The expected rating primarily reflects the risks inherent in the operation of a greenfield wind farm project over a 24-year term. Net output could fall below projections due to variability of the wind resource at a non-diversified, single site project.
The Alta Wind projects (Alta) will also depend on the ongoing maintenance of the wind turbines and balance-of-plant (BoP) to support projected availability. It is uncertain whether Alta will be able to establish and maintain a cost structure consistent with the expectations of the sponsor, Terra-Gen Power, LLC.
Positively, Alta’s operating profile will benefit from commercially proven technology, a strong wind turbine warranty, and continued support from the manufacturer under a five-year maintenance agreement.
The expected rating is based on Alta’s projected financial performance under a Fitch Rating Case in which Alta experiences lower energy production and availability, combined with higher operations and maintenance (O&M) costs.
In the Fitch Rating Case structured as per Fitch’s Onshore Wind Farms rating criteria, debt service coverage ratios (DSCRs) generally remain above 1.4 times (x) but fall near the 1.2x level between 2031 and 2034. This four-year span of weak financial performance corresponds to a period of high amortization immediately prior to the maturity of the certificates.
These minimum DSCRs also occur after more than 20 years, when the project is most vulnerable to equipment-based availability risks and cost escalation. Given the liquidity provided by an incremental debt service reserve funding mechanism and the relatively short period of exposure, Fitch views financial performance in the Fitch Rating Case as adequate at the expected rating.
KEY RATING DRIVERS:
–Supply Risk: Energy production may fall below the sponsor’s projections due to lower than expected wind conditions at a single site project that does not benefit from a portfolio effect. Furthermore, long-term wind turbine availability may not conform to the estimates of the independent wind consultant, as the specific turbine model was first installed in 2002 and lacks an extensive operating history. Mitigating factors include the extensive on-site wind data, the turbine manufacturer’s five-year warranty, the use of commercially proven turbine technology, and a cost profile structured to support a 30-year useful life.
–Costs: O&M expenses may be higher than forecast due to inflation, shortages in the supply of labor or spare parts, or additional major maintenance to offset an unanticipated decline in operating performance. It is important to note that the turbine manufacturer’s warranty provides some protection against higher costs during the initial five-year operating period and shifts the cost burden of unscheduled outages to the turbine manufacturer. The project will benefit from a six-month O&M reserve, a feature typical of comparable wind projects.
–Debt Characteristics and Terms: The debt structure compresses 35% of total debt amortization into the final four years of the tenor, when DSCRs reach their lowest point in Fitch’s sensitivity analyses. To partially offset the increased risk, Alta will include a supplemental debt service reserve funding mechanism that builds additional liquidity.
Alta will consist of special purpose companies created solely to develop, own, and operate the project, a 402 MW wind farm located in the Tehachapi Pass near the town of Mojave in southwestern California.
Alta will use the proceeds of the proposed issuance to fund the construction of the project and reimburse the sponsor for development costs. Vestas-American Wind Technology, Inc. will supply and commission 134 wind turbines at the project site, while D.H. Blattner & Sons, Inc. will construct the BoP under a fixed price contract.
Once commercial operation is achieved, Vestas will maintain the wind turbines under a five-year agreement, while an Alta affiliate will perform BoP O&M under a separate contract.
Alta will sell its energy output to Southern California Edison (SCE) under a fixed-price PPA expiring Dec. 31, 2035. The state of California requires SCE and other local utilities to procure 33% of their electrical power through renewable sources by 2020.
www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=538310
