The report states that rated issuers have sufficient financial flexibility to absorb moderate project underperformance. The credit quality of these companies is further strengthened by strong sponsors, including sovereign wealth funds, which have a history of providing capital and support during challenging times. However, significant underperformance of individual projects may require parental support to meet commitments, Moody’s said in the report.
The report highlights that wind projects in the rated portfolio experienced an average shortfall of capacity utilization ranging from -2.0 to -3.2 percentage points compared to P-90 estimates for fiscal years 2021, 2022, and 2023. In contrast, solar projects performed in line with expectations. This translates to an 8%-10% lower generation for wind projects in the rated portfolio, resulting in a 2.5%-6.0% decrease in EBITDA for rated renewable energy companies over the past three fiscal years.
“However, all rated issuers have multiple projects, and their credit quality benefits from portfolio diversification, which reduces the impact of underperformance of individual projects. They also have adequate financial headroom in their credit metrics to absorb this project underperformance,” the report added.
The report also notes that solar power projects generally exhibit lower deviation compared to wind projects. Among the eight pure play renewable energy companies rated by Moody’s with a total capacity of 21 gigawatts (GW), 24% (5.15 GW) generated less than P-90 estimates for three consecutive years. Of these underperforming projects, 82% were wind projects and 18% were solar projects. Wind projects, as a whole, have underperformed P-90 estimates for three consecutive years.
In fiscal year 2023, lower irradiance contributed to 76% of solar project generation underperformance, while curtailments accounted for 19%. For wind projects, lower wind resources were responsible for 86% of the underperformance in fiscal year 2023. Geographical diversity plays a role in mitigating project underperformance in specific states. In fiscal year 2023, 50% of the underperforming solar capacity was in Karnataka, and 18% was in Telangana. For underperforming wind capacity, 26% was in Gujarat, and 25% was in Andhra Pradesh in the same year. The report explains that certain states, such as Karnataka and Gujarat, have a higher risk of curtailments due to delays in building transmission lines or non-compliance with priority dispatch for renewable energy projects by state-owned distribution companies.