Hong Kong based power company criticized for its revised transition bond framework

15 Jun, 2020 23:55
source: Singularity Financial

Singularity Financial Hong Kong June 15, 2020 – According to Environmental Finance’s recent report, Hong-Kong based power company CLP Group has faced criticism for publishing a revised transition bond framework that still includes the construction of natural gas-fired power plants.

CLP is one of the largest investor-owned power businesses in Asia Pacific. In Hong Kong, through CLP Power Hong Kong, it operates a vertically-integrated electricity supply business providing a highlyreliable supply of electricity. Outside Hong Kong, CLP holds investments in the energy sector in Mainland China, India, Southeast Asia, Taiwan, and Australia. Its diversified portfolio of power generation assets include coal, gas, nuclear and renewables (wind, hydro, solar).

The framework will be used to finance new and existing plants, and outlines a carbon emissions threshold of no more than 450gCO2/kWh. For context, proposals in the EU’s upcoming ‘brown’ taxonomy would place industries emitting more than 262gCO2/kWh in the brown or high emitting category.

The proceeds of CLP’s Energy Transition Finance Transactions will also be applied to the conversion of coal-fired power plants.

The framework report cited Black Point Power Station in Hong Kong as supporting government policy of increasing the share of gas in the Hong Kong fuel mix for power generation.

The framework report continued: “Whilst renewable energy is an attractive option, in some markets there are circumstances where the supporting infrastructure must grow incrementally before renewables can offer a significant and more commercially viable solution. Therefore, our climate strategy targets to reduce the carbon intensity of CLP group’s investment portfolio and increase the renewable portion of our investments progressively.”

Industry calls the issuer’s ‘climate action finance framework misleading 

A second opinion was offered under the framework by Norway-based assurance and classification company DNV GL.

In this report, DNV GL noted that: ”Gas is internationally recognised as a “bridging fuel” between coal and renewable energy where local renewable energy generation conditions are “unfavourable.”

Responding to publication of the framework, Bram Bos, lead portfolio manager for green bonds at NN Investment Partners, said: “Another so-called ‘transition bond’ is being issued allowing the extension of fossil fuels. The issuer’s ‘climate action finance framework’ is rather misleading and looks very green with inclusion of renewable energy projects and low-carbon transport.

“The reality is that none of the proceeds of this bond are expected to be allocated to renewable energy projects: all goes to natural gas projects, meaning we are stuck with emissions of 400-500g CO2/KWh for the next 20-30 years.”

The transition finance framework also includes what it describes as New Energy Finance Transactions. According to CLP, the proceeds of transactions could potentially be applied to finance or refinance generation of energy from renewable sources including wind, solar, waste-to-energy, tidal, hydro and biomass energy.

According to DNV GL, the use of proceeds of the New Energy Finance Transactions (for renewables) are included in the indicative list of sectors included in the Green Bond Principles and Green Loan Principles, whilst the use of proceeds of Energy Transition Finance Transactions (for natural gas plants) are not.

Oil and gas is a controversial topic among sustainable finance practitioners. While it is generally agreed that it needs to be phased out if the goals of the Paris climate agreement are to be met, some argue that it can be classed as a ‘transition fuel’, meaning that over the short- to medium-term its use can be justified while low-carbon infrastructure is built, particularly in emerging markets.

However, as pointed out by Environmental Finance, the inclusion of natural gas in the framework comes as China’s regulators consider ruling fossil fuels out of their green bond standard.

In July 2017, Castle Peak Power, a subsidiary of CLP, issued a $500 million self-labelled “energy transition bond” to pay for a natural gas plant claimed by CLP as critical to moving the island away from energy dependency on coal.

Reference link:  https://www.environmental-finance.com/content/news/clp-criticised-for-transition-bond-framework-targeting-natural-gas.html