Clean shipping financing – challenges and best practices

In order to comply with stricter environmental regulations on issues such as Sulphur Oxides (SOx), nitrogen oxides (NOx) and Green House Gases (GHG), global maritime industry needs to undertake huge investments in new infrastructure, vessels and technologies. However, there are many competing solutions available, many of them are costly and payback times can be lengthy which may deter businesses from investing in sustainable solutions. This challenge was the starting point for CSHIPP’s workshop Clean Shipping Financing – Challenges and Best Practices organised in Tallinn, Estonia on the 27th of November 2019. The event aimed to address the present situation and future needs for clean shipping solutions as well as discussing best practices in clean shipping financing. The event was organised and hosted jointly by CSHIPP partners Tallinn University of Technology and Maritime Development Center. 

The afternoon was kicked off by Alan Vaht (Alexela Group) who discussed the challenges and best practices in clean shipping business, especially from the perspective of using liquefied natural gas (LNG) as an alternative fuel for transportation. According to Mr. Vaht, the transformation of transportation and fuel markets, the global climate crisis, and stricter climate and transportation policies are the driving forces behind the need to switch to sustainable solutions such as alternative fuels. In Alexela’s case, the company has focused on providing LNG-based energy solutions for companies and LNG-based mobile and stationary refueling solutions for transport. Mr. Vaht reminded the audience that because transport is Europe’s biggest climate problem, shipping and other modes of transportation have to move on to sustainable solutions and they have to act fast because the world cannot afford to wait for tomorrow.

Mr. Alan Vaht’s keynote was followed by Professor Tadeusz Borkowski’s (Maritime University of Szczecin) presentation on ships’ energy efficiency. In his presentation, Professor Borkowski focused on issues such as the four concepts used to describe the energy efficiency of ships, namely EEDI, SEEMP, EEOI and MRV which have been designed to put pressure on the shipping sector to become more fuel efficient as well as to highlight the role of operational measures in gaining better efficiency. Energy Efficiency Design Index (EEDI) is technical measure aimed at promoting the use of more energy efficient equipment and engines for new ships. The Energy Efficiency Operational Indicator (EEOI) is a monitoring tool for managing ship and fleet efficiency performance over time as it enables operators to measure the fuel efficiency of a ship in operation and to gauge the effect of any changes in operation. The Ship Energy Efficiency Management Plan (SEEMP) is an operational measure that establishes a mechanism to improve the energy efficiency of a ship in a cost-effective manner. Finally, MRV stands for regulations on monitoring, reporting and verification on emissions.

The third speaker of the afternoon was Mr. Patrick Gerber (Leonhard Weiss OÜ Group) who focused on the challenges of navigating the financial hurdle of clean shipping. According to Mr. Gerber, there does not seem to a clear definition for what constitutes as clean shipping. However, the targets set by the International Maritime Organization (IMO) and regulations such as SECA provide some indication of what is expected from the industry. The targets set for maritime industry are very ambitious which means that small adjustments will not be enough. However, many of the new, sustainable options available may not be economically feasible, especially in terms of existing ships and fleets. The best way to navigate the financial hurdle depends largely on what motivates the company in question and what are its goals. Mr. Gerber concluded that, when it comes to environmental issues, it is usually better to do as much as possible and economically feasible as this will send out a signal of  authenticity as well as result in higher reselling prices and reduce the impact of future taxation and regulations.

Professor Istemi Demirag’s (Tallinn University of Technology) presentation focused on the risk management in public-private partnerships (PPP) in clean energy projects. PPP’s are an established model for many governments to provide infrastructure-based services by using private finance. Typically, the public authority signs a contract with a special purpose vehicle which, in turn, sub-contracts activities and services to companies that are often related to its shareholders. There is thus a considerable network of linked organisations procuring the PPP project. The risks involved in such projects include issues such as lack of flexibility, evaluation and conflicts of interest.

In his presentation, Dr. Yassine Bakkar discussed the ways EU-funded projects and programmes can enhance business potential in clean shipping. According to Dr. Bakkar, stricter environmental regulations have raised interest in new compliance and energy saving methods such as abatement technologies and alternative fuels. However, solutions such as abatement technologies can be risky because of the high investment costs, long investment lifetime, high levels of capital utilisation and cyclicality. As it is in the interests of the EU to facilitate access to clean shipping finance, initiatives such as strategic investment funds, greel loans and research and innovation programmes have been set up and used to revive investment and capacity-building activities in projects and initiatives that support sustainable shipping around the EU. According to Dr. Bakkar, the system is somewhat complicated but there are companies such as Scandlines and Brittany Ferries who have benefited from such initiatives.

The final speaker of the afternoon was Mr. Tarmo Tuisk (Tallinn University of Technology) who presented the impacts of and the reason’s behind Tallinn’s decision to offer fare-free public transportation for its citizens. According to Mr. Tuisk, fare-free public transportation has provided some socio-economic benefits for the city and could also be considered as a potential business model for shipping. The development is largely down to available solutions and the factors affecting pricing decisions. However, as there are already preliminary plans to combine some public transportation systems in Tallinn and Helsinki, it could perhaps be possible to extend the plans to shipping as well.

The afternoon’s discussions and presentations emphasised the urgent need for global shipping sector to recognise the urgency to take action in the face of climate change. However, it was also pointed out that although there are many solutions already available, all-in-one solutions are rare and what may work for one situation may not be suitable for all the others. This is important to keep in mind when planning investments and searching for funding opportunities. Technical measures and operational efficiency are both important and should be taken into account when looking for optimal solutions to tackle the challenges at hand. Although the financing issues are often somewhat complicated, different kinds of funding opportunities are available, ranging from various types of partnerships to publicly funded projects and programmes.

Workshop presentations (pdf files):

• CSHIPP presentation_J. Boyesen
• Alexela’s LNG experience – Clean shipping and road transport_A.Vaht
• Data on Ships Energy Efficiency – Policy and Development of Technology Measures_T.Borkowski
• How to navigate the financial hurdle of clean shipping_P. Gerber
• Risk management in clean energy projects with public private partnership_I. Demirag
• Enhancing business potential through enterprises in EU-funded projects_Y. Bakkar
• Fare-free Public Trasportation in Tallinn – a possible business model change for clean shipping_T. Tuisk