Solar Power Projects Require Lower Debt-Service Ratio than Wind Projects

Solar power projects typically require a lower debt-service cover ratio to achieve investment-grade status compared to wind projects, according a recently released report from Fitch Ratings. Electricity production from solar projects analyzed across the U.S., Europe, the Middle East and Africa have tended to exceed initial independent estimates, while wind projects have more often underperformed against initial estimates.

Fitch analysts looked at data collected since 2010 for wind and 2011 for solar projects in terms of initial P50 forecasts, or the annual production level the project is expected to exceed 50% of the time. They found that 70% of annual observations across solar projects met or exceeded the original P50 levels, while approximately 75% of wind project observations were below the P50 level and 43% were significantly below.

“Wind project underperformance is due to three factors,” Fitch said. “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 U.S. last year. And some wind projects have also been hit by problems with equipment.”

Solar projects, meanwhile, have benefitted from better-than-anticipated 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,” Fitch analysts said. “They are also more resilient to downside scenarios, as shown by stronger financial metrics under one-in-100-year generation assumptions.”

Fully contracted, fully amortizing solar photovoltaic projects achieve an investment-grade rating from Fitch after achieving a 1.2x debt-service coverage ratio threshold, while the ratio for wind power projects is 1.3x.

– Nicholas Stern, managing editor

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