California To Issue $1B Green Bonds For Clean Energy

In a significant step towards achieving California's long-term clean energy sources, the California Community Choice Financing Authority (CCCFA) will be issuing $1 billion of green bonds to fund a pioneering renewable energy project for San Diego Community Power (SDCP). The funding, formally referred to as the "Clean Energy Project Revenue Bonds," will securitize 30 years' worth of supply of electricity from zero-carbon and renewable sources.

This green bond sale is a large wager on the energy future of California. Proceeds from the bonds' issuance will be utilized to prefinance energy under a long-term agreement with CCCFA by Energy Prepay III, a wholly owned limited-purpose company of Morgan Stanley Capital Group. The prepaid system should provide SDCP, which is an electric utility, cost advantage and financial security for delivering clean power to most of San Diego County.

According to a preliminary official statement posted on MuniOS, the Clean Energy Project will deliver power that complies with California’s Emissions Performance Standard (EPS), which restricts the emissions intensity of electricity generation to encourage a transition away from fossil fuels. By locking in a supply of compliant energy for three decades, SDCP aims to stabilize energy costs for its customers while dramatically reducing its carbon footprint.

San Diego Community Power currently serves about one million active accounts with an annual retail energy load of about 7.7 million megawatt-hours. Created under California's community choice aggregation (CCA) program, SDCP enables cities and counties to purchase power separately but continue to use the same utility infrastructure for transmission and billing. This model has enabled many city governments to have more ambitious climate targets than the state is requiring.

The $1 billion green bond issue, which is also being called the 2025D Green Bonds, will be offered the week of July 14. The issue has numerous maturities with the bonds set to mature between 2030 and 2034, along with a term bond that matures in 2055. The bonds received an A2 rating by Moody's Investors Service, indicating that the company believes the project is financially strong and has the ability to bring in the revenues necessary in order to repay the investors. Morgan Stanley will guarantee the bonds, which is also the parent corporation of Energy Prepay III.

These bonds were issued to be paid back from Clean Energy Project revenues. The revenue support is payment by SDCP for energy received under the prepayment agreement. The structure has been devised to achieve long-term rate stability for SDCP customers and minimize exposure to unstable energy markets. With power prepayment, SDCP will be capable of preventing future price hikes and paying back savings to its ratepayers in the long run.

The bond sale is in line with the widespread surge in green finance throughout the United States, with United States sales of green bonds set to hit record levels of almost $550 billion, as stated in a report given recently by BloombergNEF. The bonds that are utilized to fund green projects such as clean transport, energy efficiency, and renewable power have attracted investors more aggressively in their quest for social and sustainable investment.

California has emerged as a green finance center, spurred by a mix of climate ambition, regulatory environment, and financial innovation. The recent CCCFA issuance is evidence of this trend, bringing together advanced financial engineering with an openly expressed environmental purpose.

For SDCP, the bond-financed project is one giant step towards its mission to provide 100% renewable energy to its customers. Since its establishment, the agency has made clean power purchases and reinvestments in communities its top priority. This new funding not only furthered those objectives but also facilitates long-term infrastructure that future generations will benefit from.

While nations worldwide are struggling with the double challenge of energy security and climate change, efforts such as the Clean Energy Project showcase how innovative financing mechanisms can accelerate the clean energy revolution. Through interaction with the capital markets, public institutions such as CCCFA and SDCP are illustrating how climate stewardship and fiscal prudence are compatible.

With bond delivery estimated for mid-July and the long-term plan of the project extending it to 2055, California is still setting the pace in the clean energy revolution.