California Ethanol + Power (CE+P) announced on Monday, June 7, 2021, that its Sugar Valley Energy advanced biofuel project has been verified for green bond financing through the alignment of the project with the green bond principles established by the International Capital Market Association (ICMA).
Sugar Valley Energy represents the first project of its kind to be financed using green bonds, which are used globally to finance projects with an environmental benefit. Designed to help the State of California achieve a 20% reduction of carbon in fuels by 2030, this state-of-the-art facility will produce 68 million gallons of low-carbon fuel-grade sugarcane ethanol annually. At the same time, the project also provides other regional benefits, including jobs for Imperial County residents, a profitable and sustainable crop for the farmers in Imperial Valley, and an increased tax base for the community.
“In achieving a green bond designation, our team has highlighted Sugar Valley Energy’s commitment to environmental sustainability and reducing air emissions through low-carbon fuels,” said Dave Rubenstein, CEO of CE+P. “We believe this is a model project for California and North America.”
Administered through the ICMA, the green bond principles are used globally by bond issuers, governments, investors, and the financial markets to identify investments that genuinely contribute to addressing climate change. The first green bond was issued in 2007, and the first US municipal green bond was issued in 2013. Today, according to Climate Bonds Initiative, US$1 trillion of bonds in issuance are labeled green bonds, representing nearly 1% of the total global bond market.
The California Public Finance Authority will be a conduit issuer for an estimated US$500 million of both federally taxable and tax-exempt green bonds to support construction of a multi-use bioenergy facility in California’s Imperial Valley. Sugar Valley Energy will also borrow approximately US$300 million of green bonds through a private placement to support the construction of the ethanol biorefinery.
The lead structuring investment bank for Sugar Valley Energy is RBC Capital Markets (RBCCM), a division of Royal Bank of Canada (RBC), a leading international provider of financial services. RBCCM will also be serving as Joint Senior Manager on the municipal bonds and Joint Placement Agent on the privately placed debt. JP Morgan will serve as Joint Senior Manager on the municipal bonds and Joint Placement Agent on the privately placed debt. Citigroup will serve as Co-Manager on the municipal bonds. KNN Public Finance is CE+P’s Municipal Advisor.
Kestrel Verifiers, an accredited, independent external reviewer, provided Second Party Opinions for the bonds, finding that the bonds are aligned with the green bond principles established by the ICMA. The publicly sold green bonds to be issued by the California Public Finance Authority in the municipal market are aligned with the green bond principles in the renewable energy and sustainable water and wastewater management project categories. The privately placed green bonds are eligible in the pollution prevention and control project category.
“We found that Sugar Valley Energy is designed to maximize environmental benefits through multiple stages — producing low-carbon ethanol, electricity, and biomethane,” said Monica Reid, CEO of Kestrel. “Meeting the low-carbon intensity requirements of California’s Low-Carbon Fuel Standard for the sugarcane ethanol provides verification of the positive impact of the biofuel, and the integrated recycled water and wastewater treatment systems are a particularly innovative aspect of the project.”
Reid stated that beyond low-carbon fuel and a reduction in air emissions, many of the societal benefits and positive impacts of the project align with the Sustainable Development Goals (SDGs), adopted by the United Nations in 2015. Specifically, the inclusion of wastewater treatment facilities supports SDG 6: Clean Water and Sanitation, which includes targets to ensure availability and sustainable management of water and sanitation for all, and SDG 7: Affordable and Clean Energy, which is advanced by the electricity production and ethanol production.
CE+P has obtained all necessary permits and environmental certification for the development of the Sugar Valley Energy project. It is located within the future 5,000-acre master-planned Keystone Industrial Complex near the city of Brawley. According to a February 2020 economic analysis by Circle Analytics, the new energy campus is projected to contribute more than a billion dollars in economic output and taxes, and support more than 15,000 direct and indirect jobs in the surrounding region over the next 25 years.
The development of Sugar Valley Energy will establish critical infrastructure for the future Keystone Industrial Complex, which plans to offer sites for future light industrial and manufacturing operations. Sugar Valley Energy will help enable these sites to access critical water treatment and energy capacity nearby.
A significant part of CE+P’s vision for Sugar Valley Energy is to contract with local agricultural producers to ultimately establish an estimated 48,000 acres of sugarcane production in the county. A completed 15-year exclusive offtake agreement with CHS Inc. to market and sell the ethanol ensures growers will have a stable, long-term income from providing sugarcane for the project. The sugarcane feedstock will produce 68 million gallons of low-carbon ethanol each year along with 49 MW of electrical power, helping meet California’s established emissions reduction, renewable energy, and low-carbon energy goals.