Fitch Ratings has affirmed the Long-Term rating assigned to Energia Eolica S.A.'s (Inka) US$204 million senior notes maturing in 2034 at 'BBB-'.
Rating outlook is stable
The rating is driven by Inka's 20-year fixed-price power purchase agreement (PPA) with Peru's energy system operator, which is partially offset by penalties for underperformance and some curtailment risk as more renewable projects connect to the grid.
Also, the rating reflects the moderate operational risk from an agreement with
Vestas, for which the 10-year term is only half of the debt tenor.
"The project has adequate metrics, with rating case debt service coverage ratios (DSCRs) averaging 1.30x, with few annual deviations, offset by a need to draw small amounts from the reserve accounts in specific quarters," it said.
However, strong break evens of -25.3% energy production and +188% of O&M costs demonstrate good cash flow resilience to temporary stresses.
Moderate Operational Risk (Operations Risk: Midrange)
Likewise, the rating reflects the risks associated with the operations of wind farm facilities over a 20-year term. Favorably, the project benefits from proven turbine technology and initial operating support from the manufacturer.
Plant performance should experience low variability, as Vestas will operate the turbines under a 10-year agreement with a 97% availability guarantee. A three-month operating and maintenance reserve provides short-term liquidity for unanticipated cost escalations.
Low-Variability Wind Resource (Revenue Risk - Volume: Midrange)
Furthermore, site wind measurements for initial certification were recorded for 5.5 years at one meteorological tower (Mast Talara-1) and 3.75 years at another (Mast Talara-2).
The project is located in flat terrain, and the Independent Engineer opined the long-term hub-height wind speeds estimates are reasonable and that the AWS Truepower (AWS) model appears to have performed reasonably well at project sites.
P50 levels were estimated based on accepted methods, and the one-year P90 and P50 ratio is 15.5%. The project exceeds breakeven metrics using a one-year P99 energy production scenario in the year of minimum coverage, under Fitch's base case assumptions.
Fully Contracted Revenue (Revenue Risk - Price: Midrange)
A 20-year fixed price power purchase agreement (PPA) with the Peruvian electric grid as off-taker accounts for 100% of the project's generated revenues, viewed as systemic risk and with credit quality of that of the sovereign (Peru: LT IDR 'BBB+'/Stable).
The project is exposed to a discount in tariffs to the extent annual energy production falls below the Awarded Energy. As a partial offset, the concession allows for a one-time reduction in energy production after a four-year period of underperformance to minimize future penalties.
Curtailment risk is low in the intermediate term but could rise as the country derives an increasing share of energy from renewable sources.
Adequate Debt Structure (Debt Structure: Midrange)
The rated debt is fixed-rate, fully amortizing through 2034. The structure includes a three-month O&M reserve account and a six-month debt service reserve account.
The cash funded debt service reserve was replaced by a letter of credit (LC) in the amount of USD8.5 million backed by the sponsor, Contour Global Plc. (LT IDR 'BB-'/Stable). The distribution lock-up trigger of 1.20x DSCR is consistent with similarly rated wind projects.
(END) NDP/RMB
Published: 12/13/2018