Lightsource BP hits critical mass with loan

IFR 2401 - 18 Sep 2021 - 24 Sep 2021
4 min read
Tessa Walsh

Lightsource BP is raising a syndicated loan of more than £1bn to finance its growth that is at the heart of the international oil major’s transition to become a fully integrated energy company.

The deal is one of the biggest debt financings to be raised to date for one of the new industrial joint ventures that are being set up to develop clean, green energy – in this case solar energy.

Lightsource BP is the largest solar developer in Europe and the third-largest in the world outside China. It has developed 3.8GW of solar projects to date, and has a global project pipeline of 20GW.

The loan is also one of the first to be raised at a corporate level, rather than project financing for individual assets, and shows that Lightsource BP’s projects have scaled up quickly and hit a critical mass that is allowing it to raise cheaper financing.

“This shows the evolution and maturity of greentech, which is great progress. As asset portfolios aggregate and scale up, JVs are able to move to a more flexible corporate financing,” a senior ESG loan banker said.

The new debt is being raised at holding company level, which will give the JV greater flexibility to manage its assets and churn its portfolios and could allow it to tap the bond market in future.

Lightsource BP and BP declined to comment.

Huge opportunity

The rapid growth of energy JVs is a huge opportunity for capital markets as once unlikely industrial bedfellows set up new ventures that could become the renewable supermajors of the future as the push to decarbonise increases.

New JVs are forming around particular value chains in the energy transition. As wind and solar become established technologies, the focus is now on batteries, hydrogen and carbon capture and storage.

"The rise of the JV is happening at a rapid pace, and I just see it increasing, as it is the most effective way for partners to balance risk sharing,” said Brendon Moran, head of energy, natural resources and utilities at Societe Generale.

“The walls between project finance and corporate finance are coming down in this intermingling.”

The range of financing options for JVs includes debt in ESG-labelled or conventional form. JVs and their equity owners are seeking greater flexibility during construction or bidding periods and are looking at innovative and flexible ways to layer the capital structure.

“Banks and institutional investors are starting to look everywhere in between the equity and the debt, so we're seeing this layering in the forms of revolving credits," Moran said.

Off-balance sheet options are also being considered, which include spinning out or listing fast-growing renewables divisions. Italian oil major Eni and Spanish major Repsol have said that they will start to deconsolidate their renewable businesses at the start of next year.

"Eni and Repsol are contenders to spin off. Both have come to the conclusion that they see greater value created by separating out their renewables business. Separating the entity off balance sheet will allow them to access debt and lower their cost of capital," said Joshua Stone, an oil and gas equity analyst at Barclays.

More non-recourse project and revenue bonds are also anticipated for oil and gas companies to reassure investors that may not be convinced by green bonds, according to European ratings agency Scope.

Ambitious target

Lightsource BP is a key part of BP’s strategy to develop 20GW of renewable assets by 2025 and 50GW by 2030, which is viewed as one of the most ambitious among oil and gas giants.

BP increased its stake in Lightsource in December 2019 to become an equal 50-50 partner in the JV after buying a 43% stake in Lightsource Renewable Energy in 2017 for US$200m. It rebranded to Lightsource BP in 2018.

Lightsource BP funds, develops and constructs solar installations and provides operation, maintenance and asset management services to solar operators in the UK and abroad and is expected to reach 10GW of developed solar assets by the end of 2023.

“I can certainly see more examples of these sorts of JVs happening. Lightsource BP has been a good news story for integrated oil,” Stone said.