Solar power projects tend to exceed initial output forecast while wind power projects are more likely to underperform, Fitch Ratings' found out after analysing projects rated by the credit ratings agency since 2010.
Fitch compared actual production data from Fitch-rated renewable projects across EMEA, the US and Latin America, against the initial P50 forecasts (the annual production level the project is expected to exceed 50% of the time). The study took into account data gathered since 2010 for wind and since 2011 for solar, and excluded ramp-up phases.
About 70% of annual observations across solar projects were at or above the original P50 levels, and only 3% were below the initial forecasts by more than 10%.
At the same time, around three-quarters of wind project observations were below the P50 level and 43% were lower by more than 10%.
According to Fitch, wind project underperformance is due to three factors. 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 US last year. And some wind projects have also been hit by problems with equipment.
In contrast, solar projects have benefitted from better-than-expected 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 says.
Fitch findings are reflected in the 1.2x debt service coverage ratio that the agency uses as an indicative threshold for a fully contracted, fully amortising solar PV project to achieve an investment-grade rating.
The threshold ratio for a similarly structured wind power project is 1.3x .
Detailed renewable energy project rating criteria of Fitch Ratings can be found here.
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