North America Structured Finance Issue: Hawaii’s green energy market securitisation 2014-A

IFR Review of the Year 2014
2 min read
Joy Wiltermuth

Many US states over the last 30 years have expressed some intent to diversify their energy sources away from fossil fuels, but they have struggled to make affordable, clean energy accessible to a wide population.

In 2014, Hawaii became the first state to tap the securitisation market to do so, coming up with an innovative solution that is now expected to be replicated elsewhere.

A securitisation platform was set up to provide funding to bridge what the state legislative order establishing the bond and loan programme called the “divide between those who directly benefit from clean energy technologies and those who cannot”.

Goldman Sachs structured and led a two-tranche US$150m financing that securitised a monthly fee (roughly 1%) attached to the utility bill of each Hawaiian household that relies on the power grid.

These monthly payments, which flow into a green infrastructure fund run by the state, service the interest payments on the ABS.

Both tranches were rated Triple A and were oversubscribed. They ended up being priced 10bp–15bp inside of initial talk to offer a blended coupon of less than 3%.

The issue was sold not only to buyers in the asset-backed space, but also accounts focused on municipal bonds as well as socially responsible investors, said Timothy Romer, head of Goldman Sachs’s Western region public sector and infrastructure financing group.

Proceeds will be put into a fund that in turn is expected to originate 5,000 to 7,000 low-interest loans over a two-year period starting in December to help defray the costs of installing solar panels for residents who cannot afford them.

“When we did a deeper dive, we found there were haves and have-nots,” said Tan Yan Chen, project manager of Hawaii’s Green Energy Market Securitization programme, a part of the state’s Department of Business, Economic Development and Tourism, which issued the US$150m Green bond.

“Wealthy folks do better getting those [solar panel] systems in place,” Chen said. “Our target market is [residents] who don’t have upfront cash or can’t get access to financing.”

Hawaii aims to have 70% of its energy derived from clean or renewable sources by 2030. And while the state estimates that it will need roughly US$30bn in funding to reach its clean energy goals, this securitisation marked an important first step.

“Hawaii had a stated policy goal [to help] under-served market participants, in addition to an overall goal of altering energy consumption on the island,” said Romer. “They ended up doing something in a new and interesting way.”

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North America Structured Finance Issue 2014