Rating Wind Power projects

Transcription

1 Rating Wind Power projects Mónica Ponce Associate Director Infrastructure & Utilities November 14, 2012 Copyright 2012 by Standard & Poor s Financial Services LLC. All rights reserved.

2 The BILLION Dollar Question Can a wind power project be rated Investment Grade? The answer is YES My goal today is walk you over the key rating factors that we identified in Oaxaca II and Oaxaca IV that allowed the project to get to BBB-. 2.

3 Oaxaca II and Oaxaca IV Oaxaca II is a 102 MW wind farm located in the Isthmus region of Tehuantepec in the state of Oaxaca, 17 kilometers away from the Pacific Coast. The wind farm is comprised of 68 wind turbines laid out in three sections. The project reached commercial operation on Feb. 6, Oaxaca II, issued $148.5 million senior secured notes at a XX interest rate and is due December 2031 Oaxaca IV is a 102 MW wind farm located in the Isthmus region of Tehuantepec in the state of Oaxaca, 17 kilometers away from the Pacific Coast. The wind farm is comprised of 68 wind turbines laid out in three sections. The project reached commercial operation in March 5, Oaxaca IV issued $150.2 million senior secured notes at a XX% interest rate and is due December

4 Key Credit Considerations 4.

5 How did the Oaxaca Projects reach IG? Strengths 20 year PPA with strong offtaker, CFE, which eliminates price risk Favorable opinions about about wind-availability on Oaxaca and long term reference stations near the wind farm. 20 year O&M Contract Proven Technology Adequate DSCR under our base case scenario of average 1.45x and minimum 1.43x. Weaknesses The cash flow depends directly on energy production that relies on the wind resource. Reliance on one type of wind turbine technology. O&M costs for the wind energy industry have proven to be higher than initially projected. 5.

6 Wind Resource We believe that the State of Oaxaca benefits from excellent wind resource conditions, supported by different favorable technical opinions and a track record of wind availability. The wind availability study for Oaxaca II was prepared by the independent engineer consultant, Alatec, which has worked on more than 150 wind projects totaling 8,100 MW. Alatec based its assessment on on-site data from four stations at Oaxaca II with near-hub height wind data. In addition, there are long-term reference stations near the wind farm. The study collected more than five years of onsite data and almost 10 years of long-term reference data on or nearby the project, which gives more certainty about the availability of the wind resource at the site. According to the independent engineer, Alatec, there has been a consistently unidirectional strong wind with an average speed of m/s resulting in low wind variations. Also, Oaxaca benefits from one of the most consistent wind resources worldwide. The peak wind season is from October to March, while the lowest wind levels occur from April to September 6.

7 Contractual Foundations and Strong Offtaker The generated revenues are fully contracted under the 20-year, dollardenominated, fixed price PPA with CFE. The PPA is a take-or-pay contract for 100% of the wind farm's net energy production. The price for the projects is fixed and the formula to adjust payments considers O&M costs which are adjusted according to the U.S. producer price index and non-o&m related costs. If the produced energy is lower than expected, there are no penalties. We believe that these elements provides the projects with a strong contractual foundation and mitigates market risk. However, volume risk remains, as it depends on on-site wind availability. Furthermore, in our opinion CFE has demostrated a strong commitment to the independent Power Producer scheme. 7.

8 What about the Sponsor/Operator? Acciona, the sponsor and operator has experience in operating wind farm worldwide. More importantly the company has succsesfully been operating the Eurus wind farm in the state of Oaxaca for the past couple of years with an average avilabilty rate of 98%. It is important to highlight that even if there is an early termination of the PPA contract between Oaxaca II and CFE, CFE has the right to purchase the asset for a price that in all cases includes for its calculation among other things, the outstanding debt of the project. However, if CFE decides not to purchase the assets, they can intervene the project for its operation an continue to make the monthly payments to the project for its debt service. We believe that the fact that the sponsor/operator may be replaced if necessary, mitigates any risk that could arise from the operator. 8.

9 Financial Strength Under our base-case scenario, which incorporates a one-year P90 96% availability scenario, the expected minimum DSCR is 1.43x and the average DSCR is 1.45x which reflects our expectations of strong cash flow generation. Moreover, we believe that these levels of DSCR s somewhat mitigates potential cahs flow volatility derived form wind conditions. Under the PPA, CFE payments are made in US dollars mitigating any currency missmatch. The capital structure is backloaded with around 46% of the amortization occuring on the last quarter of life of the note s term. However, given that the debt amortization matches the revenue generation we believe it to be mitigated. There is no refinancing risk as the debt matures a couple of months before the PPA expires. 9.

10 Liquidty of the projects We believe the projects liquidity to be sufficient cosnidering the following: Six month debt service reserve. Six month O&M reserve. Our expectations of adequate DSCR s throughout the life of the notes with a minimum of 1.43x and an average of 1.45x 10.

11 The short-anwser To sum up the key credit strengths that can mitigate the dependence of cash flow generation on wind availability which is seasonal and beyonds management control are: Certainty in the wind resource with many years of sata information. Investment grade off-taker Strong contractual foundation Limited market risk Robust financial structure 11.

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