Moving ahead with green finance

Terna has taken another step in its green finance strategy. Last 17 July, the group launched its third green bond: a new half-billion bond for financing (or refinancing) projects that make a positive and substantial contribution to the environment. The first issue was in July 2018, exactly two years ago, when 750 million were raised on the market, for a duration of 5 years at a rate of 1%. Resuming this issue, the group then launched a green bond in the form of private placement for a total of 250 million in January 2019. The second green bond, instead, dates back to April 2019 and was worth half a billion (with demand 7 times higher than supply), again at 1%.

The recent issue, aimed at institutional investors, also has a nominal value of € 500 million (even though demand is four times supply, exceeding € 2 billion), but above all - demonstrating Terna's commitment to fully integrating the concept of sustainability into its financial strategy - it will pay an effective rate of 0.78%, the lowest ever achieved among Italian corporate bonds both for green bonds and, in general, for issues over 10 years. The green bond will have a duration of twelve years and fall due on 24 July, 2032 and a price of 99.623% with a spread of 90 basis points compared to the midswap.

The strategy of Italy’s national transmission grid operator thus confirms its inclination towards combining sustainability with growth, to encourage the energy transition in progress and generate increasing benefits for Italy and its stakeholders. And it is a winning strategy, given that Terna has recently been confirmed for the sixteenth consecutive year in the FTSE4Good sustainability indices and has been Industry Leader in the Electric Utilities sector in the Dow Jones Sustainability Index for two years, as well as being included in all the most important sustainability indices including Bloomberg-GEI, ECPI, ESI-Ethibel, Euronext Vigeo, MSCI, STOXX® ESG, STOXX® Low Carbon and GC100 (United Nations Global Compact). In addition to this, the group has witnessed a steady increase in socially responsible investors (SRI) in its shareholder base: today they represent 11.8% of floating shares (up from 9.5% in 2018 and 8.3% in 2017).

But, in practice, what projects are Terna's green bonds aimed at? "Eligible Green Projects", as they are known, are identified in line with the "Green Bond Principles 2018" drawn up by ICMA, the International Capital Market Association. As regards the ESG principles identified by the UN, Terna's projects correspond on four points: number 7, "ensuring access for all to economic, reliable, sustainable and modern energy systems"; number 9, "building a resilient infrastructure and promoting innovation and fair and responsible industrialisation"; number 13, "taking urgent measures against climate change"; and number 15 on forests, desertification, land consumption and biodiversity. This is why Terna's green bonds are used for 3 specific categories of projects: renewable energy; energy efficiency (reducing the gap between generation and consumption); and safeguarding the local environment by improving the grid, eliminating "overhead power lines" (pylons).

Not only, Terna's activity on green bonds is not an isolated event. Emission figures show that 2019 was a boom year for green bonds, attracting an increasing number of subscribers. In Italy alone, new green issues amounted to € 5.4 billion, almost double the figure for the previous year, when the total amount reached € 2.8 billion according to a recent report by Banca IMI. A total of 11.4 billion securities are allegedly in circulation, totalling a global value of 580 billion, estimated by Boston Common Asset Management.

A few practical examples will help to give a clearer understanding of how the green bonds, which Terna has based many of its expectations on, are used. Terna recently financed the construction of an electricity substation in Genzano di Lucania, in the province of Potenza, to connect renewable plants to the Italian grid through the longest high-voltage power line in Italy, the "Matera-S.Sofia", also in Basilicata. This will allow an increase in the production of clean energy of almost 2 million MWh per year. Another project involved major works to improve grid efficiency in the Naples metropolitan area, which will enable a reduction of energy waste of 17,700 MWh per year. As far as alleviating impact on the environment is concerned, the "Trino-Lacchiarella" high voltage grid between Piedmont and Lombardy, which came into service in January 2014, was rationalised. This operation permitted the demolition of 80 km of overhead power lines and the laying of 50 km of underground cable.