In 2010 the British solar developer Lightsource was formed. At the time, the U.K. had installed next to no solar. Generous government subsidies were implemented to help get the emerging technology off the ground.
It worked. Deployment ramped up quickly, and between 2014 and 2016, the U.K. was the largest end market in Europe, overtaking Germany.
Lightsource quickly became the largest developer in the country and then the continent. In 2017, oil major BP took a 43 percent stake, which has since been converted into a full 50-50 joint venture.
Now BP is eyeing a low-carbon revolution of its own — a 30-year plan that includes establishing a renewables portfolio of 50 gigawatts by 2030 and 20 GW by 2025.
With Lightsource now a decade old and its partnership with BP in its fourth year, Lightsource BP CEO Nick Boyle and Dev Sanyal, BP’s EVP for gas and low-carbon energy, spoke to GTM about their progress thus far and what the next 10 years may hold.
How solar’s strong numbers added up for BP and Lightsource
“We've moved from a cottage industry into an industrialized generator of what is globally, today, the cheapest form of electricity generation,” said Boyle.
The numbers illustrate the point rather well. Lightsource’s first projects back in 2010 were paid £0.33 per kilowatt-hour ($0.45) by the government for a contract period of 25 years, indexed to the inflation rate, plus around £0.04 for the electricity itself.
“Today we’re building projects in the U.K. and...selling the electricity for £0.04. If that doesn’t illustrate where we’ve come in 10 years, I don’t know what does,” he said.
“We were the biggest developer in Europe, purely by virtue of what we had done in the U.K. After developing 300 smaller sites, there wasn’t much left we didn’t understand" about the challenges that different sites can throw at a developer, Boyle added.
To reinforce that it wasn’t “a one-trick pony,” as he put it, Lightsource expanded to the U.S. and India and found that the fundamentals of land, grid, permitting and planning held true. That’s when Lightsource recognized that the sector was ready to industrialize and that it would need a partner to do so, which led it to approach the investment bank Rothschild.
Boyle said the company received 14 bids, seven of them from oil and gas companies. Of all the offers, BP matched up best on culture, ethos, ambition and its "understanding and belief about the potential of solar," and not anything to do with BP being British, he insisted.
Lightsource's search coincided with BP's hunt for a solar developer to partner with. The oil giant's early forays into solar manufacturing weren't well aligned with its core business and ended in 2011. But BP’s Sanyal told GTM it never lost its interest in solar.
After what he called a period of “strategic introspection,” which included scrutinizing 35 companies, BP made its initial $200 million investment in Lightsource in 2017, creating Lightsource BP.
In February of this year, BP announced its intention to reach net-zero carbon emissions by 2050 and revealed further details during a September capital markets event. So did BP’s experience with Lightsource BP help it to formulate that strategy?
“Yes,” said Sanyal. “When we laid out the Reimagining Energy strategy, the only speaker, other than our CEO Bernard Looney, was Nick Boyle.” That wasn't due to a dearth of other speakers BP could have picked, he joked, but because Boyle could "demonstrate what we had done that had given us confidence for the future. So absolutely it shaped our thinking; it shaped our approach.” Boyle and the entire Lightsource team has been “generous” in sharing their perspective on the energy transition, he added.
Many happy returns
That confidence that Lightsource BP has fed into that new strategy can also be illustrated through the numbers.
At the company's September capital markets event, Sanyal presented a slide demonstrating how BP planned to get 8 to 10 percent returns from low-carbon electricity of all forms. The plan is to build on project returns of 5 to 6 percent with improved project and operational execution and the benefits that come with BP’s extra financial muscle, integrating that power with energy from BP’s other sources such as firm low-carbon power-purchase agreements with natural gas filling in the blanks, all procured by BP’s considerable trading arm.
In answering a question about that 8 to 10 percent figure during its Q2 investor call, CFO Murray Auchincloss told investors that BP thought it could get low-carbon returns “well into the double-digit [percentage] range,” although it wasn’t ready to promise as much right now.
Boyle has said on the record that Lightsource BP is already hitting 8 to 10 percent as a global average. More recently, its projects have been performing at the top end of that range, he said.
“We’ve got a predominantly [Organisation for Economic Co-operation and Development]-focused footprint at the moment. As we add more countries, and therefore a higher percentage of non-OECD [geographies], our assumption is that those average returns will actually go up,” said Boyle. “From my perspective, I find it amusing that people seem to be so focused on this number, because, for us, it’s not a challenge.”
Solar pipelines, and onward to hydrogen
BP's September capital markets event also revealed more details on the extent of the company's renewable options. The firm has bioenergy interests via its BP Bunge JV, as well as a new partnership with Equinor focusing on offshore wind in the U.S. at present and internationally in the years to come. It also has a 1.1 GW onshore wind portfolio in the U.S.
But for now, Lightsource BP makes up 83 percent of its 20 GW development pipeline, with another 21 GW of what it calls “early-stage options.” Sanyal said he expects the initial 20 GW target for 2025 to be largely serviced by solar, with more diversification coming for the 50 GW goal set for 2030.
“As I look at the second half of the decade, we will still see massive growth in solar. But it also sees the complementarity coming through from onshore and offshore wind,” he said. “The one concern I don’t have is a poverty of options.”
The pace of the energy transition’s prospects has been “accelerated by COVID," he added. “This idea of 'build back better' is actually how you can create...the energy industry, the future, rather than just the past.”
Green hydrogen is the perfect example of this. BP has partnered with offshore wind giant Ørsted to provide green hydrogen for a refinery in Germany, initially a 50 MW electrolyzer, with a plan of scaling to 500 MW. Lightsource BP is part of an exploratory project in Australia to develop a wind- and solar-powered green hydrogen export hub of up to 1.5 GW.
Those numbers might sound as ridiculous as selling U.K. solar power for £0.04 per kilowatt-hour sounded in 2010. “Three years ago nobody was talking about green hydrogen in any great degree of analysis,” Sanyal said.
Then again, whenever the industry thinks the forecasted pace of change is too fast, it always ends up happening “way, way faster," he said. “That’s the cycle in this industry.”