California’s first municipal non-recourse Clean Energy Project Revenue Bonds issued today are valued at over $2 billion for thirty-year terms. The two separate bond issuances support the purchase of clean electricity to serve over 2.5 million residents and businesses in the Bay Area and Central Valley of California. Historically, it has been industry standard practice for municipal utilities to use the prepayment structure to reduce costs of natural gas. Now, these bonds apply the structure to the purchase of clean electricity.
A Clean Energy Project Revenue Bond is a prepayment for wholesale electricity in which three parties (a tax-exempt public electricity supplier, a taxable energy supplier, and a municipal bond issuer) enter into long-term power supply agreements for zero-emission clean electricity. The municipal bond issuer, in this case, The California Community Choice Financing Authority (CCCFA), issues tax-exempt bonds to prepay for energy that is to be delivered over a period of thirty years. The energy supplier provides a discount (historically 8 to 12%) to the tax-exempt electricity supplier (the CCA) on the power purchases based on the difference between the taxable and tax-exempt rates.
The two Clean Energy Project Revenue Bonds prepay for the purchase of over 450 MW of clean electricity, or enough to power 163,000 homes. These transactions will reduce renewable power costs by almost $7 million annually for the first 5-10 years.
“CCAs are known for being innovative and nimble in our efforts to provide our community with electricity from cost-effective, clean sources,” said Girish Balachandran, CEO of Silicon Valley Clean Energy. “For SV Clean Energy, we are working to advance innovative decarbonization solutions across sectors, and in this case, we have applied a new approach to how we finance our clean power projects, furthering the financial savings enjoyed by our customers.”
The first of these bonds, which was issued by CCCFA to the benefit of East Bay Community Energy and Silicon Valley Clean Energy, was underwritten by Morgan Stanley. It generated nearly $1.5 billion in proceeds, after having received an investment grade “A1” rating from Moody’s and a “Green Climate Bond” designation from Kestrel Verifiers, making it the largest ever issuance of prepayment bonds for clean electricity.
“While it took a lot of time and attention to apply the structure to electricity, issuing these green bonds exemplifies the commitment and competitive edge we bring as an industry. By leveraging a decades-old process available for natural gas procurement savings and making it work for clean electricity, we’re picking it up and repurposing it to meet the needs of today,” said Nick Chaset, CEO of East Bay Community Energy and Chair of CCCFA.
The second transaction, issued by CCCFA to the benefit of MCE, was underwritten by Goldman Sachs. The very successful bond sale produced approximately $700 million in bond proceeds and generated significant investor demand. The issue received an investment grade “A2” rating from Moody’s Investors and a “Green Climate Bond” designation from Kestrel Verifiers.
“MCE began exploring prepayment bonds three years ago as a pathway to reduce the cost of our renewable energy portfolio,” said Dawn Weisz, CEO of MCE.
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