The World Bank and Daiwa Securities Group have launched a bond that provides investment cover related to carbon credits for a hydropower scheme in China.
Their dollar-denominated bond is tied to the 8MW Hongyan project being developed in Guizhou province, China. The “Uridashi” bond is being offered to Japanese investors.
The small hydro project is being developed by Guizhou Sanhe Hydro Power Co Ltd on the Nanpan river, that is linked to Dewo river, which is a branch canal of the Tangtang river and Tuolun reservoir, in Anlong County.
The run-of-river plant is expected to produce an annual average of approximately 30GWh of electricity, which will be supplied to the provincial power grid. The design head is 485.2m
Bond performance is linked to future carbon credit market prices and also the plant’s production of carbon credits versus the design-stage estimates. It is planned that the project will reduce greenhouse gas (GHG) emissions by 23,290tonne of carbon dioxide equivalent) per year during the credit period, which is renewable every seven years.
The US$25M bond matures in September 2013.
Without income from the carbon credits, the project’s internal rate of return (IRR) is 7.89%, which is less than benchmarks and therefore financially unattractive without the initiative.
Arranged by Daiwa Securities SMBC Co Ltd, and underwritten by Daiwa Securities SMBC Europe Ltd, the bond is issued via the World Bank unit the International Bank for Reconstruction and Development (IBRD).