Sustaining Energy Transition through Structured Finance

Iris Korovesi, Director of Structured Finance, has been associated with Lightsource bp for 3 years. Her expertise includes business development, debt/equity investment analysis and structuring, portfolio management, marketing, and sales. She has more than six years of experience in commercial and industrial solar projects (CNI).

What are the responsibilities of a finance management officer to create a path of structured finance in utility-scale solar projects?

Early in my career, I worked for Sun Power, a solar developer company. I was involved in commercial, residential, and utility-scale solar development and financing. In 2020, I joined Lightsource bp, a utility-scale solar developer. My role as a senior director in the transport structure is to lead transactions and raise debt and tax equity for our utility-scale solar projects. The projects I manage range between 150 and 500 megawatts in size, and the transactions I work on are between 150 and 500 million dollars. 

Could you provide an overview of the challenges faced in the field? What is the process of completing the project? 

The purchase agreement is secured by the development team, which means that the engineering and construction team can start building the project before we get involved. The role of structured finance begins once the portfolio project is taken to market to secure tax equity investors. Tax equity financing is the most critical component of financing renewable energy projects in the United States. Incentives for renewable energy are structured as tax credits, which are absorbed by the equity investor.

Among the largest investors in the market are banks such as Bank of America and J.P. Morgan Chase, as well as multinational corporations. These banks act as tax equity investors in solar projects and provide 35 per cent of the capital and the remaining budget is secured via interested sponsors.

Our first attempt would be to go to the market to solicit tax equity. Once the project has attracted the attention of a tax-equity investor, the next step is to seek debt financing. There are three major components to the debt structure in transactions: the tax equity investor, the sponsor who provides the equity, and the sponsor who is leveraging their position to raise debt against cash. In the distribution and cash equity waterfalls, tax equity takes precedence over debt or back leverage

As soon as we pay for a project, it is put on the market for tax equity investors to bid on. Capital is raised through debt and tax equity. The next step is to solicit bids from lenders and identify a group of lenders who are willing to participate. The majority of our transactions are closed with one tax equity investment. But large projects, such as those worth billions, will require the participation of several different tax equity investors.

The marketing process involves attracting investors and defining tax equity and debt terms. A due diligence process is then initiated by the tax equity investors and lenders, who take a close look at the assets. Several third-party verifications are assessed, including the offtake contract, the PPA, engineering procurement and construction agreements, and interconnection agreements. This ensures that every permit required for the project is obtained before the project.

The next step will be to execute all transaction documents once the diligence process is complete and the financing is approved. This includes the tax equity transaction document. We contact the investor, and the lenders will receive that document, and once all the documents are executed, we start the project.

Once the tax equity funding is acquired, it allows for the repayment of the tax equity bridge loan. Tax equity bridge loans and construction loans are short-term loans, so maybe every bridging loan gets reimbursed eventually. All projects are completed after receiving the tax equity investment. Afterwards, the construction loan is converted to a term loan and repaid over the amortization period determined for the project, which is usually between 20 and 25 years. While the amortization profile is longer than legal tender, it is only five years long. The sponsors are assuming a five-year refinance of most of these back-leverage loans. It's because the sponsor wants to keep debt pricing flexible.

What are your thoughts on the future of solar energy?

Legislation passed by Congress, the Inflation Reduction Act, created many incentives to accelerate the energy transition to incorporate more renewables into the grid to avoid climate change-related catastrophes. Renewable energy will continue to grow steadily in the next decade due to a huge demand for transforming our energy resources.

With the IRA and rapid renewable energy development, it will also be interesting to observe how the tax equity market evolves.

What advice would you offer to your peers based on your experience in the field?

At present, the utility solar industry is experiencing a great deal of dynamic change as a result of all the new laws and regulations. There are so many potential applications and technologies that can be explored to unlock potential natural resources. The demand for solar, wind and other renewable energy technologies is growing rapidly as old resources and technologies have exhausted themselves. Even though this field is challenging because of its dynamic nature, it is an exciting time to be involved in it.