The development and use of energy saving technology (EST) in ships is likely to play a significant part in the transition towards sustainability. However, the installation and financing of EST on ships may present several challenges, particularly with existing ship financiers.
Our recent report The Sustainability Imperative – ESG – Reshaping the Funding and Governance of Shipping indicates a mixed response from the ship finance sector. Hardly any financiers were willing to contemplate a subordinate mortgage being granted and/or registered in favour of EST financiers. Their willingness to relax covenants to accommodate EST financing was also lukewarm. This may reflect their experience and approach to date with the financing of retrofitting scrubbers, which has overwhelmingly been achieved by an up-sizing of existing facilities by the existing financiers, relying on their existing ship security (supplemented and amended as necessary to cover the additional exposure), rather than by the provision of new financing by third parties and/or the suppliers themselves.
The Future Landscape
It is unlikely, however, that this will be the only model which applies in relation to EST. There is likely to be diversity both of industry players and also of the type of equipment involved, which may include kites, flettner rotors, rigid-adjustable sails, hull-bubble generators, fuel devices and batteries. The degree of integration of such equipment in the fabric of the ship will vary, unlike scrubbers, which are fully integrated and for practical purposes extremely difficult to remove, such that the ability of a scrubber supplier, to lawfully retain title and, even if it could, to then repossess and re-sell its goods economically or without risk of causing damage to the ship is open to considerable doubt. The likely second-hand value of EST and its lower cost of removal compares favourably with scrubbers which have a second-hand value of little more than scrap from which the disproportionate costs of their removal must be deducted, but this will vary depending on the nature of the technology involved.