JBIC’s first financing of an interconnector project in Europe, which is pushing ahead with decarbonization. Experiencing JBIC’s global connectivity and looking ahead

Four countries and some 30 organizations. A complex and epic project

At a project ceremony held in London in November 2022, members from all over the world, who had been negotiating online, met in person for the first time. OKABE Mai, who was in charge of the project in JBIC's Infrastructure and Environment Finance Group, was also present.

The time differences had them engaged in intense online discussions both day and night. “We all praised each other for the very hard work we poured into this project,” OKABE recalls with a smile. While striving to move their respective agendas forward, they were united in their strong desire to do whatever it took to make this project a success. This brought them together as a team, and their sense of accomplishment in finally wrapping up negotiations was evident.

This “NeuConnect, UK-Germany Interconnector Project” is a megaproject to construct a high-voltage direct current transmission system—720 kilometers long with a capacity of 1400 megawatts—between southeast Britain and northwest Germany, due to operate for 25 years. It falls under the legal jurisdiction of the UK and Germany, while the transmission cables will pass through the exclusive economic zone of the Netherlands.

Participants from Japan include Kansai Electric Power Co., Inc. (KEPCO), which possesses cutting-edge technology in the operation of high-voltage direct current transmission systems. The approximately 30 project stakeholders, including sponsors, operating companies, and lenders, are mainly from the UK, Germany, the Netherlands, and Japan.

“This was JBIC's first project financing (PF) for an interconnector project, and with no frame of reference, in the beginning we had no idea as to how to proceed with the negotiations,” says OKABE. Since her main work up to then had been the monitoring of projects after their signing, this was also the first time for OKABE to structure a new PF.

PF repayment from business revenues is scheduled over a long period of time, which makes the review of business feasibility critical. This project's income source structure is complex, involving the UK and German operators, and multiple lenders (see figure below). There were also a number of risk factors affecting the project review, including the environmental impacts of laying and maintaining undersea cables, and delays in procurement of construction materials due to the COVID-19 pandemic.

The conflict in Ukraine heightened the importance of interconnectors

JBIC became involved in the project in 2018 when KEPCO became the first Japanese electric power company to embark on an interconnector project and approached it for a loan. However, the project was pushed back significantly due to reasons such as delays in obtaining approval from the British and German authorities for undersea cable installation, and the UK's withdrawal from the European Union.

A breakthrough occurred in July 2021, when a meeting between then UK Prime Minister Boris Johnson and German Chancellor Angela Merkel saw them reaffirm the importance of the UK-Germany NeuConnect interconnector, and the project was quickly set into motion. It was right around this time that OKABE was placed in charge of this project at JBIC.

The development of renewable energy is progressing in Europe as it strives to become carbon neutral. As renewables such as wind and solar power are dependent on weather, it is essential to deploy interconnector systems that allow countries to share electricity to effectively use renewable power.

Just as the negotiations were reaching a critical juncture, Russia invaded Ukraine in February 2022. “Since we didn't know how the situation would develop, we all felt an even stronger urgency to move ahead with the project.”

There was a growing sense of crisis in Europe over the supply of power. This reaffirmed the importance of the project from the perspective of energy security as well. “I personally saw how JBIC’s operations are connected to the global situation,” says OKABE.

“The sponsors, operating companies, and lenders all had different agendas, and when an agreement couldn't be reached, we had to negotiate with each of them individually. This is a large-scale project, but I became keenly aware that it is built upon steps taken one at a time.”

After overcoming these various challenges, construction of UK-Germany NeuConnect interconnector has begun, with completion scheduled for 2028.

Picturing the knowledge gained in Europe being applied to Japan and Asia as well

KEPCO, which began investing in a project company in 2018 and was involved in the development of the project, possesses cutting-edge technology in direct current transmission systems that enable high capacity and low loss in long-distance power transmission. On the back of its successful use of this tech in the southeast Seto Inland Sea in Japan, KEPCO took on its first project overseas.

“By supporting KEPCO's expansion into Europe, we could contribute to the international competitiveness of Japanese companies and work for the good of the country, giving me a great sense of fulfillment,” says OKABE of the true pleasure of her work. TEPCO Power Grid, Inc. later joined the project, expanding the involvement of Japanese companies.

For JBIC as well, the successful implementation of this pioneering initiative to finance an interconnector project serves as a stepping stone to the future. “The know-how and technologies developed in Europe should lead to the creation of highly efficient power interconnectors in Japan and other parts of Asia.”

OKABE was also inspired by the persuasive negotiation skills of the female staff of European financial institutions who she worked closely with on the project. As the global trend toward decarbonization accelerates, OKABE is already looking ahead to the next challenge.

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