full dependence on its operating subsidiaries for the funds with which it meets its financial obligations. The proceeds are allocated to projects within the regulated portion of the business, specifically within TenneT s offshore transmission subsidiary, TenneT Offshore GmbH. The June 12, 2017 Green Bond issuance will be used for further expenses related to offshore wind interconnection projects that have already been part of the portfolio of assets financed by previous green bonds. These consist of the following projects: DolWin1, DolWin2, DolWin3, BorWin3, SylWin1 and BorWin2. BorWin1 and HelWin1 were added to this portfolio more recently. These projects connect offshore wind projects in the German part of the North Sea to German grid infrastructure onshore and as such we have used offshore wind as a proxy for this project under our analytical approach. The German government is planning to construct offshore wind farms with a total capacity of 6.5 GW, and TenneT is playing a key role in connecting these to the grid by 2020. TenneT was the first non-financial company in the Netherlands to issue green bonds and has issued a total of 5 billion of green bonds including the financing assessed here. TenneT also holds the record as the largest corporate issuer of green debt in the Netherlands. Over the next 10 years TenneT s investments in offshore wind energy projects across the Netherlands and Germany are expected to total 9 to 11 billion. As well as aiming to enhance the usability of sustainable energy TenneT has clear aims to ensure the physical impact of its projects are minimized through comprehensive environmental impact assessments and low-impact construction methods such as softstart procedures and noise reducing technologies. On top of this all contractor ships installing undersea transmission cable must attain certification to prove that they do not discharge effluent into the sea. Scoring Summary The transaction receives our highest score of E1. This reflects excellent scores in Transparency (96) and Governance (97) as well as a very strong Environmental Impact score (95). Rationale All proceeds finance transmission lines connecting offshore wind projects to the German grid, thus displacing nonrenewable electricity or reducing the need for additional fossil fuel generation to support additional energy demand. We have therefore evaluated the transmission line as a renewable energy technology under our methodology. TenneT has ensured very strong scores in both Governance and Transparency via a robust green bond framework and clear green bond annual reporting, as well as appropriate segregation of funds. Key Strengths And Weaknesses The funds will be used to construct dedicated transmissions infrastructure for German offshore wind assets and are essential for the utilization of the energy produced. We therefore look at this infrastructure in the same way that we look at offshore wind technologies under our approach because we use offshore wind as a proxy. In addition, these particular assets are dedicated unidirectional lines bringing only offshore wind to the grid. The German grid has average carbon intensity when compared to grids globally. This influences our view of how much carbon the transported wind energy will displace in the Net Benefit Ranking. If the assets were located in countries with less carbon intensive grids we would assume that the energy transported would displace comparatively fewer emissions. Offshore wind is a technology with a comparatively high capacity factor when compared to onshore and solar technologies and this further explains the high Net Benefit Ranking. S&P Global Ratings views renewable energy technologies as providing the highest level of decarbonization potential. For this reason the Net Benefit Ranking of 79 is positively adjusted upwards to 95. TenneT has a good reputation for governance and transparency in their transactions. Its clear procedures, from the evaluation and selection process whereby potential projects are approved by the Corporate Social Responsibility (CSR) Board, to its detailed annual green finance reports which contain numerous financial and environmental indicator metrics, are reflected in the very S&P Global Ratings Green Evaluation 2
high scores on S&P Global Ratings scale. The metrics include but are not limited to: transported energy (GWh), grid availability %, average interruptions (hours), number of houses with access to wind power and actual potential avoidance of CO2 emissions (based on operational capacity, in millions of tonnes). TenneT calculates its avoided emissions figures based the average carbon intensity of fossil fuel plants which is 809g/KWh by TenneT s calculations, the quantity of energy transported is then combined with this intensity figure to calculate avoided emissions by project. This is a very similar method to the one that we have employed by using offshore wind as a proxy. Other aspects that were positively analyzed were the use of separate sub-accounts for green bond proceeds, which is important for a company such as TenneT who provides transmission to a variety of energy sources not just offshore wind, and the independent assurance of both the allocation of green bond proceeds and the sustainable performance of the projects financed. TenneT has also carried out life cycle greenhouse gas analysis on its DolWin1 project which it has disclosed the results of in its green finance report. This is viewed as positive under our transparency and governance scoring approach. Project level scores Sector Location Project Use of Proceeds ( Mil.) Use of Proceeds treatment Green Energy Germany Offshore Wind 1,000.00 Actual 79 1,000.00 Net Benefit Ranking S&P Global Ratings Green Evaluation 3
Green Evaluation Process 96 97 95 Transparency Governance Mitigation (Transparency + Governance + Mitigation) Overall score Weighted aggregate of three E1/95 Technology Baseline carbon intensity Net Benefit Ranking Carbon hierarchy adjustment Environmental Impact Score Proceeds ( Mil.) Germany Extremely High Low Wind power 79 Systemic decarbonization 95 1000 Solar power Small hydro Large hydro (excluding tropical areas) Energy management and control Increasing Decarbonization Impact Green transport without fossil fuel combustion Green buildings new build Energy efficiency (industrial and appliance efficiencies) Green transport with fossil fuel combustion Green buildings refurbishment Nuclear Large hydro in tropical areas Significant decarbonization in sectors already aligned with a green economy Alleviating emissions of existing carbonintense industries Decarbonization technologies with significant environmental hazards Coal to natural gas Cleaner fuel production Cleaner use of coal Improvement of fossil-fueled activities environmental efficiency Technology Baseline water stress Net Benefit Ranking Water hierarchy adjustment Environmental Impact Score Proceeds ( Mil.) Water Scores may vary slightly from the actual due to rounding. S&P Global Ratings Green Evaluation 4
Our Green Evaluation Approach Weighted aggregate of three: Transparency Governance Mitigation or Adaptation Common approach used amongst second opinion providers Green Evaluation Unique to S&P Global Ratings Transparency Use of proceeds reporting Reporting comprehensiveness Governance -Management - of proceeds -Impact - Assessment Structure Mitigation Buildings, industrial efficiencies, energy infrastructure, transport, and water Adaptation Resilience capex such as flood defenses, asset protection etc. Net Benefit Ranking ekpi s: Carbon, Waste, Water Use Hierarchy Applied Cost Benefit Ranking Resilience benefit ratio: Estimate of reduction in damages if event occurs Environmental Impact Resilience Level Mitigation Score Adaptation Score Final Green Evaluation (E1 - E4 or R1 - R4) ekpi Environmental Key Performance Indicator S&P Global Ratings Green Evaluation 5
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