Inaccurate forecasts of project capacity factors will dog the wind power industry for the near term and could result in overleveraged wind power projects, Fitch Ratings warns. However, we believe the sector should be able to manage the financial challenges in operating and maintenance (O&M) expenses, transmission curtailment and equipment failures in the same period.
In the coming weeks Fitch will publish a complete report describing actual performance of our monitored wind project portfolio and how we assess these risks for bondholders.
In the short run, the demonstrated difficulty with accurately predicting wind power project output will continue to create risk for bondholders. While newer projects generally reflect more conservative projections and forecasting methodologies have been refined over time, wind resources remain stubbornly difficult to predict. Fitch will continue to stress energy production forecasts based on the experience of the resource consultant, quality of reference data, project location and topology, wind turbine equipment and manufacturer, and other relevant factors.
In our view, some of the projects we rate have adequately managed O&M expenses (which include labor, services and replacement parts), and increased O&M expenses are rarely the sole cause of financial underperformance. O&M services are often provided by the equipment manufacturers, reducing expense volatility even after original warranties expire. However, the cost of replacement parts and frequency of replacement can increase significantly for projects without service contracts. The impact is deeper when parts availability is strained for weaker power suppliers. Serious equipment issues including serial defects are likely to diminish as generation technology matures, with the trend toward larger wind turbine generators introducing incremental technology risk.
Fitch also believes transmission curtailment will be manageable if projects develop according to thoughtful planning. Curtailment rates vary widely by region. In west Texas, for example, wind and wind farms are plentiful but transmission is not. The careful synchronization of transmission projects and wind generation should be achievable.
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