![Risk.net](https://www.risk.net/sites/default/files/styles/print_logo/public/2018-09/print-logo.png?itok=1TpHrpuP)
Emissions house of the year: Citi
Facebook wind-power deal underscores bank’s strength in renewables
![roxana-popovici roxana-popovici](/sites/default/files/styles/landscape_750_463/public/import/IMG/102/348102/roxana-popovici.jpeg.webp?h=86487a68&itok=H_2E7D57)
Energy Risk Awards 2016
A Wall Street bank might not be the first company that comes to mind when one is looking for a way to be environmentally friendly.
But last year, when Facebook wanted a long-term source of clean energy for a planned data centre in Fort Worth, Texas, the social media giant approached Citi. On July 1, 2015, Citi agreed to provide the data centre with a 13.5-year physical power hedge. Under the agreement, which commences in January 2017, the bank will also deliver renewable energy credits (Recs) to Facebook's project company. Renewable energy firms generate one Rec for every megawatt-hour they produce; utilities and corporates use the instruments to comply with environmental regulations or to demonstrate their social responsibility.
Citi was able to execute the Facebook deal because of another transaction it was working on concurrently, which closed at nearly the same time: a 13-year, fixed-price physical power hedge for the Shannon Wind project, a 204-megawatt wind farm being built in Clay County, Texas, some 90 miles from the planned data centre, by Vancouver-based Alterra Power and Connecticut-based Starwood Energy. Effectively, Citi back-to-backed the two deals, laying off the power and Rec price risk it assumed with the Shannon Wind hedge by selling power and Recs to Facebook.
Both of Citi's counterparties gained from the three-way deal. Facebook got the clean energy it wanted without assuming the credit risk or construction risk of a wind farm project. The builders of the Shannon Wind project, meanwhile, got a comprehensive financing solution as well as the revenue certainty that came with Citi's long-dated hedge. Citi provided the project with a $212 million construction loan and participated in its $219 million tax equity financing, alongside billionaire Warren Buffett's Iowa-based Berkshire Hathaway Energy.
"Citi's performance for us as hedge provider for our Shannon project was exceptional," says Alterra chief executive John Carson. "Beginning with first indication through closing the transaction, they spent almost two years on the project and never wavered on their original commitments, in fact, bettering the product as we went on; there were no negative surprises, and that makes for great business."
Roxana Popovici, a Citi managing director who handles renewable energy deals, says the bank has much to offer sponsors of wind-power projects: it can provide the hedge, a portion of the tax equity and some or all of the construction lending. "Our niche on the renewable side has been the one-stop solution," she says. Being able to provide all three products facilitates execution, she adds: "Issues are sorted out much more easily when you have one entity sitting on all three sides."
While Citi has drawn attention for the growth of its commodities business over the past several years, its activities in the environmental product and emissions markets are not as well known. The numbers are impressive: in 2015, Citi traded eight million Recs, an internal record. It also executed record volumes and tenors of Class I and solar Rec offtake agreements. And between the Regional Greenhouse Gas initiative in the northeastern US and California's carbon cap-and-trade programme, Citi traded over 13 million tonnes of carbon dioxide credits, making it the largest US bank participant in those markets. The bank's reach extends to Europe, where it remains one of the top participants in European Emission Allowances, both in terms of volumes traded and as provider of cost-of-carry transactions to investors.
All that puts Citi in a strong position to serve corporate clients, such as Facebook, which are looking to procure renewable energy or comply with regulatory mandates requiring them to transact Recs or carbon credits.
Such companies must grapple with difficult questions about the future of green energy, especially if they want to make long-term commitments. Low oil and natural gas prices have pushed power prices to historic lows, raising doubts about the viability of some renewable energy sources. Meanwhile, political and regulatory risks persist in uncertainty over a possible carbon tax or the implementation – or not – of the Obama administration's Clean Power Plan, which was stayed by the US Supreme Court in February.
Against that backdrop, Citi is a reliable partner for corporates looking to navigate the unfamiliar terrain of renewable energy, says Naveen Arora, a Houston-based managing director at Citi. "There is a lot of uncertainty in the markets over what is going to happen over the next five to seven years," he says. "Our participation in [the Rec] market allows us to give our clients a solution to reduce their carbon footprint and lock in their carbon exposure over the longer term."
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Commodities
Foreign funds are bulls in China’s onshore commodity futures
Growing participation from overseas investors is boosting liquidity in what’s already a boom market
Energy Risk Software Rankings 2024: IT demands increase amid rising risk
Heightened geopolitical and credit risk increase requirements on commodities software
Energy Risk Asia Awards 2023: the winners
Winning firms demonstrate resiliency and robust risk management amid testing times
ION Commodities: addressing the market’s recent pain points
Energy Risk Software Rankings winner’s interview: ION Commodities
Energy Risk Commodity Rankings 2023: adapting to new market dynamics
Winners of the 2023 Commodity Rankings provided reliability when clients faced extreme change
Energy Risk Software Rankings 2023: managing uncertainty
Unpredictable markets make CTRM software choices key
Navigating the volatility and complexity of commodity markets
Commodity markets have experienced significant challenges since the Covid-19 pandemic, the conflict in Ukraine and the subsequent sanctions imposed on Russia. These unprecedented events have caused fluctuations in supply and demand, disrupted global…
Energy Risk Asia Awards 2022
Recognising excellence in energy risk management