Bluefield Solar Income Fund (BSIF) has announced that it has signed a memorandum of understanding between it and GLIL Infrastructure (GLIL) to form a long-term strategic partnership which commits it and GLIL to investing together into UK focused solar assets, from development through to operational plants. GLIL is a partnership of UK pension funds, investing into core UK infrastructure, including Local Pensions Partnership Investments, Greater Manchester Pension Fund, Merseyside Pension Fund, West Yorkshire Pension Fund and Nest, and has a £3 billion portfolio of infrastructure assets. The strategic partnership is set to enhance income diversification and facilitate de-leveraging of BSIF’s portfolio.

Under the partnership, BSIF will invest £20m of equity, alongside £200m from GLIL, into a UK based solar portfolio and repay £10m of its revolving credit facility (RCF). There is also a provisional agreement for GLIL to acquire a 50% stake in a portfolio in excess of 100MW currently owned by Bluefield Solar, in line with current valuation, in early 2024. The agreement also commits BSIF and GLIL to funding a selection of BSIF’s development pipeline. There are three distinct phases to the strategic partnership and BSIF’s board reiterates its guidance of a raised full year dividend of not less than 8.80pps for the period ending 30 June 2024 (increased from 8.60pps paid for the period ended 30 June 2023).

Phase one

In the first phase, the strategic partnership has agreed the acquisition of a 247MW portfolio of UK solar assets from Lightsource bp (the ‘Lightsource bp Portfolio’). The Lightsource bp Portfolio is predominantly diversified across southern and central England and comprises 58 operating sites: 184MW backed by Feed in Tariff (‘FiT’) subsidies, 15MW by Renewable Obligation Certificates (‘ROCs’) and two subsidy free projects totalling 48MW. Through the period 2023 to 2035, the proportion of fixed and regulated revenues from the portfolio is projected to be approximately 80%. The acquisition raises the level of regulated revenues in the Bluefield Solar portfolio, whilst also increasing the proportion of FiT income.

In phase one, Bluefield Solar is investing £20m, or 9% of the equity, with GLIL investing the balance. BSIF will fund the acquisition using earnings which arose in the financial year ended 30 June 2023, after the payment of dividends, debt amortisation and the Electricity Generator Levy (‘EGL’). In addition, Bluefield Solar will use a further £10m of earnings to pay down a portion of its RCF. Total retained earnings before this announcement were approximately £60m. Following the Lightsource bp Portfolio acquisition and the partial repayment of the RCF, the Company’s UK holding companies’ RCF balance will stand at £167m, with long term amortising debt being £430m. Overall, BSIF’s UK holding companies and its subsidiaries have total outstanding debt of £597m, with a leverage level of circa 41% of Gross Asset Value (broadly unchanged from 30 June 2023).

The acquisition is conditional on the joint venture between Bluefield Solar and GLIL being an approved buyer under the National Security and Investment Act 2021 as the parties have a combined portfolio generation capacity of over 1GW. This is expected in January 2024.

Phase two

In the second phase, GLIL has provisionally agreed to acquire a 50% stake in a portfolio of more than 100MW of operational UK solar assets currently owned by BSIF (‘Bluefield Portfolio’). The provisional acquisition price is in line with the BSIF’s current valuation. The Strategic Partnership intends to reach financial close in the first half of 2024. The sale of a stake in the Bluefield Portfolio, as described, will provide Bluefield Solar with additional liquidity, the proceeds of which provide the opportunity to continue to pay down the drawn RCF.

Phase three

In the third phase, BSIF and GLIL intend via the strategic partnership to commit capital in a selection of the Company’s development pipeline, assuming market conditions are supportive. The identified development assets are expected to be grid connected over the next two to three years.

Comments from John Scott, chair of Bluefield Solar Income Fund

“Current capital market conditions make it difficult for us to raise new capital using the instruments which have served the Company and its shareholders well through the past ten years.  In response, the Bluefield Solar board has been evaluating how best to continue our development programme, while maximising value for our shareholders over the long term.  The strategic partnership with GLIL is an exciting and significant development for the Company; it creates the opportunity for both parties to invest in the sizeable renewable energy pipeline which our Investment Adviser has identified, while responding to shareholder feedback in reducing our short-term debt position.  The world is crying out for more solar power and COP28 has called for a tripling of capacity by 2030.  We see tremendous potential in this partnership as a means to help Bluefield Solar play its part in achieving this goal.”

Comments from James Armstrong, Managing Partner, Bluefield Partners, Investment Adviser to Bluefield Solar

“We have been listening to feedback from our shareholders and the strategic partnership with GLIL enables us to deliver on a number of key areas simultaneously: to continue to keep investment momentum in a difficult time for public market infrastructure funds and judiciously diversify the portfolios revenues; to provide an additional external validation of asset values; to create additional liquidity and lower the Company’s overall debt burden; and to partner with a like-minded investment group.  As a long-term investor into solar assets, GLIL is the ideal partner for a company like Bluefield Solar, sharing our multi-decade view of asset management.  We have always focused on the long-term interests of the shareholders, and we believe this strategic partnership can deliver short-term solutions and long-term benefits to Bluefield Solar investors.”

Comments from Chris Rule, Member of the GLIL Infrastructure Executive Committee

“Entering into a long-term strategic partnership with one of the most respected and leading asset owners in this sector is very exciting for GLIL.  Being able to acquire and develop further renewable energy assets is very important for our Members, all of whom are deeply committed to investing in the energy transition and working towards a sustainable net zero economy.”