In October 2018, the UN released a report1 from the world’s leading climate scientists warning that we, as a planet, have only 12 years to limit global warming to 1.5 degrees Celsius above pre-industrial levels. While we are currently at 1-degree Celsius, limiting warming to just half a degree over the next 12 years will require a 45% reduction in current global emissions. There is no single, easy solution, but one of the ways we can have the most positive impact on our environment is changing the way we power our homes, our cities, our offices and our factories.
It makes sense then that one of the fastest-growing sectors in sustainable investment is renewable energy, including hydropower, biomass, and geothermal power, but especially wind and solar. A report published in January,2 valued the renewable energy market at $1.5 trillion in 2017 and projected it to reach $2.2 trillion by 2025.
Longroad Energy (“Longroad”) is an independent developer and operator of wind and solar projects throughout the United States. Formed in 2016, Longroad’s management team have extensive experience in the renewable energy industry. Longroad is backed by Infratil Limited (“Infratil”) (a New Zealand-based infrastructure investment company) and New Zealand Superannuation Fund (a New Zealand sovereign investment fund), both clients of HSBC New Zealand.
“Thanks to our strong relationship with Infratil, our US team was introduced to Longroad early in their search for a unique type of financing,” says Helen Ye, a US-based relationship manager at HSBC.
“Longroad's management team needed the funding to support their development business and growth plans in the US – HSBC delivered on this by offering a sizable and distinctly structured Standby Letter of Credit Facility (SBLC). Longroad’s successes in developing renewable energy projects, one of the fastest growing sectors in sustainable investment, made this the perfect opportunity for HSBC to support.”
In early 2018, when Longroad sought funding for a new wind farm development project in Texas, the Rio Bravo Wind Project, it was able to leverage HSBC’s long-standing relationship with Longroad’s sponsors Infratil and the New Zealand Superannuation Fund. This early support for Longroad and HSBC’s industry expertise in the renewable energy sector connected HSBC’s US relationship team to service Longroad’s special banking needs.
“Infratil and the New Zealand Superannuation Fund are sophisticated and professional investors, both with a very good understanding of the global renewable energy market,” says Longroad CEO Paul Gaynor.
“Both investors believe in the US renewables market and have been very supportive of our growth plans. While the time zone differences are sometimes challenging, there is a fundamental level of trust that makes it work.”
The Rio Bravo Wind Project, is a 238 MW wind farm development project in Starr County, Texas, incorporating 66 Vestas 3.6 MW V136 wind turbines. HSBC partnered with KeyBanc, CIBC, Zions Bank and National Australia Bank to provide a tailored solution involving complex and unique terms for the Rio Bravo Wind Project’s construction financing. The construction costs are approximately $300 million, with Longroad investing approximately $100 million as a sponsor.
The Longroad transaction demonstrates the role a global bank like HSBC can play for a company looking to disrupt an industry that desperately needs it, and two companies on the other side of the world looking to fund exactly that. “It's about the bank's ability to leverage its global network,” says Shareef Omar, a New Zealand-based Senior Relationship Manager at HSBC, who covers Infratil.
“The global reach has been very impressive,” says Gaynor. “It is great to work with an institution that has offices in New Zealand and right up the road from us here in Boston; the execution is seamless. We were impressed with HSBC’s ability to quickly understand the deal and put a solution in place that fit. We look forward to repeating the experience.”
With a huge international network across 71 countries and territories, HSBC’s global presence and in-country banking expertise provides a competitive advantage to execute solutions.
“For a bank customer to be able to undertake all expansion and banking requirements through one organisation, from cash management, project and structured finance, trade finance, capital markets, across a number of jurisdictions and right across the network, aligns with our strategy as a global bank,” says Omar.
Omar says HSBC pledges to provide $100 billion in sustainable financing and investment by 2025 to tackle climate change and support sustainable growth. HSBC US hopes to continue supporting future renewable energy projects launched by Longroad. “What works really well is having a global team and a global view of the Infratil, New Zealand Superannuation Fund and Longroad's relationship and supporting them through their various funding initiatives”.