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Project Flow

As a leading bank in electricity transmission financing, Mizuho acted as loan Bookrunner and IRS/RPI swap provider in a £2.2 billion long-term project financing deal. The financing will support a consortium of Meridiam, Kansai Electric and Allianz Capital Partners to develop a 720km subsea electricity interconnector project between the UK and Germany that will be used to transmit affordable and secure sustainable energy.

Interconnectors  have become indispensable in enabling countries to enhance their use of intermittent clean energy resources through shared access to energy networks that help to balance supply and demand of clean energy sources and support security of supply.   

Challenge

Interconnectors play a vital role in the transition to green energy. These electrical highways of the sea are growing in strategic importance globally, with the EU targeting 15% interconnection by 2030 as part of its Climate and Energy Targets. The NeuConnect interconnector project enables the transmission of 1,400MW of electricity between the UK and Germany.

This pathfinder deal involved financing in multiple currencies, jurisdictions, borrowers and regulatory frameworks and was the first ECA involved electricity interconnector. Due to the complex nature of interconnectors and potential revenue variability, these projects have previously been funded and developed directly by national Transmission System Operators.

Solution

As a loan bookrunner, Mizuho played an important role in structuring the deal to ensure the bankability of the project finance for both commercial lenders and ECAs that resulted from the complex interplay between two different regulatory frameworks, multi-currencies and a multi-borrower financial structure.

Mizuho brought an established track record in the subsea electricity transmission sector across the EMEA region, including our involvement in the earlier Greenlink deal, which was the first project financed interconnector deal in Europe and in which we were the only Japanese bank to participate.

The involvement of Mizuho gave the sponsors and market confidence, given our experience and credentials in structuring complex project finance deals.

As a long-term relationship orientated bank, Mizuho also worked with the project sponsors to obtain a Retail Price Index (RPI) inflation swap role, effectively allowing the client to hedge the project cashflows against movements in RPI inflation through the use of an RPI swap.

The debt sizing for this deal is based on the floor revenue and regulated building block revenue from offtakers under the UK Cap and Floor Regime and the German regulatory framework respectively to provide stable revenues, which was a key part of the financing to ensure an acceptable minimum debt service coverage ratio.

Result

The debt structure represented an attractive proposition resulting in over 20 lenders to the project and was named Power Deal of the Year at the prestigious 2022 PFI Awards.

As a global provider of long-term project financing with innovative structures, and a trusted partner for our clients, this project completes Mizuho's credentials as a leading bank in the electricity transmission sector. Mizuho will be able use the experience gained in Europe to support clients globally going forward as interconnector demand increases across the world in the pursuit of net-zero.

This project is of international strategic importance, supporting the EU, UK and German renewable policies, and the benefits over its life from scheduled completion in 2028 include:

• More diverse and sustainable secure supply
• Expected price benefit to consumers and businesses
• Carrying enough electricity to power up to 1.5 million homes over the life of the project
• Helping to deliver a net reduction in carbon emissions of over 13 million tonnes of CO₂ over 25 years.
   

Mizuho's voice

The NeuConnect project took several years to achieve a successful financial close in July 2022. It was an extremely rewarding project to be a part of due to the challenges it presented and the innovative financing solutions that were required for this landmark deal. By harnessing our global reach and capability to deliver the entire firm, we earned not only the trust of our clients, but also the confidence of sponsors across the market, in having the capability to be part of structuring such a large and complex deal in this space.

We are proud that Mizuho has again demonstrated its commitment to supporting an energy transition project that is both significantly important to our clients, but also has clear benefits to the broader societies that we operate in.

As interconnector project demand grows globally, Mizuho is now well positioned as a leading banking partner in this space to help clients and society move toward a sustainable future.

Peter Yeates
Executive Director, European Structured Finance Department