The Red River Valley Alliance – a consortium comprising Spain’s Acciona, Israeli construction company Shikun & Binui and North American Construction Group – closed financing valued at $1.14 billion earlier this month to build, operate and maintain a 48-kilometre flood prevention channel between Fargo, North Dakota and Moorhead, Minnesota over 29 years.
The project is the first sustainable infrastructure project launched in the US under a public-private partnership and is also the country’s first green finance initiative specifically designed for climate change adaptation. “The purpose of the project is to reduce the potentially devastating consequences of river floods with the goals of preparing the area for the effects of climate change and protecting the local population and economy,” said Shikun & Binui USA’s managing director of project development Sam Headon.
Procurement for the project started back in 2016 with the release of an RFQ in which three teams were shortlisted, including the Red River Valley Alliance, which at that time was made up of Shikun & Binui, Acciona and InfraRed Capital Partners, according to Shikun & Binui USA chief executive Sharon Novak. An RFP was then released, but was later suspended for around two years because of environmental and legal challenges. The final RFP was released at the start of this year. At this point, the consortium changed members, with North American Construction Group coming in in place of InfraRed.
“Both Acciona and Shikun & Binui bring considerable expertise in relevant earth-moving, maritime infrastructure, channels and heavy construction P3 work,” said Novak. “Ultimately, North American Construction Group joined the team because of its local earth-moving capability and comfort with the specific weather conditions for the project.”
The Fargo-Moorhead flood channel will require a total investment of $2.75 billion and has an estimated construction timeframe of five years. It includes the construction of the canal itself, as well as associated infrastructure including bridges, railway crossings and aqueducts. The project will divert storm water from the Red River away from population centres, which are regularly affected by flooding. North Dakota has the second-highest inland flood risk in the US, behind only Louisiana, according to risQ, a data analytics firm based in Boston. The diversion project resulted from studies carried out following what the US Geological Survey describes as the worst flooding in more than 100 years, which resulted in roughly $3.5 billion of damages.
Financing climate change adaptation
The green financing was provided by Citigroup, Morgan Stanley, CaixaBank, Sumitomo Mitsui Banking Corporation and Korean Development Bank and has been given an investment-grade credit risk rating from Moody’s.
“The financing framework aligns with the four core components of the Green Bond and Green Loan Principles 2021 and directly advances Sustainable Development Goals 11 and 13,” said Novak, adding that the project will provide protection to 95,000 households and create 140,000 jobs. It also makes fighting a 500-year flood event possible, meaning flood insurance requirements can be removed for the local community and will protect over $12 billion of property value.
“The Fargo-Moorhead river diversion project will be a good test case for the development of resilient infrastructure that protects communities from the impacts of climate change,” noted Andrés Arahuetes Couceiro, senior vice-president of financing at Acciona Group. “The design and construction of the diversion canal details the environmental and social impact standards that will have to be met. It is these ESG standards and the project’s clear purpose in mitigating the impacts of climate change that made the project attractive to our financial backers.”
In order to secure the financing, Acciona supplemented its own analysis with work by external company Sustainalytics, which ruled whether the project complied with the Green Loan and Green Bond Principles, Arahuetes Couceiro explained. “This imprimatur is important for financial institutions and investors, as it reassures them that the project they will fund has a positive social and environmental impact.”
It seems likely that climate change adaptation financing is poised to proliferate. “This project hopefully represents a significant step toward more climate resiliency projects procured as a P3,” Headon said.
“All parties – governments, developers and financiers – have a vested interest in developing green infrastructure that protects communities and the planet,” added Arahuetes Couceiro. “Climate-adaptive infrastructure can deliver triple benefits: reduced economic losses from climate disasters, positive economic gains through innovation and additional social and environmental benefits.
“Indeed, The Global Center on Adaptation [an international organisation launched in 2018 by then-UN Secretary General Ban Ki-moon and headquartered in Rotterdam] estimates the benefit-cost ratios of resilient infrastructure range from 2:1 to 10:1, and in some cases can be even higher.”