Lightsource BP has secured a US$1.8bn syndicated revolving credit and trade finance facility to finance its growth that is at the heart of BP’s transition to become a fully integrated energy company.
The corporate loan is one of the biggest debt financings to date for one of the new industrial joint ventures that are being set up to develop clean, green energy – in this case solar.
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, and has increased its project pipeline target to 25GW of solar developments by 2025, from 10GW by late 2023. In addition to the new pipeline target, Lightsource BP is also developing 9GW exclusively for the international oil major that is a 50% shareholder in the JV.
"Globally renewable energy is shifting from a mindset of gigawatts to terawatts. Investments are being made by the billion, not by the million," said Lightsource BP chief executive Nick Boyle.
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 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.
The corporate loan is being provided by BNP Paribas, Societe Generale, Santander, NatWest, Lloyds, MUFG, SMBC, CIBC, Toronto-Dominion and Wells Fargo.
The rapid growth of energy JVs is a huge opportunity for capital markets as once unlikely industrial bedfellows set up ventures that could become the renewable supermajors of the future as the push to decarbonise accelerates.
New JVs are forming around particular value chains in energy transition. As wind and solar become established technologies, the focus is now on battery energy storage systems, 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 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.
Lightsource BP is a key part of BP’s drive 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 as 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 growing quickly. It has tripled its footprint and doubled its workforce in the four years since BP bought into the company and developed more than 30 projects, which it says have consistently delivered 8%–10% returns.
“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.
Updated story: Adds loan details throughout