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Rating Criteria for Solar Power
Sector-Specific Criteria Projects
Utility-Scale Photovoltaic and Concentrating Solar Power
Project Analysis
• Financial strength and experience of sponsors, particularly with newer technologies.
• Reliable and accurate third-party reports on scope and quality of a solar resource
and project design.
• Experience and financial strength of construction contractor with similar projects.
• Terms of the construction contracts, and the complexity and time scale of the
construction phase.
• Strength of warranties and/or guarantees for project design, parts, and operations.
• Technology risk associated with the project.
• Strength / weakness of the project cash flow stream.
Limitations of Methodology
These criteria outlines Fitch’s approach for evaluating the risks that solar power
projects are generally expected to face, including short-term external shocks and
individual project bankruptcies. It does not cover circumstances such as a significant
change in energy demand, a complete realignment of the energy or electricity sector as
currently structured in individual countries, or the potential impact of climate change.
If one of these or similar events were to occur, Fitch would review the criteria and
make appropriate changes to the methodology and to ratings covered by these criteria.
Manufacturers
Utility-scale solar power generation is a nascent sector with a proliferation of
equipment manufacturers of relatively modest experience whose market presence may
or may not endure. As such, Fitch views very few equipment manufacturers as
investment-grade credit quality, making satisfactory completion less certain. Without
an established history of successful manufacturer performance, projects will face
greater stress in Fitch’s financial analysis. Whether a manufacturer constrains a
project’s rating is dependent upon whether the technology is proven; the complexity of
the project; the manufacturer’s direct experience with the proposed technology;
reliability for timely equipment delivery; ease of manufacturer and parts replacement
in case the manufacturer proves to be unreliable; and financial resources available to
the project to support a change in manufacturer, if necessary.
based upon three factors: the terms of performance coverage (including limitations),
Risk Factor Assessment: the duration of the warranty/guarantee, and the quality of the provider. (◊)
Warranty Providers (◊)
Stronger warranty providers are Traditional manufacturer performance guarantees for PV projects include up to a five-
investment-grade year warranty for solar panel defects, and a power output warranty of 90% of initial
manufacturers that have a long nominal power in the first 10 years and 80% for the full 20 to 25 years. Some of these
history of generally stable warranties are limited by conditions such as guaranteeing output by plus or minus 5%,
operating and financial which Fitch would consider in its financial analysis. Fitch recognizes that PV warranties
performance. While they have are evolving. Future warranties could provide guarantees for degradation on a periodic
strong knowledge of the solar basis such as five-year increments or on an annual basis, which would increase
power sector, they are
conglomerates that are not
manufacturer accountability for specified levels of performance. Inverters are
dependent on nascent sectors warranted for at least five years with an option to extend for 10 years, reflecting
and have national or industry advances in inverter performance. In a few instances, Fitch has observed long-
international market term output warranties based upon a maximum guaranteed degradation rate for
penetration. concentrating PV. For CSP, Fitch has observed that there are various technical
performance guarantees, which currently range from 24 to 36 months.
Midrange providers are
investment-grade The financial analysis in Fitch’s rating case will reflect the performance and duration of
manufacturers concentrated in guarantees of investment-grade counterparties, mitigating the amount of stress in
the solar manufacturing market Fitch’s financial analysis. Warranties from weaker manufacturers will have less weight
or experienced conglomerates in the financial analysis unless backed by strong third-party enhancement. A highly
near investment grade with a rated third-party counterparty such as an insurance provider may back up the
solid financial position to fulfill
guarantees.
performance guarantees of experienced manufacturers. In addition to the credit quality
of the third party, the value of the guarantee in the project rating will depend on what
Weaker warranty providers the third party will guarantee and for how long. Third-party support may come with
include experienced but below limitations that do not match the manufacturer’s warranty. In such cases, Fitch
investment-grade entities or considers the value of what the third-party insurer will cover and considers all other
newer manufacturers with performance areas as exposed to the risk of the manufacturer and technology.
questionable performance,
longevity, and financial Construction Technology Risk
strength. Technology risk in project completion is in Fitch’s view based upon the proven status of
the technology, construction complexity, and scale-up risk. Due to its modularity and
few moving parts, solar PV plant construction is simple and low risk compared with
other forms of power generation. Panels are mounted onto steel support structures on a
flat angle, fixed tilt, or in a tracking position. Installation of panels and structural
support is identical from row to row reducing complexity. While the use of tracking is
more complex, it is still considered to be proven. The inverter converts the panels’
direct current (DC) electricity to alternating current (AC) electricity to match the
distribution grid. Scale-up risk is mitigated by the modular nature of plant assembly.
CSP construction is more complex, carrying greater risk as it is composed of a solar
collection field, power block, and in some cases, thermal storage capability. Part of
CSP construction is modular, as a solar collection field is installed. The remaining
construction is similar to a traditional fossil fuel plant, which includes installation of a
steam generator, steam turbine, condenser, cooling towers, and plant control systems.
CSP scale-up risks may center on the increasing area of the solar collection field and
the solar receiver but generally scale-up risk can be mitigated with multiple rather than
larger solar receivers. Fitch will engage with the third-party engineer regarding how
effective the project’s design can mitigate scale-up risks.
Fitch expects a third-party engineering report to assess the make up and timing of solar
Risk Factor Assessment: project operating costs.
Operating Contracts
(◊) Fixed-price operating contracts that include overhaul costs and lack a pass-through of
Stronger O&M contracts for out-of-pocket charges are the most favorable to solar projects due to the lack of cost
solar projects include fixed- volatility. If the operating contract is not an all-in fixed-price contract, Fitch looks for a
price agreements with the major maintenance reserve to cover the cost of inverter or turbine overhauls, as well as
operator that include panel or heliostat replacements, on a regular cycle. An O&M reserve would also reduce
overhaul costs and exclude volatility by providing flexibility to cover incidental higher costs of cleaning, monitoring,
reimbursement of out-of and maintaining the plant on an annual basis. Fitch finds these measures favorable
pocket expenses, effectively mitigants to rising or unplanned costs. Inflation-based contracts, cost-plus contracts,
transferring operating cost
and other similar arrangements will be evaluated for their effects on cash flows. Bonus
risk to the operator.
incentives are considered a useful tool to keep the operator focused on optimal
Midrange operating contracts performance within existing costs.
reflect a fixed or escalating
management fee plus out-of-
Affiliate-operator agreements that appear underpriced are considered a credit negative
pocket reimbursements, based on the possibility, not the expectation, that an affiliate-operator could be
performance incentives, and replaced with a higher cost third-party operator in the future. Fitch would address this
an accrual reserve for major risk by adding additional stress to the operating contract to test the level of higher
maintenance prior to the costs that could be borne by the project, and will use stresses that are consistent with
expense. the rating of the affiliate-operator. Both incentives and possible conflicts are
considered with respect to an affiliate-operator. However, the key rating issue remains
Weaker operating contracts the alignment of operator’s interest with the rated debt holders.
include cost-plus fees and out-
of-pocket reimbursements and Major costs of PV projects are expected to be lower than for a typical power project
lack performance incentives. due to the solid state nature of PV technology with no moving parts. Costs unique to PV
projects include inverter repair or replacement, and PV panel replacement due to
defect or breakage. Overhaul costs for inverters can range from every five to 10 years.
Major costs for CSP projects are expected to be higher than PV costs, more in line with
a typical thermal power project, due to their complexity and various moving parts.
Costs that are distinct for CSP plants compared with PV plants include turbine overhaul
(much like a traditional thermal power plant), input water costs for running and cooling
the turbines, regular replacement of the heat transfer fluid to maintain maximum
conductivity, thermal storage piping, and/or tank replacement due to salt corrosion,
harmonization and calibration of tracking systems, and mirror replacement primarily
due to wind breakage. Cleaning of heliostats is another unique cost to CSP plants,
however, these costs are usually fairly small in the overall plant budget. Fitch also
expects CSP turbines to be overhauled periodically based on usage and third-party
engineering assessments.
A unique operating cost risk that affects both PV and CSP relates to replacement parts.
As part of a nascent solar energy sector, manufacturers may not remain in business to
provide needed parts over the long term. In other cases, technological advances may
render existing equipment obsolete. The ability and the cost to replace needed parts
could be substantially different than originally budgeted. As a result, an assessment
from the third-party engineer on budgeting for proprietary parts or parts needed in
evolving technologies in O&M and major maintenance adds strength to the risk
evaluation. Verifiable ability to substitute parts or the technology’s ability to achieve
commodity-like availability would be considered stronger. If the operator relies on
replacement parts from a weaker manufacturer, then the rating may be constrained to
the rating of the weaker manufacturer.
With limited operating experience for solar plants in contrast to the terms of the debt,
Fitch’s analysis will include additional O&M stress to PV plants after year 15, as well as
to availability. Fitch applies these additional later-year operating stresses to PV plants
only based on the view that O&M stresses for CSP are analogous to O&M stresses for
traditional thermal power plants, which reflect changes in the balance of plant. This
criteria report bases the O&M stresses for CSP on Fitch’s existing “Rating Criteria for
Thermal Power Projects,” June 15, 2010 (thermal criteria), which does not currently
apply additional O&M stress in the out years.
Supply
Sunlight is an intermittent renewable fuel source. Similar to other renewable energy
sources, it is not available on demand and its quantity can vary on a daily basis.
Therefore, Fitch expects that each utility-sized solar project will have a third-party
assessment of the variability of solar resource for the particular project site in order to
better quantify the fuel supply. The specific solar irradiance at the project site will be
the basis for the project’s expected electric energy output, measured in megawatt-hours
(MWh), and also the basis for the project’s expected cash flow to meet debt obligations.
Fitch looks to a third-party solar resource supply assessment to address three major
issues: (1) the quality of the data used to determine the characteristics of the solar
resource; (2) a long-term estimate of the average electric energy output from the
project, based on the solar resource evaluation and the design of the project; and (3)
various statistical probability scenarios of the expected electric energy output.
Readings of the various types of solar radiation are collected using specific
instruments. Pyroheliometers are used to measure DNI specifically, and pyranometers
are used to measure GHI, which includes all forms of solar irradiance. A rotating
shadowband radiometer is a specific pyanometer that can measure all irradiance
types as well as atmospheric parameters.
Fitch looks for a minimum of one year, hourly, well-maintained, onsite data for a
Risk Factor Assessment: complete solar resource supply assessment. Shorter data periods than one year will not
Solar Data Sets (◊) capture the full seasonal and diurnal characteristics of solar irradiance at a particular
Most solar data sets Fitch site, and would be considered either midrange or weaker. Confirmation that the
reviews are likely to have instruments used to collect the data were appropriate and properly calibrated and
midrange attributes that maintained is also expected. Fitch has encountered instances in which no onsite, local,
reflect one year or more of or regional solar data is available, and the solar resource consultant had to rely solely
well-maintained, hourly on satellite data to evaluate solar irradiance. While not ideal, Fitch realizes the data
ground-based data within a
constraints, and accepts this weaker data when no other appropriate sources exist.
10-mile radius of the project
site (not onsite). Fitch expects the solar resource consultant to include or recommend a reduction to the
solar resource for the additional bias inherent in a weaker data set.
Stronger solar data sets
reflect actual onsite, 30- A comparison of the project’s solar data to other local or regional data sources is
minute interval or hourly crucial to evaluating overall data quality. Fitch looks for information on each reference
data for one year or more, station’s period of record, elevation, and distance from the project site to validate this
from well-maintained comparison. A high correlation of the project’s data set to the reference station’s data
instruments. set would help to confirm its profile and general accuracy, and would be considered
stronger. A low correlation to a local or regional data, or to a data set far removed
Weaker solar data sets are from the project site, would be considered a weaker data set. Fitch looks for
likely to be exclusively from explanation of any adjustments used by the solar consultant to construct a final data
hourly satellite data without
set of the highest quality given the existing data constraints. The evaluation of the
appropriate adjustments for
data quality and the applied solar data will yield average solar and meteorological resource characteristics for a
technology. particular type of insolation (global horizontal irradiation [GHI] for PV, or direct normal
irradiation [DNI] for CSP) calculated in kilowatt-hours per meters squared (kWh/m2)
either per day or per year.
Finally, Fitch expects the solar resource consultant to create a long-term data set for
the project site using the specific site data (discussed above) and an external, long-
dated “typical meteorological year” (TMY) data. TMY data sets are time series data,
modeled from satellite data, and are adjusted to exclude anomalous events such as
volcanic eruptions. Fitch expects the resource consultant to use a reputable long-dated
TMY data set, and to disclose the source.
electric output estimate for solar resource bias, in order to address endemic
measurement irregularities in the data set. Fitch will look to the solar resource supply
consultant, and Fitch experience, for the appropriate bias error estimate.
Fitch also reviews a metric that is unique to PV plants called the performance ratio, or
PR, in relation to the electric output estimate. The performance ratio is a descriptive
statistic, expressed as a percentage that estimates overall energy yield, i.e. the energy
output after losses within the PV system relative to the system’s nominal output. The
performance ratio is calculated as AC MWh output per the DC MW nameplate rating
divided by the plane of array (POA) insolation in MWhs per meter squared, or (AC
MWh/DC MW) / (POA MWh/m2). The performance ratio measures the project’s energy
yield based on factors such as inverter efficiency, wiring, module mismatch,
degradation, module temperature effects, and other system loss factors discussed
above. Fitch regards the performance ratio as a useful data point in its analysis of a PV
plant, but it is not a rating factor.
Finally, Fitch will expect the solar resource consultant to disclose the source of the
computer model used to forecast electric output, and to discuss the suitability of the model.
Resource consultants typically use an industry accepted model that Fitch views as stronger.
In some cases, a solar resource consultant may be asked to use and evaluate output from a
proprietary model developed by the sponsor or technology manufacturer. In this
circumstance, Fitch looks to the third-party resource consultant to indentify the model
developer and justify the use of an affiliate’s model as a substitute.
• A P50 output profile is the long-term annual average output that has a 50%
probability of being exceeded over the term of the debt. A P50 output profile will
also, by definition, have a 50% probability of falling short of this level of output.
This energy production level represents the solar resource consultant’s best
estimate of the average annual electric yield achievable by the project. Fitch uses
the P50 to formulate its base case electric output for a solar plant.
• A one-year P90 is defined as the output level that has a 90% probability of being
exceeded in any given year over the life of the debt, and will provide a smaller
expected output level than a P50. The one-year P90 will also have a 10% probability
of falling short of this output level in any given year over the life of the debt. Fitch
will use a one-year P90 output profile in its rating determination for the debt issue.
Please see Financial Analysis ⎯ Debt Service section for further discussion of
Fitch’s financial cases.
• A one-year P99 output profile will be the lowest output profile, and therefore, the
most conservative. A P99 is the output level that has a 99% probability of being
exceeded in any given year, and a 1% probability of falling short in any given year
over the term of the debt. Fitch uses the one-year P99 as a stress case for rating a
solar project.
A midrange solar resource assessment will provide a P50 and a P90 only, and a weaker
solar resource assessment will provide only a P50 or will not categorize its output as
one of these three basic probability scenarios. Fitch may choose not to rate a solar debt
issue that provides a P50 alone.
Transmission Supply
A final supply issue is transmission availability. Fitch looks for a discussion of the
amount of transmission that either exists or expects to be built in conjunction with the
solar project, and a determination if the transmission plan is sufficient or in excess of
the maximum output of the solar project. Part of the permitting for greenfield utility-
scale solar projects often includes an interconnection agreement with the grid manager
and/or direct off-taker of the project, and Fitch expects to examine this agreement for
sufficiency, timeliness, and appropriate rights of way. Fitch also looks to the solar
resource consultant to opine on this agreement. Any history of curtailment by the grid
manager or off-taker, or congestion issues that could lead to possible unplanned
curtailment, lower plant performance, or operational issues should be considered in
transmission supply. Rooftop-mounted distributed generation systems are not
dependent on transmission availability and would not face transmission supply
limitations.
Risk Factor Assessment:
Solar Technology (◊) Technology (◊)
Solar technologies that have Fitch evaluates solar technology based on its long-term ability to provide electric output
a substantial and proven and revenues to service debt. Fitch’s major concerns surround the technology’s
track record are considered complexity, commercial viability, performance uncertainty, and utility-scale applicability.
to have less performance
uncertainty and therefore There are two classes of solar projects: PV and CSP. The primary difference between
stronger performance the two technologies is how they use the sun’s rays to generate electricity. In a PV
attributes. These plant, sunlight is converted directly into electricity through the acceleration of
technologies include electrons in a semiconductor material that is embedded in the solar cell that creates an
crystalline silicon PV and electrical current. In a CSP plant, the sun’s heat is concentrated by mirrors or lenses
parabolic trough CSP
onto a working fluid, such as a hydrocarbon fluid, which heats water into steam and
projects.
turns a conventional steam turbine. Please see the table below for a basic comparison
Solar technologies that have of the two solar technologies.
limited but actual operating
history at the utility scale are Photovoltaic (PV)
considered to have midrange Currently there are three primary variations of PV technologies: crystalline silicon, thin
performance uncertainty. film, and concentrating PV. Fitch attributes crystalline silicon (c-Si) panels, including
These technologies include monocrystalline and polycrystalline, a lower cost and performance uncertainty
some thin film PV from a few compared with other PV technologies based on approximately 30 years of operating
strong manufacturers and history, mostly as a residential and distributed power source and with minimal scale-up
power tower CPS projects.
risk due to their modularity. Thin film panel technologies, including amorphous silicon
Solar technologies that are (a-Si), cadmium telluride (CdTe), and copper indium (gallium) diselenide (CIGS and CIS),
currently emerging, in are attributed midrange cost and performance uncertainty because some of these
development, or in the pilot technologies have a limited operating history of up to five years at the utility scale.
phase, with no actual utility- Finally, concentrating PV (CPV) technologies are currently emerging in the solar power
scale operating history are industry, and therefore entail relatively higher uncertainty in projecting lifetime costs
considered to have higher and performance. Please see Appendix B for a discussion of the current PV technologies.
performance uncertainty and
therefore weaker Concentrating Solar Power (CSP)
performance attributes. Currently, there are four primary variations of CSP technologies: parabolic troughs,
Currently these technologies
power towers, solar dish-engines, and linear Fresnel reflectors. Parabolic trough
include some thin film PV,
concentrating PV, dish-
technologies are the oldest CSP technology, dating back to the mid-1980s as a utility-
engine CSP, and linear scale electricity source, and Fitch attributes the technology relatively low cost and
Fresnel reflector CSP performance uncertainty. Power tower technologies have been available at the utility
projects. scale since the late 2000s, and due to their more recent utility-scale experience, Fitch
attributes power towers a midrange cost and performance uncertainty. Dish-engine and
linear Fresnel reflector technologies are attributed relatively higher cost and
performance uncertainty due to their status as technologies are currently in
development. Please see Appendix B for a discussion of the current CSP technologies.
produces. Other PPAs have more stringent requirements that the project has to achieve
minimal performance thresholds regarding the plant’s availability and capacity factors and
total electric energy output. Fitch will stress the projected cash flow to determine the
project’s capacity to meet PPA performance requirements.
Regulatory Incentives
Countries where solar power, and specifically PV, has been most prevalent have been
those providing effective and efficient incentive/support systems. Although these may
come in various forms such as premiums and quota obligations/green certificates, FITs
have been the most widely used.
FITs are established compensation rates for delivered electric output under contracts
generally ranging from 10 years to 25 years. In some countries, the tariff is indexed to
inflation while in others it is fixed for its entire term. FITs have been adopted
throughout Europe and sporadically elsewhere. As is the case for any industry relying on
government subsidies, the financial performance of solar projects is dependent on such
regulations not being modified within the time frame of the financing. Fitch cautions
that even in countries with strong credit ratings (‘AAA’/‘AA’), the threat to subsidy
stability and longevity exists. Financial pressures and competing national priorities may
force countries to reexamine the amount of subsidies they provide and the pace of
their commitments to develop renewable energy projects. Declining costs of solar
equipment may also drive a reduction in the amount of government subsidies that
countries provide. Fitch recognizes the potential tension between meeting aggressive
renewable energy mandates and sustaining costly subsidies to achieve those mandates.
To this extent, Fitch reviews the relevant regulatory frameworks, also paying attention
to whether the interests of incumbent operators have been preserved in the past when
new laws have been enacted. A change in the regulatory regime that reduces a
project’s subsidy support during the life of the debt will trigger Fitch’s reevaluation of
the project’s credit quality.
In Fitch’s financial analysis, renewable energy credits (REC) and green certificates are
considered in accordance with their market prevalence. In Fitch’s experience, RECs
tend to be a minute part of a project’s revenue composition in the U.S., so Fitch
generally excludes their contribution, unless they are contracted, in the financial stress
scenarios to assess the project’s reliance on a subsidy that is not well-established. In
other countries where green certificates have a longer history and are more significant,
Fitch will stress their variability in its financial analysis.
Structural Features
The structural features of a solar debt issue can have a significant impact on its rating.
Solar debt issues that include a debt service reserve (principal and interest) of at least
six months are considered midrange, while 12 months debt service is considered
stronger. Additional reserves including an operating expense reserve of greater than six
months, accrual of a major maintenance reserve prior to the expenditure, and accrual
of a decommissioning reserve over the life of the plant are each considered stronger.
Cash sweep mechanisms and prohibitions on additional debt are also positive structural
features for the project rating. Fitch will examine exposure to interest rate volatility,
inflation, or currency risk; ownership restrictions; distribution triggers and levels;
liquidity; and payment waterfalls.
Base Case
The base case reflects Fitch’s expectation of long-term sustainable economic and operating
conditions. The Fitch base case is the baseline for surveillance over the life of the debt.
Starting with the sponsor’s base case, Fitch will develop its own base case, incorporating
adjustments to align our performance expectations of the project with the specific
technology operating in similar environments and conditions. The adjustments are based
upon Fitch’s experience and consultation with the third-party engineer. The base case
includes an electric output estimate at P50. Indicative investment-grade debt service
coverage ratios (DSCR) under the base case range from 1.40x to 1.50x and above.
Rating Case
The rating case evaluates the resiliency of the projected cash flow with a combination of
stresses that together simulate a scenario of material underperformance, which is
conceivable but not expected to persist during the life of a PV or CSP project financing.
Fitch typically combines risk factors assessed in the individual stress cases and applies a
combination of stresses that are most likely to affect the plant’s performance. Fitch seeks
to assess with a high level of confidence the probability that a project can meet debt
service obligations. Therefore, Fitch’s rating case is based on a one-year P90 electric
output estimate. The rating case also includes a reduction to the electric output due to
solar resource bias measurement and an adjustment in degradation from the first year of
operation through debt maturity. The availability factor and O&M cost for PV plants will be
adjusted in year one of operation and again in year 16 due to expected declines in balance
of system performance and possible O&M cost increases. While Fitch reviews third-party
engineering estimates of the performance ratio, this metric does not drive the rating.
In evaluating projected financial performance in the rating case, Fitch considers the
overall profile of DSCRs. This profile consists of the average of DSCRs over the life of
the project; the degree that the minimum DSCR deviates from the average; and the
magnitude and frequency with which DSCRs persist below the average. The DSCRs in
the rating case reflect the levels of cash flow cushion available (on top of the
transaction’s available internal liquidity) to mitigate other possible reductions in cash
available for debt service. Some examples of the type of risks that this cushion is
designed to accommodate are:
PV Project Stresses
Electric Output Probability Scenario P50 1-year P90 1-year P99
Solar Resource Bias Adjustment Up to 5% Up to 10% To BE
Annual Panel Degradation 0.3% to 1.0% 0.5% to 2.5% To BE
Availability, Years 1−15 97% to 99% 92% to 99% To BE
Availability, Years 16+ 96% to 98% 91% to 98% To BE
Costs (including O&M and MM), Years 1-−5 Third-party resource +5% to +10% To BE
Costs (including O&M and MM), Years 16+ Third-party resource +10% to +15% To BE
Estimated Electric Output: For PV and CSP, Fitch may reduce the overall estimated
electric output by up to 10% to account for measurement bias errors.
Availability/Capacity Factor: Fitch considers the impact of reduced availability and
capacity factors for PV and CSP.
O&M: Fitch considers the cash flow impact of a sustained increase in O&M expenses,
direct (including major maintenance) and indirect such as general administration,
including property taxes.
Panel Degradation: The percentage of annual degradation that Fitch applies will be
informed by the third-party engineer.
P99: Fitch will assess a project’s performance under a one-year P99 scenario in which
investment-grade projects are expected to achieve DSCR results that are at or above
1.0x.
Merchant Prices: Fitch has observed that solar power projects generally do not face
exposure to merchant market prices. However, Fitch may apply merchant price
sensitivity analysis when there is a high-priced PPA with a weak counterparty, as there
is a potential for contract termination causing the project to sell power on the open
market. In cases where the project is exposed to merchant risk, Fitch will consider the
level of market price decrease a project can sustain and still meet debt obligations at a
particular rating level. Fitch generally relies on its third-party market consultants’ view
of market price projections and adjusts these projections based on Fitch’s experience
and market outlook.
Fitch will also apply as it deems appropriate and in accordance with the project’s
contractual agreements, additional stresses consistent with project financings in other
power sectors. These additional stresses include construction delays, financing costs,
and inflation.
Completion Risk
Information Quality Completion Risk Warranties Operation Risk Revenue Risk Debt Structure
Stronger • Solar resource Contractors Warranty Performance • Fixed-price, long- • No merchant market • Fully amortizing,
assessment applies • Investment-grade • Warranty exceeds term O&M exposure. fixed rate with debt
most rigorous EPC or owner/ the industry agreement with • PPA/FIT maturity that matures prior
methods and constructor. standard. investment-grade exceeds debt to PPA/FIT maturity.
measurement tools providers or, maturity. • Equity distribution
commensurate with Contract Terms Manufacturer • Incentive-based • PPA/FIT with strong threshold: at least
project’s technology • EPC fixed price, • Investment-grade O&M agreement investment-grade 1.2x DSCR.
including at least date certain, manufacturer. with investment counter party • Debt service reserve
one year on site turnkey. • Long history of grade provider, (AAA/AA). account greater
data correlated to • Completion stable operating and • Major maintenance • Oversized solar field than six months of
longer industry data guarantee from financial or O&M reserves is that exceeds PPA debt service.
set. creditworthy party. performance. fully funded in requirement for • Other covenants to
• Energy production • Liquidity covers • National or advance to cover energy delivery to ensure timely or
under P50, 1-year liquidated damages, international market overhauls during the mitigate risk of less- early debt
P90, and 1-year P99 debt service. presence. term of the debt than-projected solar repayment; prevent
scenarios are • Schedule is • Conglomerate that is • Technology is proven insolation. over leveraging of
developed. adequate to not dependent on with a long assets; and provide
• Third-party reports complete project nascent sectors. operating history adequate liquidity at
address the budget, and avoid PPA/FIT and less project level.
technology, termination. performance
manufacturer, uncertainty.
completion and Technology Risk
operation risks. • Proven technology;
low construction risk
Midrange • Solar assessment is Contractors Warranty Performance • O&M agreement • PPA/FIT matches • Fully amortizing,
based upon ground- • Experienced possibly • Standard industry with experienced full term of debt fixed rate, no tail
based data located investment grade. warranty coverage provider. with investment- risk.
close to the site and for serial defects • Agreement is shorter grade counterparty; • Distributions:
correlated to longer Contract Terms and long-term than the term of the or, 1.15x−1.19x DSCR.
satellite data set. • Owner/contractor, output. For PV this debt. • Merchant exposure • Debt service reserve
with strong budget includes five-year • Performance covers small portion equal to six months
Third-party reports contingencies and warranty on panels incentives. of debt for a project debt service, funded
adequately address: creditworthy parent and 90% of initial • Agreement may that is price- upfront.
• Energy production guarantees. nominal output in have fixed or competitive under • Other covenants to
under P50 and • Liquidity covers first 10 years and escalating Fitch’s power price ensure timely debt
1-year P90 liquidated damages 80% for 20−25 years. management fees stress scenarios. repayment; prevent
scenarios. and debt service. CSP technical plus out-of- pocket over leveraging of
• Technology risk. • Schedule is warranties range reimbursements. assets; and provide
• Manufacturer risk. adequate to 24−36 months. • Major maintenance adequate liquidity at
• Completion and complete project is adequately funded project level.
operational risk. and avoid PPA/FIT Manufacturer on an accrual basis.
• Adequacy of termination. • Investment-grade • Technology is proven
sponsor’s budget. manufacturer with limited
Technology Risk concentrated in the commercial
• Proven technology; solar sector, or application and
more complex. experienced midranging
conglomerate close performance
to investment grade uncertainty.
with solid financial
position to fulfill
guarantees.
Weaker • No independent Contractors Warranty Performance • O&M provider with • PPA/FIT with below • Tail and/or
electric output • Multiple weak • Warranty is below little experience investment-grade refinance risk.
estimate or only P50 contractors. the industry with the technology. counterparty. • Debt maybe within
is provided. standard. • Cost plus agreement • Weak PPA useful life of asset
• Solar assessment is Contract Terms lacking incentives. termination but longer than
based solely on • Inadequate budget Manufacturer • Inadequate provisions. industry average.
satellite data contingencies, weak • Experienced but maintenance • Merchant exposure • Distributions below
without appropriate parent guarantees. below investment- reserves. to cover significant 1.15x.
adjustments for data • Delays easily lead to grade manufacturer • Proprietary, new, or portions of debt. • Debt service reserve
quality and PPA/FIT termination or, obsolete technology • Merchant project is less than six months
technology; subject or optimistic • New manufacturer where parts are not not competitive or not fully funded
to material caveats; completion with little easily replaceable or under Fitch’s low- upfront.
limited scope. schedule. experience, are expensive, and a price merchant • Weak provisions
• Inadequate review questionable high level of power projections. allow overleveraging
of completion, or Technology longevity, and performance of assets.
operation risks. • Unproven or financial strength, uncertainty over the
demonstration-phase non-investment long term.
technology pose grade.
greater scale up and
completion risks.
EPC − Engineering, procurement, and construction. PPA − Purchase power agreement. FIT − Feed-in tariff.
Source: Fitch.
Crystalline Silicon PV: The oldest PV technology employs crystalline silicon (c-Si) as the
semiconductor material in the PV cell, including both monocrystalline and
polycrystalline silicon panels. Fitch considers crystalline silicon PV technology
commercially proven based on seven to 10 years of utility-scale use, its well known,
well-researched properties, and more than 30-year commercial track record as non-
utility-scale electric power source.
Thin Film PV: Considered the second generation of PV technology, thin film solar cells
have been developed and commercially deployed in utility-scale projects since 2005.
Fitch generally considers thin film PV technology a midrange risk based on its recent
commercial use, and its current limited application at the utility-scale compared with
crystalline silicon. The three most prevalent thin film technologies are amorphous
silicon (a-Si), cadmium telluride (CdTe), and copper indium gallium diselenide
(CIGS)/copper indium diselenide (CIS).
Concentrating PV: Concentrating PV (CPV) is considered an emerging technology
because it does not have a commercial track record. While not yet employed at the
utility scale, several utility-scale CPV plants are currently in development. CPV makes
the cross between traditional PV and CSP (discussed in the next section) in that CPV
concentrates sunlight onto a photovoltaic surface using either reflective mirrors or
acrylic lenses. Current CPV panels include up to three layers of nonsilicon
semiconductors stacked on top of another that each convert a different portion of the
solar spectrum into electricity to permit a higher conversion efficiency than traditional
PV panels. CPV is only effective using DNI, and does not use diffuse or reflected light
that is the mainstay of traditional PV. Therefore, CPV is limited to hot or desert-like
climates, similar to traditional CSP plants.
PV Technology Comparison
Feature c-Si a-Si CdTe CIGS/CIS GalnP/GaAs/Ge
Semiconductor Carbon silicon Amorphous Cadmium Copper indium Gallium indium
silicon telluride (gallium) phosphide and/or
diselenide gallium arsenide
and/or germanium
Thin Film non- Thin Film non- Concentrating PV,
Type Bulk silicon Thin Film silicon
silicon silicon nonsilicon
First Application Space Calculators in Electricity in Electricity Space satellites
satellites in 1970s 2000s generation
1960s
7−10 years
Utility-Scale History 5 years (2005) 3 years (2007) In development In development
(2000)
Utility-Scale Use Proven Proven Proven Unproven Unproven
Complexity Low Low Low Low High
Efficiency (%) 14−19 6−12 10−12 10−15 20 +
Panel Degradation (%) 0.3−1.0 0.7−1.5 0.7−1.5 1.0−2.0 Unknown
Source: Fitch.
the tracking system to turn the mirrors to “stow position” to protect them during high
winds.
Currently there are four primary variations of CSP technologies: parabolic trough,
power tower, dish engine, and linear Fresnel reflector.
Parabolic Trough: Parabolic troughs collect the sun’s energy using long rectangular,
parabolic U-shaped mirrors and single-axis tracking. Fitch considers parabolic trough
technology to be commercially proven, based on the 20-year or more operating history
of the technology in the U.S. Parabolic troughs have more widespread successful
application internationally than any other CSP technology. Parabolic troughs have
successfully employed heat storage.
Solar Power Tower: Another, more recently implemented, utility-sized CSP technology
is a solar power tower. A solar power tower utilizes a field of dual-axis tracking mirrors,
called heliostats, which reflect direct radiation onto a receiver that is located at the
top of a tall, centrally located tower. Based on its successful utility-size operating
history since 2007, Fitch considers the power tower a proven technology with a limited
application, and therefore, a midrange technology risk. Solar towers have also
successfully implemented heat storage.
Solar Dish Engine: Solar dish-engine technology to date is in utility-scale development.
The technology is currently employed on a demonstration scale. Dish-engine technology
uses a set of flat (or slightly curved) heliostats clustered into a parabolic-shaped dish
that concentrates sunlight onto a receiver in the center of the dish. The most advanced
solar dish technology employs a mini-generator on the receiver itself. Solar dish engines
use dual-axis tracking and do not require water cooling. Fitch currently considers solar
dish engines unproven, and a weaker technology risk. Solar dish engines do not
currently use heat storage.
Linear Fresnel Reflector: No linear Fresnel reflectors are currently built to utility size,
but the technology is very similar to a parabolic trough. Compact linear Fresnel
reflectors have been deployed as pilots in the U.S. and Spain, but are currently
unproven at the utility scale, and would be considered a weaker technology risk.
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