This is the first part of our Digital Power Series focusing on the deep connection between power and the digital economy. Throughout the series, we explore the opportunities that data centres and crypto miners bring to the National Electricity Market, important digital security considerations for energy asset holders, the ‘tokenisation’ of energy related projects, and relevant ESG considerations when acquiring a digital assets business.
The data centre and cryptocurrency mining industries are becoming a more prominent part of the Australian and global economy. In 2021, Australia’s data storage demand attracted $3.8 billion in investment and globally amounted to roughly $13 billion. However, most of the energy consumed by these industries is still generated by non-renewable energy sources and account for an increasing amount of global energy consumption and CO2 emissions.
It is then unsurprising that operators of such businesses are actively looking for ways to reduce their carbon footprint. This is in no small part due to environmental, social and governance (ESG) targets being under increased scrutiny at board and governance levels, with companies setting robust targets for improvement. Investors are also increasingly focussed on ensuring their investments are sustainable and so it is in companies’ interests to ensure that their business is as sustainable as it can be to attract capital.
The benefit of strong ESG commitments was demonstrated by the successful Nasdaq listing of two Sydney based crypto mining companies, Mawson Infrastructure and Iris Energy. The two companies have raised over $USD250 million in their NAS with much due to their strong ESG commitments.
Green, or sustainable, financing is an option available to those operating in this space and is one that seeks to assist companies achieve their targets in the conduct of their business (and introduces an element of accountability), and sends a strong signal to the market of a company’s sustainability credentials. Customers can also benefit as their supply chains become greener.
What is ‘Green’ Financing?
Green financing can take several forms and can be structured for the debt capital or loan markets. As for the terminology:
- Green bonds or loans are debt securities or loans where the proceeds are to be used for green projects (such as renewable energy, energy efficiency, biodiversity conservation, water management etc).
- Social bonds or loans are debt securities or loans where the proceeds are to be used for social projects (such as affordable infrastructure, access to essential services, socioeconomic advancement etc.).
- Sustainability linked bonds or loans are debt securities or loans which are structured to incentivise borrowers to meet agreed sustainability performance targets through pricing adjustments.
Guidelines have been developed by various loan and debt market associations in the Asia Pacific, Europe and the United States to encourage consistency in the application and classification of green and social financing arrangements.
According to BloombergNEF global sustainable debt issuances in 2021 increased to US$1.6 trillion (from US$760 billion in 2020). Interestingly the majority of these debt issuances comprised green bonds and sustainability linked loans, with the share of other instruments, such as social bonds and sustainability linked bonds ever increasing.
Refinitiv reports that a total of $9.85 billion was raised in the Australian sustainable debt market in 2020, and by the end of September 2021 $11.3 billion of sustainable debt was issued in Australia.
The obvious appetite for green and sustainable debt provides an opportunity for operators in the data centre and crypto mining industries to access debt with potentially cheaper pricing, while also furthering their green credentials.
How can these industries take advantage of Green Financing?
There have been several examples of operators in the data storage industry implementing green financing options, which can serve as a guide for how others in these industries can access these financing options.
Companies such as AirTrunk, DCI Data Centers, Equinix, Aligned, Nabiax and Digital Reality have all raised green funds in the past couple of years – both in their respective domestic and international debt capital and loan markets. For example:
- AirTrunk converted its existing corporate loan facility into a A$2.1 billion sustainability linked loan in 2021;
- Brookfield Asset Management put in place a A$160m green and sustainability-linked term loan to refinance its Australian and New Zealand DCI Data Centres; and
- Digital Reality (a leading issuer of green bonds in the data centre industry) has raised over US$5 billion using green financing arrangements since 2015.
Both green bonds and green loans have been put in place by these entities, the proceeds of which are to be used, for example, to improve energy efficiency of their operations, invest in renewable energy, construct energy efficient facilities and better manage water use and waste.
Conclusion
In conclusion, Australia has a tremendous amount of green capital available for a growing crypto mining and data centre market. Collocating crypto miners or data centres with energy generation assets may not only provide economic benefits, but also open the doors to green financing. In our next article “Data Centres and Crypto Mining – How to be green?” we provide an overview of the most important considerations to obtain green financing.
At Hamilton Locke, we advise across the data centre and crypto mining project life cycle as well as the energy project life cycle. Our team assists in project development, grid connection, green financing, renewable energy purchases and the construction of projects, including the selling and operating of projects.
For more information, please contact Adam Jeffrey or Matt Baumgurtel.
