Webinar Overview - Fitch Ratingsc432b5b3... · Webinar Overview • Fitch Renewable Energy Project Portfolio Summary • Rating Approach • Technology Risk Comparison • Completion

1 www.fitchratings.com

Webinar Overview

•  Fitch Renewable Energy Project Portfolio Summary

•  Rating Approach

•  Technology Risk Comparison

•  Completion Risk

•  Operation Risk

•  Q&A

•  Revenue Risk – Volume and Price

•  Financial Analysis

•  Indicative Coverage Ratio Profiles

•  Renewable Examples – Solar and Wind

•  Q&A


Fitch Renewable Energy Project Portfolio

•  Over US$52 billion in loan issuances and loan requests

•  33.7 GW capacity

•  Average debt of $1,412/kW, $371MM/project

•  Average debt tenor of 18 years

•  Rating case average debt service coverage ratio of 1.47x

•  Includes 64 sponsor applications for the U.S. DOE Loan Guarantee Program

Biofuel13%

Geothermal6%

Hydro11%

Other7%Solar

25%

Wind38%

141GlobalRenewableEnergyProjects


Rating Approach for Renewable Energy Project Debt

•  Rating Criteria Reports Ø  Master, Wind, Solar, Thermal

•  Full and timely repayment of debt Ø  Investment grade ratings are ‘BBB-’ and higher, reflecting very low probability of

default

•  Qualitative and quantitative aspects of proposed debt financing Ø  Assess Key Drivers: Completion, Operation, Revenue (Volume and Price) and Debt Structure Ø  Stronger, Midrange, or Weaker assessments Ø  Primary quantitative metric is Debt Service Coverage Ratio (DSCR)

•  Cash Available for Debt Service (CFADS) divided by Debt Service (DS) •  Cash cushion indicated by extent CFADS exceeds DS •  As reflected by DSCR > 1.00 times (x)

•  Peer comparisons


Renewable Energy Technology Risk Comparison

Ope

ratio

n R

isk

Completion Risk Low High

Wind

Geothermal

Solar (PV) Hydro

Solar (CSP)

Biomass


Completion Risk

Cost Adequate budget given scope and comparison to peers Liquidity for cost overruns and potential contractor replacement

Schedule Realistic implementation timeframe Adequate allowance for delays

Performance Contractors’ Relevant Experience: complexity, scale and interface with other contractors

Contract Structure: scope, cost pass-through & credit enhancement

Contractor Replacement Potential: availability of alternate contractors or suppliers in a timely manner

Performance Testing


Operation Risk


Q & A


Revenue Risk - Volume

•  Renewables cannot achieve Stronger assessment for volume risk Ø  Sales agreements energy only, no fixed capacity payments

Ø  Cannot completely mitigate possibility of low resources Ø  Curtailment similar but contractually manageable

•  Energy generation forecasts prepared by resource consultants

•  Probabilities of exceedance Ø  P50 vs. P90 vs. P99 for wind and solar

•  Rated renewable energy project portfolios Ø  Wind vs. solar experience

Ø  Wind portfolio report Ø  Early results for solar projects


Renewable Energy Production Forecasts

1.00x

1.10x

1.20x

1.30x

1.40x

1.50x

1.60x

1.70x

1.80x

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Deb

tServiceCoverageRatio

Wind/NewerProject/SingleSite

P50 P90 P99

P50

P90

P99

1.00x

1.10x

1.20x

1.30x

1.40x

1.50x

1.60x

1.70x

1.80x

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20Deb

tServiceCoverageRatio

Solar/EstablishedProject/DiversifiedPortfolio

P50 P90 P99

P50

P90

P99


Revenue Risk - Price

•  Fixed price power purchase agreement for Investment Grade ratings Ø  Investment Grade counterparty

Ø  Limited tail risk

Ø  Limited merchant exposure

Ø  Achievable minimum delivery requirements, low termination risk

Ø  Supportive regulatory regime

Ø  Compensated curtailment


Financial Analysis

Fitch Base Case •  Energy production subject to 0%-10% adjustment (existing or greenfield) •  Availability adjustments based on technology, reflecting ramp up aging •  O&M expense adjustments based on technology to reflect full life cycle costs

Single and Combination Stress Cases •  Minimum energy production •  Break-even Operations and Maintenance (O&M) Expense •  Break-even availability •  Combination break-even scenarios

Fitch Rating Case •  One-year P90 energy production with other potential production adjustments •  Base case availability subject to incremental decreases •  Base Case O&M expense subject to incremental increases


Indicative ‘BBB’ Category Coverage Ratios


Renewable Examples: Solar Star & Shepherds Flat

Project Solar Star Shepherds FlatFitch Rating 'BBB-' Stable 'BBB-' StableCapacity (MW) 579 845 Rated Debt ($MM) 1,325 1,200 Debt /MW ($MM) 2.29 1.42 Debt term 20 21.5 COD 2015 2014Completion Risk Stronger n/a Revenue Risk - Price Midrange Midrange Revenue Risk - Volume Midrange Midrange Operating Risk Midrange Midrange Debt Structure Midrange Midrange Base case DSCR avg. (x) 1.51 1.75 Rating case DSCR avg. (x) 1.32 1.41 Rating case DSCR min. (x) 1.31 1.31


Q & A


Disclaimer

Fitch Ratings’ credit ratings rely on factual information received from issuers and other sources. Fitch Ratings cannot ensure that all such information will be accurate and complete. Further, ratings are inherently forward-looking, embody assumptions and predictions that by their nature cannot be verified as facts, and can be affected by future events or conditions that were not anticipated at the time a rating was issued or affirmed.

The information in this presentation is provided “as is” without any representation or warranty. A Fitch Ratings credit rating is an opinion as to the creditworthiness of a security and does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. A Fitch Ratings report is not a substitute for information provided to investors by the issuer and its agents in connection with a sale of securities.

Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch Ratings. The agency does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS AND THE TERMS OF USE OF SUCH RATINGS AT WWW.FITCHRATINGS.COM.

New York 33 Whitehall Street New York, NY 10004

London 30 North Colonnade Canary Wharf London E14 5GN

Documents

Webinar Overview - Fitch Ratingsc432b5b3... · Webinar Overview • Fitch Renewable Energy Project Portfolio Summary • Rating Approach • Technology Risk Comparison • Completion