Marine Money – Pay As You Save – A New Fund Tries a Different Approach to Retrofits

First featured on Marine Money

The path to cleaner, greener shipping has been long and complicated, between various passed fuel regulations and discussions around carbon tax systems like the EU ETS or the now postponed Net-Zero Framework by the IMO. Even with the constantly changing seascape, however, motivation for “greener” technologies has persisted, specifically in developing energy saving devices. Various forms of emissions-reduction investments exist, from sails, new hull coatings, even scrubbers – and they all have in common that their savings are generated through fuel. These savings can be significant too, with owners like Ardmore Shipping having stated before that the investment case for fuel-saving devices can sometimes see pay-offs in just a matter of a few years. Ted Young, Dorian LPG’s CFO, recently pushed this sentiment further, stating that Dorian continues to invest in decarbonization technology as it just makes good business sense.

Broadly speaking, the argument for energy efficient technology has not meant wide-spread industry adoption for a number of reasons. Some technologies (like sails) may be voyage/weather dependent and unpredictable for spot trades. Another challenge is how savings are split between owner/charterer. But arguably the largest challenge has been in financing. While the cost of many of these devices may seem like a drop in the bucket compared to the cost of the ship, it actually presents a major obstacle. While most loans to finance vessel acquisitions are secured against the vessel – it is difficult (and impractical) to lend against a retrofit attached to a vessel. In the past, this has meant most owners looking to adopt these technologies have had to utilize majority if not 100% equity financing – inefficient/out of reach for many small-fleet shipowners, especially when cash is less abundant.

Attempting to address this issue, a consortium of financial institutions has come together to raise capital for a new fund strategy. AIM Horizon Investments, the Development Bank of Japan, ING, DBS Bank, and Global Center for Maritime Decarbonization have secured total commitments of $35 million for the Fund for Energy Efficiency Technologies (“FEET”). The fund provides up to 100% upfront financing for retrofits and unsecured leases, which addresses the issues linked to typical secured financing methods for energy saving technologies. This new initiative, however, has taken it one step further by creating a unique repayment system coupled to verified fuel and regulatory savings, or “pay-as-you-save.”

The fund also aims to scale up drastically from its current $35 million in capital, with AIM Horizon Investments and the Global Center for Maritime Decarbonization claiming a target of $500 million by 2030 – able to support up to 200 ships while also aiding in reducing financing costs, and providing higher quality data. Expanding by approximately 14x in a matter of five years sounds daunting, but at the same time, there are thousands of shipowners around the world, many of whom may own just a handful of vessels, who have been locked-out of this market by those exact issues which the Fund for Energy Efficient Technologies seeks to address.