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Op-Ed: Standardizing Green Finance for Decarbonization Investments

Written by

Heather ervin

Tuomas Riski, CEO of Norsepower, talks about green finance and decarbonization. (Credit: Norsepower)

By Tuomas Riski, CEO, Norsepower

The Poseidon Principles of the Global Maritime Fund have a large number of signatories, who together issued more than $ 1.2 billion in sustainable maritime vessel finance in 2020. Even in the first half of 2021, banks issued almost $ 1 billion in Poseidon-related debt, including new types of financial instruments beyond simple loans.

Finance is changing and businesses aim to be progressive, but the financial structures that underpin the environmental transition of shipping are still insufficient in terms of scale and standardization to provide the clarity that vessel operators need. This is especially the case for financing fleet upgrades, especially the difficult aspects of refurbishments, for vessels to meet new and future regulatory and ESG standards.

When considering wind propulsion, energy and fuel savings and emission reductions onboard ships will allow ships to achieve excellent climate alignment compliance scores, for example in ratings EEXI and CII while aligning with the requirements of the Poseidon Principles and Ocean Freight ship finance portfolios. Charter clauses. Collectively, the net result is that these savings can improve the commercial competitiveness, commercial utilization and profitability of vessels on an annual basis, while maintaining an attractive asset value and fully in compliance with regulations.

RENOVATION FINANCING PACKAGES?

However, making changes on a ship-to-ship basis is not fast enough. And, despite perceptions that banks are open to those with attractive green projects, renovation finance programs have been few and niche, with a lack of large traditional financial institutions endorsing such longer-term investments. term. Likewise, structuring favorable retrofit finance arrangements that satisfy the interests of lenders, shipowners and charterers has been an ongoing challenge which, theoretically, can be much more complex than the logistics of a facility itself. same.

We have to get out of the catch-22 situation; When clean technologies such as Rotor Sails become mainstream technologies used on board ships, financiers will see less risk, especially as the resale value of the asset becomes clearer to see. But it seems that the only way for these to become the “norm” is to integrate them into new build fleets. Quite simply, the schedules do not match the commissioning of these vessels and the current vessels that urgently need upgrades to meet impending regulations.

Looking at our past for lessons, the financial agreement structures created for the modernization of on-ship scrubbers could be said to be pioneers in exploring environment-oriented lending and configuring complex security and safety options. reimbursement. These learnings could be adapted for wind propulsion and other clean technologies to identify more creative ways to share costs, manage investment security, and rebalance shared incentives.

ZERO EMISSIONS BY 2050

Charterers are beginning to encourage the use of clean technology on board ships by securing longer term charter arrangements at attractive rates for owners who invest in preferred clean technologies. Although the initial investment costs are still significant, homeowners benefit from the reassurance that they are locked into contracts to generate reliable income to repay loans.

Bank leaders within the Poseidon Principles Alliance have stressed that early next year they will increase their ambitions to align with the zero-emissions Paris agreement by 2050. This push funding from outside the IMO and the EU will help make progress and expand investments. sources of supply and inevitably stimulate investment growth. Innovation in the way transactions are structured and the packages available are welcome, but it must evolve from the margins and become dominant and standardized. Shipping needs transparent financial solutions with scale and standardization to reflect demand, and it needs to happen now.

Categories: Environment, Op-Eds, Perspectives, Shipping
Keywords: carbon intensity indicator, CII, decarbonization, EEXI, Norsepower, Poseidon Principles, rotor sails, maritime transport, maritime transport emissions, Tuomas Riski


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