The Tennessee Valley Authority Monday sold its first ever "green bonds" to fund new solar and battery storage projects and achieved a record low borrowing rate for a 10-year note in the process.
TVA sold the $500 million of bonds at an interest rate of only 1.5% in its first offering of a sustainability-focused financial instrument. TVA's previous lowest borrowing rate on a 10-year maturity note was set in 2012 when TVA issued bonds at a rate of 1.875%.
The record low rate on the latest bonds is projected to save TVA over $15 million in annual interest expense compared to TVA's debt instruments that matured earlier in 2021.
A potential TVA solar project in northern Alabama and a possible TVA energy storage project in eastern Tennessee are possible uses of the new funding, although both projects are still undergoing detailed environmental reviews.
To limit its carbon emissions linked with global warming, TVA is phasing out by 2035 the last of the 59 coal-fired units it once used to generate most of its electricity. The coal generation has or will be replaced with new solar power, energy-efficient natural gas plants and upgraded output from both TVA's nuclear and hydroelectric power plants, as well as more purchased solar, wind and other renewable generation.
TVA has set a goal of net-zero carbon emissions by 2050.
"TVA's first green bond is a milestone for our financing program," TVA Treasurer Tammy Wilson said. "Today's record-setting transaction demonstrates that the financial community is focused on investments in cleaner energy, and supportive of TVA's sustainability goals."
TVA's green bond offering drew over $2 billion in initial orders from a variety of investors, including money managers, state governments, insurance companies and others.
TVA obtained a second-party opinion on the so-called green bonds from the global analytical firm Sustainalytics, which concluded that TVA's plans for use of the funds are aligned with sustainability and green bond standards and principles.
The new bonds will mature on Sept. 15, 2031, and are not subject to redemption prior to maturity. Application has been made to list the bonds on the New York Stock Exchange.
Fitch Ratings assigned a top AAA rating for the TVA bonds, reflecting "Fitch's expectation that repayment of these power bonds would ultimately receive federal support" because TVA is a federal agency. The bonds did have a negative outlook because of Fitch's overall rating of U.S. government sovereign borrowing.
"TVA's financial position has strengthened over the past decade, and we are continuing our disciplined financial approach as we invest in the energy system of the future," TVA Chief Financial Officer John Thomas said in a statement Monday after the bond sale. "Low cost financing for our strategic capital investments will contribute to keeping energy rates as low as feasible even as we make progress toward our net-zero carbon aspirational goal."
Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340