Fitch Ratings‘ analysis of rated wind energy projects across EMEA, the U.S. and Latin America, as well as solar photovoltaic (PV) energy projects across EMEA and the U.S., shows electricity production from solar projects has tended to exceed initial independent estimates, while wind projects have more often underperformed against expectations. The more predictable nature of solar power is reflected in our ratings through the lower debt-service cover ratio a solar project generally needs to achieve investment-grade status compared to a wind project.
We compared actual production data from Fitch-rated renewable projects against the initial P50 forecasts (the annual production level the project is expected to exceed 50% of the time). The study takes into account data gathered since 2010 for wind and since 2011 for solar, and excludes ramp-up phases. We found 70% of annual observations across solar projects were at or above the original P50 levels, and only 3% were significantly (more than 10%) below the initial forecasts, which are provided by independent experts.
But around three-quarters of wind project observations were below the P50 level and 43% were significantly below. These numbers exclude the onshore wind Breeze transactions, which we do not consider representative of the broader wind sector and whose bonds are low non-investment grade.
Wind project underperformance is due to three factors. The greater technical challenge in forecasting led to some initial overestimation of power production. Higher natural resource volatility has affected some projects, including unusually low wind in the Western US last year. And some wind projects have also been hit by problems with equipment.
In contrast, solar projects have benefitted from better-than-expected solar irradiance and plant availability. The track record of solar projects is shorter, but they clearly have lower operational risk, better generation performance and lower volatility than wind projects. They are also more resilient to downside scenarios, as shown by stronger financial metrics under one-in-100-year generation assumptions.
This is reflected in the 1.2x debt service coverage ratio that we use as an indicative threshold for a fully contracted, fully amortising solar PV project to achieve an investment-grade rating. The threshold ratio for a similarly structured wind power project is 1.3x, as set out in our “Renewable Energy Project Rating Criteria”.
News item from Fitch Ratings