The financial community is collaborating with the Global Centre to launch a new financing mechanism for decarbonization in Shipping, which is believed to help overcome the barriers slowing down the modernization of ships, so that they become more efficient and emissions are reduced.
They point out that uncertainty regarding fuel savings, difficulties in predicting investment performance, and issues of incentive misalignment between shipowners and charterers are some of the key barriers to ship modernization, which they believe can be overcome with the unique funding model.
The Fund for Energy Efficient Technologies (FEET) will provide up to 100% funding for retrofits that improve a ship’s energy efficiency. The Global Centre for Maritime Decarbonization has long supported improving the performance of existing ships through the adoption of technologies, including wind-assisted propulsion and air lubrication of the hull. It emphasizes that these technologies can deliver immediate fuel savings, which it believes will help shipowners remain competitive as regulations on shipping emissions and efficiency increase.
FEET was designed to address the financial barriers to ship retrofits. The funding, provided in the form of unsecured leasing, is decoupled from the ship’s mortgage. The critical point is that shipowners repay the loan as the technology provides quantifiable and verified methods for fuel savings and regulatory compliance.
GCMD underlines that one of the major challenges, which it believes complicates retrofit financing, is the uncertainty regarding the investment payback period and the lack of a standardized methodology for accurately measuring fuel savings. It highlights that there is an inherent variability in fuel savings, which depends on operational and environmental factors, from routing to weather conditions.
It believes that the contribution to fuel savings from these technologies can be isolated through data collection and modeling, which will improve the prediction of savings as more data is collected. GCMD has undertaken performance pilot projects, equipping ships with additional sensors, and will continue to apply rigorous data analysis to quantify fuel savings with statistical reliability.
The Singapore-based fund manager AIM Horizon Investments will manage the fund with the Japan Bank for International Cooperation, the Asian financial group DBS, and the global financial institution ING, having agreed in principle to provide senior debt financing. The effort has secured total initial commitments of up to $35 million, exceeding the initial targets for the fund. GCMD and AIM Horizon Investments report that they plan to scale the fund to $500 million by 2030, capable of supporting retrofits for approximately 200 ships.
They report strong initial interest from the industry, as well as from manufacturers and suppliers supporting the sector. Several projects have already been identified, and these projects have advanced to the final investment decision stage.
So we see that despite all the uncertainty that has arisen recently regarding how feasible the decarbonization of shipping is, efforts continue unabated, while shipyards and shipowners are trying to adapt to the new reality.
