Cadent Gas case study: funding the transition to a low-carbon economy
London Stock Exchange’s Transition Bond Segment is an extension of our Sustainable Bond Market which supports more carbon-intensive industry sectors transition to lower-carbon operating models, offering issuers additional visibility to investors and broadening the sustainable finance marketplace. Cadent, the largest distributor of gas in Great Britain, has become the first company to display its bonds on the segment. In this blog we reflect on how it has used the proceeds of its bonds to accelerate its sustainability plans.
Cadent leads the way in utilising sustainable debt finance to enable its low-carbon transition; when it issued its first transition bond in 2020 it became the UK’s first transition bond. Testament to investors' keen appetite to support the energy transition, the bond was 8.4x oversubscribed. Its second issuance, a nine-year €625m bond was announced in March 2021 and will be used to invest in the evolution of the gas distribution network.
Transition bond segment eligibility
To display bonds on the Transition Bond Segment issuers must have a credible and ambitious transition strategy at a corporate level, including and not limited to science-based net-zero pathways and targets, aligning themselves to the Paris Agreement and reporting under an internationally recognised framework such as TCFD. Eligibility for Cadent's bonds to be displayed on the segment was approved based on its externally verified Transition Bond Framework, which has been prepared in alignment with ICMA’s Transition Bond Handbook guidelines and outlines the use of proceeds including: Retrofit of Gas Transmission and Distribution Networks, Renewable Energy, Clean Transportation and Energy Efficient Buildings. Cadent is a strong example of the type of company which will benefit from the new segment and the visibility it offers.
The company is making considerable steps to transition its business to both reduce its carbon footprint and prepare for the low-carbon economy and is aligned to the UK’s ambition to become net-zero. Cadent is making an impact in two main ways: ensuring it operates in a low-carbon way and supporting the transition to transportation of low and zero carbon gases such as hydrogen and biomethane.
Reducing gas leakage
Cadent owns and operates gas distribution networks in West Midlands, North West England, East Midlands and East Anglia, and North London and is responsible for the safe, reliable and efficient transportation of gas from the high-pressure national transmission system in these areas to the consumer. Cadent has used the proceeds of the two transition bonds to replace metallic pipes with plastic ones, to minimise gas leakage, which currently represents the majority of its greenhouse gas emissions. This transformation of the distribution network also allows it to future proof the pipes to transport green gases.
Powering homes sustainably
Clean gases can power the gas network’s transition, bringing hydrogen and biomethane to homes and industries and in the process significantly reducing the carbon footprint of heating. This solution can work alongside renewable-generated electricity to help flexibly meet all the future needs of UK customers in a sustainable manner.
Decarbonising heavy transport
Because of Cadent’s expertise in biomethane connections and its position as a leader in the hydrogen economy, it has also been able to initiate the decarbonisation of heavy transport, which is a large emitter of CO2. Since the issuance of its first transition bond, progress has been made on its collaboration with national bio-CNG refuelling infrastructure; currently there are nine public access stations connected to the network, and a further three under development.
Turning waste into power
Finally, another way in which it has harnessed the bond is through its efforts to support the UK biomethane sector by turning food, farm and other wastes, otherwise destined for landfill, into a gas to fuel homes and transport. According to its 2020 annual report, there are now 35 biomethane producing plants on Cadent’s network, with the potential volumes entering the network equivalent to the heating demands of as many as 218,690 homes.