fitch rating soalr power projects

8/4/2019 Fitch Rating Soalr Power Projects

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Global Infrastructure & Project Finance

www.fitchratings.com Feb

Power

GlobalSector-Specific Criteria

Rating Criteria for Solar PowerProjectsUtility-Scale Photovoltaic and Concentrating Solar Power

Scope and SummaryThis criteria report applies to a broad range of utility-scale photovoltaic (PV) andconcentrating solar power (CSP) plants, including greenfield or existing plantsindividual or portfolio assets, fully contracted or merchant sales, and proven or lessestablished technologies. Fitch Ratings defines utility-scale projects as freestandingconstructions or host-mounted structures that typically rate 10 megawatts (MW) o

nameplate capacity or more. These criteria do not consider the additional real estaterisks inherent in solar projects mounted on host structures such as roof access and hosmaintenance. The solar projects discussed in this report are financed as stand-aloneassets (or portfolios) with no formal guarantee of debt service from the sponsor(nonrecourse). Repayment is dependent upon the cash flows from constructionoperation, and in some cases, hand-over of projects. These rating criteria are intendedfor global application. Ratings under these criteria are debt issue ratings and take intoaccount the timeliness of payment, the instruments terms, and do not incorporaterecovery prospects given a default.

Rating factors specific to solar power projects are identified and broadly grouped intoproject analysis and financial analysis factors as described in Rating Criteria foInfrastructure and Project Finance, the Master Criteria, as revised on Aug. 16, 2010Fitch maintains data from numerous private ratings for PV and CSP projects primarily in

the U.S. through the Department of Energy (DOE) programs, as well as in Canada andEurope. Fitch engaged in discussions with solar industry players including developersthird-party solar resource supply consultants, and third-party engineers for thesecriteria. The criteria is also informed by industry research including performanceevaluations, field studies, and other literature reviews from numerous sources includinthe Does National Renewable Energy Laboratory (NREL), the European Commissionand the International Energy Agency, among others.

Analysts

AmericasYvette Dennis+1 212 [email protected]

Cynthia Howells1 212 908-0685

[email protected]

EMEAFederico Gronda+ 39 02 [email protected]

David Zolynski+44 20 3530 [email protected]

Asia PacificNandakumar Srinivasan+91 44 [email protected]

Related Research

Solar Photovoltaic Feed-in Tariffs Stability of Support FrameworksQuestioned, Feb. 16, 2011Rating Criteria for Infrastructureand Project Finance, Aug. 16, 2010Rating Criteria for Thermal PowerProjects, June 15, 2010

Key Rating Drivers

Major risk factors for solar projects include the following:

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.
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2Rating Criteria for Solar Power Projects February 23, 2011

This report explains how Fitch tailors its general project finance approach in order torate utility size solar projects. It focuses on the fundamental aspects Fitch deems mostcritical and relevant to the debt ratings of power plants in this sector. It should be readin conjunction with the Master Criteria, which is available at www.fitchratings.com.

Project Analysis Structure and InformationOwnership and Sponsors (

)Fitch evaluates the sponsors commitment to the project. Sponsors with significantresources, time, and reputation invested in the project, including higher levels odirect equity investment or guarantees, are considered a stabilizing factor to theproject. This is particularly true in the presence of sponsor covenants to retainadequate or a minimum capitalization level in the project. Strategic importance of theproject to the sponsor is also considered. For example, the sponsors performance on ahigh profile or innovative solar project may heavily influence its reputation in generalIn contrast, three or more owners without a controlling sponsor spearheading theproject could be considered weaker.

Jurisdiction and Other LegalThe legal framework of a solar project can have a direct impact on the project

financial performance. Regulatory incentives such as feed-in tariffs, green certificatesloan guarantees, as well as tax incentives have been utilized in many jurisdictions toencourage the development of renewable energy. These regimes carry some risk ochange of law. Fitch does not reflect a change of law in its ratings, but a change inregulatory incentives may have a significant impact on a projects rating (please sethe Project Analysis Revenue Risk, and Project Analysis Macro Risks sections foadditional information).

Use of Third-Party Reports ()The two most important third-party reports for a solar project debt rating are a thirdparty solar resource supply assessment, and a third-party engineering report. A solaresource supply assessment evaluates the unique profile of solar energy (also calledinsolation or irradiance) available at the specific project site, and estimates theaverage and probability weighted annual electric energy outputs that could begenerated by the specific proposed solar project ( please see the Project Analysis Operation Risk Supply section for more details). A third-party engineering reporevaluates the viability of the design of the solar project, the technology, the budgetthe construction timeline, and the long-term operations of the plant for the term of thedebt, among other factors (please see the Project Analysis Completion Risk sectionfor more details). Where these reports contain matters of fact, Fitch will question thesource and reliability. Where the information is a forecast or opinion, Fitch expectsthese reports to be based on well-reasoned analysis supported by the facts. Withouthese two third-party reports, Fitch may choose not to provide a rating.

Risk Factor Assessment:Sponsors ()

Stronger solar projectsponsors have significantprior experience in the solarindustry, either inmanufacturing, construction,or operations.

Midrange sponsors includenewer sponsors to the solarsector with significant otherpower experience that doesnot necessarily include solarexperience.

Weaker sponsors reflect nopower experience or history,but may possess industrial orconstruction expertise.

Financial Analysis

Financial structure including amortizing debt characteristics, covenants, andreserve account mechanisms.

Financial metrics, flexibility, and sensitivities.These key ratings drivers are developed further in this report (highlighted using thesymbol) along with supporting credit risk commentary on other aspects specific tosolar power projects.

Risk Factor Assessment:Third-Party Reports()

Stronger third-party reportsare performed by consultantsexperienced with the

technology, region, and solarindustry; and are clear,thorough, and supportconclusions based on facts orwell-reasoned analysesrooted in the facts.

Midrange third-party reportsare performed by consultantswith some experience with thetechnology, region, and solarindustry, are clearly writtenoverall, and include less well-supported conclusions oranalysis of the facts.

Weaker third-party reportsare performed by consultantswith little or no priorexperience with solarprojects or the specifictechnology or lack clarity,contain extensive caveats,are abbreviated, or wereconducted under lessrelevant circumstances.


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Rating Criteria for Solar Power Projects February 23, 20113

Limitations of MethodologyThese criteria outlines Fitchs approach for evaluating the risks that solar poweprojects are generally expected to face, including short-term external shocks and

individual project bankruptcies. It does not cover circumstances such as a significanchange in energy demand, a complete realignment of the energy or electricity sector acurrently structured in individual countries, or the potential impact of climate changeIf one of these or similar events were to occur, Fitch would review the criteria andmake appropriate changes to the methodology and to ratings covered by these criteria.

Project AnalysisCompletion RiskContractors ()Fitch looks for evidence that contractors have the ability to properly design, equip, andconstruct the proposed project and will look to the opinions of a third-party engineerFitch looks favorably on projects led by an engineering, procurement, and construction(EPC) contractor, which serves as a single point of accountability to deliver a completeproject on time and in accordance with performance requirements to achievecommercial operation. Construction for stronger projects will be executed by an EPCcontractor with direct experience with projects of similar technology and size. HoweveFitch is aware of limited or the absence of commercial application of some solartechnologies and will consider the EPC contractors relevant experience.

Fitch considers the capacity of an EPC contractor to absorb possible cost overruns and tomeet performance guarantees. Fitch views favorably large investment-grade EPCcontractors that have a national or international market presence, long operatinghistories, and strong experience in the power sector including solar. However, smallerexperienced EPC contractors do not necessarily constrain a projects rating depending onthe technologys complexity and whether it is proven. Fitch will also review whether theproject has financial resources available to support a change in contractor if needed. Ininvestment-grade projects, contractors will have reliable sources of sufficient liquidity

and provide adequate performance guarantees. Fitch will look to liquidity dedicated tothe project such as letters of credit and bonding to cover delay and performancepenalties. A strong corporate parent may provide an irrevocable, unconditional guaranteeof the EPC contractors obligations and liabilities, which can mitigate Fitchs concerns oa capable contractor whose market presence is relatively recent.

ManufacturersUtility-scale solar power generation is a nascent sector with a proliferation ofequipment manufacturers of relatively modest experience whose market presence mayor may not endure. As such, Fitch views very few equipment manufacturers ainvestment-grade credit quality, making satisfactory completion less certain. Withouan established history of successful manufacturer performance, projects will facegreater stress in Fitchs financial analysis. Whether a manufacturer constrains a

projects rating is dependent upon whether the technology is proven; the complexity othe project; the manufacturers direct experience with the proposed technologyreliability for timely equipment delivery; ease of manufacturer and parts replacemenin case the manufacturer proves to be unreliable; and financial resources available tothe project to support a change in manufacturer, if necessary.

Construction Contract TermsIn reviewing the adequacy of construction contract terms, Fitch examines theresponsibilities of contractors and project sponsors, the schedule for achievingcommercial operation, performance requirements and guarantees, and liquidateddamages (LD) for failure to perform by any party.

Risk Factor Assessment:Construction Contractors()

Stronger projects are led by anexperienced investment-gradecontractor, either engineering,procurement, and construction(EPC) or owner/constructorcontractor.

Midrange contractors areexperienced and possiblyinvestment grade.

Weaker projects rely onmultiple smaller contractorsthat may be financially weakand have no external su ort.


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Stronger contracts will include an obligation of an EPC contractor to design andconstruct the project under a fixed price, date certain, and turnkey agreement. Fitchwill review the terms for the EPC contractor to conduct engineering, procurement

construction, commissioning, and start-up. In accordance with the Master Criteriaproject sponsors will demonstrate that they have obtained all necessary rights foproperty access and construction permits and achieve compliance with environmentaand other regulatory requirements. Given the large amounts of land obtained for somesolar power projects, environmental issues may arise regarding the potentiadisplacement of wildlife. In addition, some CSP projects have a need for vast amountsof water for cooling in areas that may have strong solar irradiation but scarce wateresources. Therefore, proper permitting is key to project completion.

Demonstration of adequate transmission access including needed additions andupgrades, especially for projects that do not operate in close proximity to the loadserving area should also be addressed. An arrangement may exist where the projecpays upfront for needed transmission that will be owned by a utility off-taker in whichthe utility reimburses the project for the capital expenditure. This ensures tha

transmission development occurs along side the projects construction, mitigating thepotential for delays in project completion.

Informed by the third-party engineers report, Fitch will assess the reasonableness othe construction and permitting schedule to achieve commercial operation, including asufficient buffer in the event of delays. While permitting can last up to 18 monthssmaller utility-scale PV plants can be built within six months. However, Fitch believesthat it is important not to underestimate the potential for delays. Delays due toequipment delivery, permitting, improper ground mounting, and inclement weather arejust a few examples that could disrupt a PV project. For CSP plants, the completionschedule can be similar to a fossil fuel plant with a regulatory and permitting processthat may last longer than PV with a construction phase lasting between 24 and 30months.

In stronger projects, the risk of power purchase agreement (PPA) termination due todelays is low but the project may still incur LDs. In well-structured contracts, LDspayable by the contractor fully cover financial penalties due to the utility off-taker aswell as debt service obligations if the project is not delivered on time. Fitch considerthe quality of the source of liquidity and whether it is dedicated to the project or muscompete with other contractor obligations. As such, high-quality bonding and letters ocredit dedicated to the project are considered stronger than relying on the contractorbalance sheet for liquidity. Equally important, Fitch will consider the potential fodisputes to impede timely and adequate payment of delay damages.

Upon review of the third-party engineering report, Fitch will assess the adequacy otests to demonstrate the performance of the facility in accordance with designstandards and the requirements of the off-take agreement to achieve commercia

operation. Performance tests include but are not limited to start-up reliabilitycontinuous hours of operation, as well as proper functioning of solar trackingequipment and inverters. Performance LDs will also be assessed based upon the qualityof the payment source, as well as the potential for timely and adequate payment. Fitchwill also refer to third-party engineering assessments of international or nationacertification, safety, reliability, and accelerated life testing.

Equipment warranties, electric output guarantees, and third-partyinsurance/guarantees demonstrate manufacturers and third parties willingness tostand behind the performance of solar equipment, which are only as strong as theentities behind them. As such, Fitchs assessment of the value of these warranties i


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based upon three factors: the terms of performance coverage (including limitations)the duration of the warranty/guarantee, and the quality of the provider. ()

Traditional manufacturer performance guarantees for PV projects include up to a fiveyear warranty for solar panel defects, and a power output warranty of 90% of initianominal power in the first 10 years and 80% for the full 20 to 25 years.Some of thesewarranties are limited by conditions such as guaranteeing output by plus or minus 5%which Fitch would consider in its financial analysis. Fitch recognizes that PV warrantieare evolving. Future warranties could provide guarantees for degradation on a periodicbasis such as five-year increments or on an annual basis, which would increasemanufacturer accountability for specified levels of performance. Inverters arewarranted for at least five years with an option to extend for 10 years, reflectingindustry advances in inverter performance. In a few instances, Fitch has observed longterm output warranties based upon a maximum guaranteed degradation rate foconcentrating PV. For CSP, Fitch has observed that there are various technicaperformance guarantees, which currently range from 24 to 36 months.

The financial analysis in Fitchs rating case will reflect the performance and duration oguarantees of investment-grade counterparties, mitigating the amount of stress inFitchs financial analysis. Warranties from weaker manufacturers will have less weightin the financial analysis unless backed by strong third-party enhancement. A highlyrated third-party counterparty such as an insurance provider may back up theperformance guarantees of experienced manufacturers. In addition to the credit qualityof the third party, the value of the guarantee in the project rating will depend on whathe third party will guarantee and for how long. Third-party support may come withlimitations that do not match the manufacturers warranty. In such cases, Fitchconsiders the value of what the third-party insurer will cover and considers all otherperformance areas as exposed to the risk of the manufacturer and technology.

Construction Technology Risk

Technology risk in project completion is in Fitchs view based upon the proven status othe technology, construction complexity, and scale-up risk. Due to its modularity andfew moving parts, solar PV plant construction is simple and low risk compared withother forms of power generation. Panels are mounted onto steel support structures on aflat angle, fixed tilt, or in a tracking position. Installation of panels and structurasupport is identical from row to row reducing complexity. While the use of tracking ismore complex, it is still considered to be proven. The inverter converts the panelsdirect current (DC) electricity to alternating current (AC) electricity to match thedistribution 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 solacollection field, power block, and in some cases, thermal storage capability. Part oCSP construction is modular, as a solar collection field is installed. The remainingconstruction is similar to a traditional fossil fuel plant, which includes installation of a

steam generator, steam turbine, condenser, cooling towers, and plant control systemsCSP scale-up risks may center on the increasing area of the solar collection field andthe solar receiver but generally scale-up risk can be mitigated with multiple rather thanlarger solar receivers. Fitch will engage with the third-party engineer regarding howeffective the projects design can mitigate scale-up risks.

Risk Factor Assessment:Warranty Providers ()

Stronger warranty providers areinvestment-grademanufacturers that have a longhistory of generally stableoperating and financialperformance. While they havestrong knowledge of the solarpower sector, they areconglomerates that are notdependent on nascent sectorsand have national orinternational marketpenetration.

Midrange providers are

investment-grademanufacturers concentrated inthe solar manufacturing marketor experienced conglomeratesnear investment grade with asolid financial position to fulfillguarantees.

Weaker warranty providersinclude experienced but belowinvestment-grade entities ornewer manufacturers withquestionable performance,longevity, and financialstrength.


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Project AnalysisOperation RiskOperator ()Fitch looks for an experienced operator with the same type of technology, in the samecountry or region, to manage the day-to-day monitoring and maintenance and longeterm overhaul of the plant. Operators should have adequate resources and relevantqualified staff to execute operational tasks, as demonstrated by balance sheet strengthand operating track record. Operator performance-based bonuses and incentives areconsidered a credit positive as an indication that the plant could operate aboveminimum thresholds dictated in the PPA or other operating agreements. Fitch alsorelies on the third-party engineers evaluation to assess the operators performancerisks, especially for smaller, lesser known operators or operators who are untested inthe solar industry.

Fitch has observed that operators in the solar power project sector are often affiliates othe sponsor, EPC contractor, or equipment manufacturer. The reputational importancefor the operator of a high-profile project, either in respect of technology, scale, onational prestige, is unlikely to benefit the rating in isolation.

Operating Costs ()Operating costs are determined by the solar technology employed, PV or CSP, and thetype of contract signed with the operator, either fixed price, a management fee without-of-pocket cost reimbursements, cost-plus, or some other arrangement. Timing osolar plant maintenance costs is annual, while overhaul costs are typically periodic

Risk Factor Assessment:Operator ()

Stronger solar projectoperators are investment-grade, leading solartechnology manufacturers orlarge conglomerates withdemonstrated operatingsuccess in the solar industryand the region, and are oftenaffiliates of the sponsor.

Midrange solar project

operators have experiencewith the technology or haveextensive experienceoperating nonsolar powerprojects.

Weaker solar projectoperators have little to noexperience withthe solartechnology or in the powerindustry.

Indicative Construction Terms for Investment-Grade RatingsContractors EPC contractor with direct experience completing similar size and

technology projects; usually investment-grade rating; availabiliof potential replacement contractors; direct participation ofequipment manufacturer; manufacturer has experience with thtechnology and a history of completed projects; favorable thirdparty engineer opinion regarding contractors ability to properldesign, equip, and construct the project.

Contract Type Fixed-price or limited cost-based contract; adequate cost overrcontingencies, completion guarantees and liquidated damageprovisions; performance guarantees assuring compliance withoff-take agreement and design specifications; substantial priccertainty through fixed prices and detailed design; favorablethird-party engineer opinion regarding adequacy of budget,schedule, and project performance requirements; constructimonitoring and reporting by third party engineer.

Liquidated Damages (LD), Bonding andPerformance Guarantees

LDs sufficient to cover projects delay penalties and fixed costsincluding debt service for at least three months; performanceLDs sufficient to offset cash flow reduction due to failure tomeet guaranteed performance levels or achievement of lowethan expected tariff due to late commissioning; performancebonds for a significant percentage of the value of the EPCcontract if contractor is below investment grade.

Performance Tests Performed to international engineering standards as confirmed the third-party engineer; tests are structured to demonstratethe performance of the facility to design standards, meet offtake agreement requirements; and meet guaranteed levels ofcapacity, availability and electric energy output.

Warranties: Manufacturer Traditional industry warranties for PV regarding serial defects along-term output; technical performance warranties for majocomponents of 2436 months for CSP; preferably investmentgrade manufacturers with financial capacity to honor longer-term warranties.

Warranties: EPC Contractor Completed project performance warranted through finalcompletion; preferably investment-grade contractor orbonding, or strong parent guarantee sufficient to meetwarranty obligations.

EPC Engineering, procurement, and construction. PV Photovoltaic. CSP Concentrating solar power.Source: Fitch.


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Fitch expects a third-party engineering report to assess the make up and timing of solaproject operating costs.

Fixed-price operating contracts that include overhaul costs and lack a pass-through oout-of-pocket charges are the most favorable to solar projects due to the lack of costvolatility. If the operating contract is not an all-in fixed-price contract, Fitch looks for amajor maintenance reserve to cover the cost of inverter or turbine overhauls, as well apanel or heliostat replacements, on a regular cycle. An O&M reserve would also reducevolatility by providing flexibility to cover incidental higher costs of cleaning, monitoringand maintaining the plant on an annual basis. Fitch finds these measures favorablemitigants to rising or unplanned costs. Inflation-based contracts, cost-plus contractsand other similar arrangements will be evaluated for their effects on cash flows. Bonuincentives are considered a useful tool to keep the operator focused on optimaperformance within existing costs.

Affiliate-operator agreements that appear underpriced are considered a credit negativebased on the possibility, not the expectation, that an affiliate-operator could be

replaced with a higher cost third-party operator in the future. Fitch would address thirisk by adding additional stress to the operating contract to test the level of highecosts that could be borne by the project, and will use stresses that are consistent withthe rating of the affiliate-operator. Both incentives and possible conflicts areconsidered with respect to an affiliate-operator. However, the key rating issue remainsthe alignment of operators interest with the rated debt holders.

Major costs of PV projects are expected to be lower than for a typical power projecdue to the solid state nature of PV technology with no moving parts. Costs unique to PVprojects include inverter repair or replacement, and PV panel replacement due todefect or breakage. Overhaul costs for inverters can range from every five to 10 yearsMajor costs for CSP projects are expected to be higher than PV costs, more in line witha typical thermal power project, due to their complexity and various moving partsCosts that are distinct for CSP plants compared with PV plants include turbine overhau(much like a traditional thermal power plant), input water costs for running and coolingthe turbines, regular replacement of the heat transfer fluid to maintain maximumconductivity, thermal storage piping, and/or tank replacement due to salt corrosionharmonization and calibration of tracking systems, and mirror replacement primarilydue to wind breakage. Cleaning of heliostats is another unique cost to CSP plantshowever, these costs are usually fairly small in the overall plant budget. Fitch alsoexpects CSP turbines to be overhauled periodically based on usage and third-partyengineering assessments.

A unique operating cost risk that affects both PV and CSP relates to replacement partsAs part of a nascent solar energy sector, manufacturers may not remain in business toprovide needed parts over the long term. In other cases, technological advances mayrender existing equipment obsolete. The ability and the cost to replace needed parts

could be substantially different than originally budgeted. As a result, an assessmentfrom the third-party engineer on budgeting for proprietary parts or parts needed inevolving technologies in O&M and major maintenance adds strength to the riskevaluation. Verifiable ability to substitute parts or the technologys ability to achievecommodity-like availability would be considered stronger. If the operator relies onreplacement parts from a weaker manufacturer, then the rating may be constrained tothe rating of the weaker manufacturer.

With limited operating experience for solar plants in contrast to the terms of the debtFitchs analysis will include additional O&M stress to PV plants after year 15, as well asto availability. Fitch applies these additional later-year operating stresses to PV plant

Risk Factor Assessment:Operating Contracts()

Stronger O&M contracts forsolar projects include fixed-price agreements with theoperator that includeoverhaul costs and excludereimbursement of out-ofpocket expenses, effectivelytransferring operating costrisk to the operator.

Midrange operating contractsreflect a fixed or escalatingmanagement fee plus out-of-pocket reimbursements,

performance incentives, andan accrual reserve for majormaintenance prior to theexpense.

Weaker operating contractsinclude cost-plus fees and out-of-pocket reimbursements andlack performance incentives.


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only based on the view that O&M stresses for CSP are analogous to O&M stresses fotraditional thermal power plants, which reflect changes in the balance of plant. Thicriteria report bases the O&M stresses for CSP on Fitchs existing Rating Criteria fo

Thermal Power Projects, June 15, 2010 (thermal criteria), which does not currentlyapply additional O&M stress in the out years.

SupplySunlight is an intermittent renewable fuel source. Similar to other renewable energysources, it is not available on demand and its quantity can vary on a daily basisTherefore, Fitch expects that each utility-sized solar project will have a third-partyassessment of the variability of solar resource for the particular project site in order tobetter quantify the fuel supply. The specific solar irradiance at the project site will bethe basis for the projects expected electric energy output, measured in megawatt-hours(MWh), and also the basis for the projects expected cash flow to meet debt obligations.

Fitch looks to a third-party solar resource supply assessment to address three majoissues: (1) the quality of the data used to determine the characteristics of the sola

resource; (2) a long-term estimate of the average electric energy output from theproject, based on the solar resource evaluation and the design of the project; and (3various statistical probability scenarios of the expected electric energy output.

Resource Data Quality ()Fitch looks to the solar resource consultant to evaluate the available solar irradiancedata as it relates to the actual project site, and to opine on the quality of the data. Avalid data set includes: readings of the applicable solar irradiance (also called solaenergy or insolation), ambient temperature, wind speed, and precipitation at theproject site on an hourly time scale.

Types of Solar Energy and Measurement Instruments

There are four main forms of solar energy or irradiance that should be evaluated in asolar resource assessment. Photovoltaic solar projects can use all forms of solaenergy, direct and indirect, while CSP projects are designed to use direct solar energyonly. All four forms of solar energy are measured in watts per meters squared (W/m2)

Direct normal irradiation (DNI or direct radiation) is the incident solaradiation in a direct line from the sun, without having been reflected oscattered. DNI is the primary measure of a solar resource for CSP projects.

Diffuse horizontal irradiation (DHI or diffuse radiation) is the incident solaradiation that has been scattered by clouds (droplets of water), dustpollution in the air, etc. This measure of sunlight cannot be used by CSPprojects, but is important for PV projects.

Albedo (reflected radiation) is incident solar radiation reflected from theground, roof, or topography. Albedo is also of little use for CSP projects, buis a component of the supply for PV projects.

Global horizontal irradiation (GHI or global radiation) is the sum of all thethree radiation sources described above, DNI, DHI, and Albedo. It is theprimary measure of a solar resource for PV projects.

Readings of the various types of solar radiation are collected using specificinstruments. Pyroheliometers are used to measure DNI specifically, and pyranometer

are used to measure GHI, which includes all forms of solar irradiance. A rotatingshadowband radiometer is a specific pyanometer that can measure all irradiancetypes as well as atmospheric parameters.


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Fitch looks for a minimum of one year, hourly, well-maintained, onsite data for acomplete solar resource supply assessment. Shorter data periods than one year will nocapture the full seasonal and diurnal characteristics of solar irradiance at a particula

site, and would be considered either midrange or weaker. Confirmation that theinstruments used to collect the data were appropriate and properly calibrated andmaintained is also expected. Fitch has encountered instances in which no onsite, localor regional solar data is available, and the solar resource consultant had to rely solelyon satellite data to evaluate solar irradiance. While not ideal, Fitch realizes the dataconstraints, and accepts this weaker data when no other appropriate sources existFitch expects the solar resource consultant to include or recommend a reduction to thesolar resource for the additional bias inherent in a weaker data set.

A comparison of the projects solar data to other local or regional data sources iscrucial to evaluating overall data quality. Fitch looks for information on each referencestations period of record, elevation, and distance from the project site to validate thicomparison. A high correlation of the projects data set to the reference stations dataset 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 removedfrom the project site, would be considered a weaker data set. Fitch looks foexplanation of any adjustments used by the solar consultant to construct a final dataset of the highest quality given the existing data constraints. The evaluation of thesolar data will yield average solar and meteorological resource characteristics for aparticular type of insolation (global horizontal irradiation [GHI] for PV, or direct normairradiation [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 forthe project site using the specific site data (discussed above) and an external, longdated typical meteorological year (TMY) data. TMY data sets are time series datamodeled from satellite data, and are adjusted to exclude anomalous events such as

volcanic eruptions. Fitch expects the resource consultant to use a reputable long-datedTMY data set, and to disclose the source.

Electric Output EstimateA solar projects electric outputestimate is the net, long-termaverage electric generation,calculated in MWh, attributed to theproject. The electric output estimatewill take into account the solarresource, the solar technologyemployed by the project, andexpected losses for the technology

and its operations that will reducethe electric output. Electric outputestimates that present expected losscategories, with the percentagereduction used to produce MWhoutput, and a confidence interval foreach loss category, are also viewedas stronger. Please see the chart at right for typical losses associated with solatechnologies. Operational losses include reductions to the plants expected availabilityreductions to expected annual degradation (applied to PV plants), and possibletransmission curtailment, if any. Finally, Fitch takes an additional reduction to the

Risk Factor Assessment:Solar Data Sets ()

Most solar data sets Fitchreviews are likely to havemidrange attributes thatreflect one year or more ofwell-maintained, hourlyground-based data within a10-mile radius of the projectsite (not onsite).

Stronger solar data setsreflect actual onsite, 30-minute interval or hourlydata for one year or more,from well-maintainedinstruments.

Weaker solar data sets arelikely to be exclusively fromhourly satellite data withoutappropriate adjustments fordata quality and the appliedtechnology.

Risk Factor Assessment:Electric OutputEstimates ()

Electric output estimatesthat present all losscategories with a percentagereduction used are viewed asstronger.

Electric output estimatesthat present some loss

categories with thepercentage reductionemployed in the estimate areconsidered midrange.

Electric output estimatesthat do not specify anypercentage of losses or thatdo not address sufficient lossfactors are consideredweaker.

Indicative Loss Factors due toTechnologya

Concentrating Solar Power Photovoltaic

Solar Field Heat Losses ShadingTracking Error Glass Reflection/AbsorptionGeometric Accuracy Nonstandard Test ConditionsMirror Reflectivity SoilingShading Module MismatchSolar Transmittance Direct Current WiringSolar Absorbance Inverter efficiencyMirror Soiling Inverter limitation

Receiver Thermal Losses Alternate Current CoolingLost Receiver Vacuum Parasitic LoadThermal Storage Losses TransformerParasitic Load Alternate Current WiringTurbine Efficiency

aAdditional loss factors may apply, not an all inclusive listing.Source: Fitch.


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electric output estimate for solar resource bias, in order to address endemicmeasurement irregularities in the data set. Fitch will look to the solar resource supplyconsultant, and Fitch experience, for the appropriate bias error estimate.

Fitch also reviews a metric that is unique to PV plants called the performance ratio, oPR, in relation to the electric output estimate. The performance ratio is a descriptivestatistic, expressed as a percentage that estimates overall energy yield, i.e. the energyoutput after losses within the PV system relative to the systems nominal output. Theperformance ratio is calculated as AC MWh output per the DC MW nameplate ratingdivided by the plane of array (POA) insolation in MWhs per meter squared, or (ACMWh/DC MW) / (POA MWh/m2). The performance ratio measures the projects energyyield based on factors such as inverter efficiency, wiring, module mismatchdegradation, module temperature effects, and other system loss factors discussedabove. Fitch regards the performance ratio as a useful data point in its analysis of a PVplant, 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 modeResource consultants typically use an industry accepted model that Fitch views as strongerIn some cases, a solar resource consultant may be asked to use and evaluate output from aproprietary model developed by the sponsor or technology manufacturer. In thicircumstance, Fitch looks to the third-party resource consultant to indentify the modedeveloper and justify the use of an affiliates model as a substitute.

Output Probability ScenariosSimilar to its criteria on wind projects, Fitch looks to probability scenarios to qualifythe intermittent resource by providing an estimate of electric output that the solaresource consultant expects to be exceeded over a certain period of time with 50%confidence (P50), 90% confidence (P90), and 99% (P99) confidence. The probabilityscenario provides a theoretical floor output level based on a probability and time span.

Fitch considers a solar resource assessment that provides three output probabilityscenarios, a P50, a one-year P90, and a one-year P99, to be stronger.

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 wilalso, by definition, have a 50% probability of falling short of this level of outputThis energy production level represents the solar resource consultants besestimate of the average annual electric yield achievable by the project. Fitch usesthe 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 beingexceeded in any given year over the life of the debt, and will provide a smalleexpected output level than a P50. The one-year P90 will also have a 10% probabilityof 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 issuePlease see Financial Analysis Debt Service section for further discussion oFitchs financial cases.

A one-year P99 output profile will be the lowest output profile, and therefore, themost conservative. A P99 is the output level that has a 99% probability of beingexceeded in any given year, and a 1% probability of falling short in any given yeaover the term of the debt. Fitch uses the one-year P99 as a stress case for rating asolar project.

A midrange solar resource assessment will provide a P50 and a P90 only, and a weakersolar resource assessment will provide only a P50 or will not categorize its output as


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one of these three basic probability scenarios. Fitch may choose not to rate a solar debissue that provides a P50 alone.

Transmission SupplyA final supply issue is transmission availability. Fitch looks for a discussion of theamount of transmission that either exists or expects to be built in conjunction with thesolar project, and a determination if the transmission plan is sufficient or in excess ofthe maximum output of the solar project. Part of the permitting for greenfield utilityscale solar projects often includes an interconnection agreement with the grid manageand/or direct off-taker of the project, and Fitch expects to examine this agreement fosufficiency, timeliness, and appropriate rights of way. Fitch also looks to the solaresource consultant to opine on this agreement. Any history of curtailment by the gridmanager or off-taker, or congestion issues that could lead to possible unplannedcurtailment, lower plant performance, or operational issues should be considered intransmission supply. Rooftop-mounted distributed generation systems are nodependent on transmission availability and would not face transmission supplylimitations.

Technology ()Fitch evaluates solar technology based on its long-term ability to provide electric outpuand revenues to service debt. Fitchs major concerns surround the technologyscomplexity, commercial viability, performance uncertainty, and utility-scale applicability

There are two classes of solar projects: PV and CSP. The primary difference betweenthe two technologies is how they use the suns rays to generate electricity. In a PVplant, sunlight is converted directly into electricity through the acceleration oelectrons in a semiconductor material that is embedded in the solar cell that creates anelectrical current. In a CSP plant, the suns heat is concentrated by mirrors or lenseonto a working fluid, such as a hydrocarbon fluid, which heats water into steam andturns a conventional steam turbine. Please see the table below for a basic comparison

of the two solar technologies.

Photovoltaic (PV)Currently there are three primary variations of PV technologies: crystalline silicon, thinfilm, and concentrating PV. Fitch attributes crystalline silicon (c-Si) panels, includingmonocrystalline and polycrystalline, a lower cost and performance uncertaintycompared with other PV technologies based on approximately 30 years of operatinghistory, mostly as a residential and distributed power source and with minimal scale-uprisk due to their modularity. Thin film panel technologies, including amorphous silicon(a-Si), cadmium telluride (CdTe), and copper indium (gallium) diselenide (CIGS and CISare attributed midrange cost and performance uncertainty because some of thesetechnologies have a limited operating history of up to five years at the utility scaleFinally, concentrating PV (CPV) technologies are currently emerging in the solar powe

industry, and therefore entail relatively higher uncertainty in projecting lifetime costand performance. Please see Appendix B for a discussion of the current PV technologies

Concentrating Solar Power (CSP)Currently, there are four primary variations of CSP technologies: parabolic troughspower towers, solar dish-engines, and linear Fresnel reflectors. Parabolic troughtechnologies are the oldest CSP technology, dating back to the mid-1980s as a utilityscale electricity source, and Fitch attributes the technology relatively low cost andperformance uncertainty. Power tower technologies have been available at the utilityscale since the late 2000s, and due to their more recent utility-scale experience, Fitchattributes power towers a midrange cost and performance uncertainty. Dish-engine and

Risk Factor Assessment:Solar Technology ()

Solar technologies that havea substantial and proventrack record are consideredto have less performanceuncertainty and thereforestronger performanceattributes. Thesetechnologies includecrystalline silicon PV andparabolic trough CSPprojects.

Solar technologies that havelimited but actual operatinghistory at the utility scale areconsidered to have midrangeperformance uncertainty.These technologies includesome thin film PV from a fewstrong manufacturers andpower tower CPS projects.

Solar technologies that arecurrently emerging, indevelopment, or in the pilotphase, with no actual utility-

scale operating history areconsidered to have higherperformance uncertainty andtherefore weakerperformance attributes.Currently these technologiesinclude some thin film PV,concentrating PV, dish-engine CSP, and linearFresnel reflector CSPprojects.


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linear Fresnel reflector technologies are attributed relatively higher cost andperformance uncertainty due to their status as technologies are currently indevelopment. Please see Appendix B for a discussion of the current CSP technologies.

Project AnalysisRevenue Risk ()Solar power projects are not independently economically viable in a competitive energymarket. Currently, their success is predicated on revenue stability through long-term

PPAs as well as feed-in tariffs (FITs), subsidy payments, and other supporting regulatoryframeworks. Revenue resources for both PV and CSP projects are likely to be fromelectricity deliveries rather than capacity and ancillary services. Revenues are nettedagainst projects operating costs (discussed in theProject Analysis Operation Rissection) to determine the financial margin available for debt repayment.

PPAsThe credit quality of the power off-taker serves as a cap on the project rating since thereliability of revenue payment is based on the purchasing entity. A typical project wilhave a PPA with investment-grade off-takers (e.g. government entities, regional powemarket operators, and utilities.) As a below investment-grade off-taker will cap theproject rating, Fitch will assess the off-takers financial performance and the strategicimportance of the solar power project in fulfilling renewable energy mandates.

While strong solar power projects typically have a secure revenue stream through longterm contracts, some exposure to merchant market power prices does not necessarilypreclude a project from achieving an investment-grade rating. In the case that aproject has meaningful exposure to the merchant power market, Fitch will applyfinancial stresses to determine the projects regional competitiveness in a low poweprice merchant market environment and its prospects for timely debt repayment.

Fitch reviews the PPA to determine how stringent power plant performance requirementare to receive projected payments and to avoid PPA termination. Some PPAs have a simplerequirement that the utility off-taker purchase whatever electric energy output the projec

Risk Factor Assessment:Revenue Risk ()

With stronger off-takeagreements, there is nomerchant market exposure anddebt will mature before therevenue contract terminates.

Midrange revenue contractshave a duration that matchesthe term of the rated debt andare within the useful life of theassets or have merchantexposure that covers a smallportion of debt for a projectthat is price competitive underFitchs power price stress

scenarios.

Weaker revenue generatingstructures leave a meaningfulportion of debt repaymentsubject to merchant marketprices.

General Comparison of Solar Technologies

Feature Photovoltaic Concentrating Solar Power

Applicable Sunlight Global horizontal insolation (GHI) Direct normal insolation (DNI)Climates Suited All climates Hot climates onlySolar Resource Intensity Any intensity permissible 2600 kWh/m2/year or > requiredStorage Possible No YesSunlight Collector PV cell Mirror or heliostatSemiconductor (PV) or

Conductor (CSP)Silicon, amorphous silicon, cadmium

telluride, othersHydrocarbon fluid, synthetic oil,

hydrogen, helium, molten daltTurbine Required No Yes

Axis TrackingNo tracking, single-axis tracking, or

dual-axis tracking observedRequired to have single-axis or dual

axis trackingTilt Fixed or adjusting Adjusting requiredConcentration Ratio None for PV, up to 500 times for

concentrating PV

30 to 1,500 times

Water Cooling Needs None Maximum 500 to 800 gallons per MWCurrent Produced Direct current (DC) Alternating current (AC)Dispatchability (without Storage) None NoneConversion Efficiency (%) 6.5% to 19.0% PV, up to 30% for

concentrating PV15.0% to 30.0%

Max Capacity Factor (%) 24.0% (no tracking) 33.0% (with dual-axis tracking)

25.0% (without storage) 40.0% (with6 hours storage)

Plant Complexity Low High

M2 Meters squared.Source: Fitch.


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produces. Other PPAs have more stringent requirements that the project has to achieveminimal performance thresholds regarding the plants availability and capacity factors andtotal electric energy output. Fitch will stress the projected cash flow to determine the

projects capacity to meet PPA performance requirements.Regulatory IncentivesCountries where solar power, and specifically PV, has been most prevalent have beenthose providing effective and efficient incentive/support systems. Although these maycome in various forms such as premiums and quota obligations/green certificates, FITshave been the most widely used.

FITs are established compensation rates for delivered electric output under contractgenerally ranging from 10 years to 25 years. In some countries, the tariff is indexed toinflation while in others it is fixed for its entire term. FITs have been adoptedthroughout Europe and sporadically elsewhere. As is the case for any industry relying ongovernment subsidies, the financial performance of solar projects is dependent on suchregulations 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 subsidystability and longevity exists. Financial pressures and competing national priorities mayforce countries to reexamine the amount of subsidies they provide and the pace otheir commitments to develop renewable energy projects. Declining costs of solaequipment may also drive a reduction in the amount of government subsidies thacountries provide. Fitch recognizes the potential tension between meeting aggressiverenewable energy mandates and sustaining costly subsidies to achieve those mandatesTo this extent, Fitch reviews the relevant regulatory frameworks, also paying attentionto whether the interests of incumbent operators have been preserved in the past whennew laws have been enacted. A change in the regulatory regime that reduces aprojects subsidy support during the life of the debt will trigger Fitchs reevaluation othe projects credit quality.

In Fitchs financial analysis, renewable energy credits (REC) and green certificates areconsidered in accordance with their market prevalence. In Fitchs experience, RECstend to be a minute part of a projects revenue composition in the U.S., so Fitchgenerally excludes their contribution, unless they are contracted, in the financial stresscenarios to assess the projects reliance on a subsidy that is not well-established. Inother countries where green certificates have a longer history and are more significantFitch will stress their variability in its financial analysis.

Project AnalysisMacro RisksConsistent with the Master Criteria, Fitchs macro risk analysis for solar power projectsconsiders sovereign and political risk as well as the regulatory environment. Fitch willook for signs that renewable power generation is a national priority as indicated bymandates, such as renewable portfolio standards in the U.S., to achieve renewable

energy goals or national strategic plans and directives.

Macro risks are out of the control of project sponsors as there are limited actions theycan take to mitigate political, economic, and regulatory risks. Therefore, Fitchssovereign rating and country ceiling usually place an upper limit on a project ratingFitchs macro risk assessment considers whether a country has a reliable legal systemsupportive regulatory regime, and long-term economic stability. Macro risks are givenstrong consideration in Fitchs project ratings because even projects with solidoperating potential can be undermined by these factors. Please refer to Fitchs MasteCriteria for further discussion.


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Financial AnalysisDebt StructureAs with any power project financing, Fitch considers each rated debt instrumentindividual characteristics, structural features, security rights, and other terms and

conditions. While each debt issue is unique, Fitch looks for debt characteristics and termsat solar power projects that are overall typical and customary for the power industry.

Debt Characteristics and TermsFitch will focus on the characteristics of the debt instrument, including maturity, amountand currency. The amortization profile can be a key characteristic of a solar debt issue thacan range from fully amortizing (mortgage style, front-loaded, or back-loaded), balloon, obullet repayments. The agency views fully amortizing, front-loaded debt as stronger if irelies on cash flow during a plants most productive years, and back-loaded debt as weakeif it relies on higher cash flow during a plants declining productive years. In addition, Fitchconsiders debt maturities that are beyond the current industry average or that are notcommensurate with the economic and commonly accepted life for the relevant technologyto be weaker. As such, no credit is given to cash flows beyond the expected useful life

of the project. Fitch will examine the structure of the debt at a PV plant in considerationof the expected degradation, in particular. The agency also looks at the priority of paymentranches (structural seniority or subordination positions) as well as principal and/or interesdeferral features. Please refer to the Master Criteria for more detail.

Structural FeaturesThe structural features of a solar debt issue can have a significant impact on its ratingSolar debt issues that include a debt service reserve (principal and interest) of at leassix months are considered midrange, while 12 months debt service is consideredstronger. Additional reserves including an operating expense reserve of greater than sixmonths, accrual of a major maintenance reserve prior to the expenditure, and accruaof a decommissioning reserve over the life of the plant are each considered strongerCash sweep mechanisms and prohibitions on additional debt are also positive structura

features for the project rating. Fitch will examine exposure to interest rate volatilityinflation, or currency risk; ownership restrictions; distribution triggers and levelsliquidity; and payment waterfalls.

Financial AnalysisDebt ServiceConsistent with the Master Criteria, Fitch develops base case, rating case and individuafinancial stress scenarios to assess cash flow resiliency and capacity for debt repaymen

Fitchs analysis starts with a cash flow-based financial model provided by the sponsorwhere performance variables can be manipulated to assess the projects performanceunder stress scenarios. The scenarios outlined below reflect Fitchs indicative financiaanalysis scenarios. While the scenarios reflect Fitchs typical approach in financiaanalysis, Fitch may apply more or less stress to key performance variables to

adequately reflect distinct characteristics of each project with respect to technologymanufacturer, construction contractor, operator, warranties, and plant location. Inaddition, Fitch takes into consideration the reasonableness of the sponsors base caseprojections, recognizing that some budget estimates are more conservative whileothers are more optimistic. Based upon the third-party engineers opinion and peecomparisons of other Fitch-rated projects, Fitch will adjust stress scenarios accordingly

Key performance variables include electric energy output estimate (expressed in MWhand calculated on the basis of P50, a one-year P90, and a one-year P99), planavailability, capacity factor, degradation, and operations and maintenance expense(including major maintenance).


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Base CaseThe base case reflects Fitchs expectation of long-term sustainable economic and operatingconditions. The Fitch base case is the baseline for surveillance over the life of the debtStarting with the sponsors base case, Fitch will develop its own base case, incorporatinadjustments to align our performance expectations of the project with the specifictechnology operating in similar environments and conditions. The adjustments are basedupon Fitchs experience and consultation with the third-party engineer. The base caseincludes an electric output estimate at P50. Indicative investment-grade debt servicecoverage ratios (DSCR) under the base case range from 1.40x to 1.50x and above.

Rating CaseThe rating case evaluates the resiliency of the projected cash flow with a combination ostresses that together simulate a scenario of material underperformance, which iconceivable but not expected to persist during the life of a PV or CSP project financingFitch typically combines risk factors assessed in the individual stress cases and applies acombination of stresses that are most likely to affect the plants performance. Fitch seekto assess with a high level of confidence the probability that a project can meet debtservice obligations. Therefore, Fitchs rating case is based on a one-year P90 electricoutput estimate. The rating case also includes a reduction to the electric output due tosolar resource bias measurement and an adjustment in degradation from the first year ooperation through debt maturity. The availability factor and O&M cost for PV plants will beadjusted in year one of operation and again in year 16 due to expected declines in balanceof system performance and possible O&M cost increases. While Fitch reviews third-partyengineering 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 othe project; the degree that the minimum DSCR deviates from the average; and themagnitude and frequency with which DSCRs persist below the average. The DSCRs inthe rating case reflect the levels of cash flow cushion available (on top of thetransactions available internal liquidity) to mitigate other possible reductions in cashavailable for debt service. Some examples of the type of risks that this cushion idesigned to accommodate are:

Uncertainty of long-term solar panel and balance of system performance due toinsufficient actual operating experience compared with the duration of warrantieand rated debt.

Indicative Solar Project BBB Category Cover Ratios

DSCR Average Profile (x)

Technology Revenue Contract Type Base Case Rating Case

Fully Contracted 1.40 and above 1.30 and abovePartially Contracted 1.60 and above 1.40 and above

PV

Fully Merchant 2.50 and above based onrisk profile

2.00 and above based onrisk profile

Revenue Contract Type Base Case Rating CaseFully Contracted 1.50 and above 1.40 and abovePartially Contracted 1.70 and above 1.50 and above

CSP

Fully Merchant 3.00 and above based onrisk profile

2.50 and above based onrisk profile

Note: The base case and rating case coverage ratios above are indicative only. In addition, the actual relationship betweenthe base and rating cases may vary and is not static. Fitch reserves the right to determine the cushion above or below theseratios. Comparisons with similar projects and institutional Fitch knowledge will be a source for determining ratios in actualcases.Source: Fitch.


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Uncertainty regarding the impact of varying environmental conditions on panels andpower production such as soiling, temperature, and moisture.

Evolving nature of solar technology complicates the comparison of pasperformance to newer models perpetuating some degree of uncertainty.

Complex technology that raises the probability of forced outages, resulting in lesthan projected electric energy production.

Under the rating case, investment-grade average DSCRs for fully contracted projects are1.30x and above for PV projects and 1.40x and above for CSP projects. Fitch notes that foa fully contracted CSP project, the investment-grade DSCR profile is similar to Fitchscriteria for fossil-fuel thermal power generation projects as discussed in the thermacriteria.

The profile of investment-grade debt service coverage ratios is a guide not a prescriptionfor achieving a specific rating. While Fitchs rating seeks to quantify major credit risks, areflected in Fitchs projection of DSCRs under stress scenarios, the rating is also informed

by qualitative factors previously discussed such as technology risk, operation risk, debtstructure, and Fitchs view of the projects competitive market position. On occasion, Fitchmay have tolerance for lower DSCRs at the investment-grade level based upon structuraand qualitative strengths of the project, which may not be fully reflected in the financiaanalysis. Conversely, Fitch may see a need for DSCRs that are higher than the indicativeprofile to provide greater financial protection due to structural and qualitative weaknessenot fully reflected in the financial analysis.

Projects meeting the coverage requirements for investment grade may be constrainedto lower rating categories due to factors such as excessive technical risk, prolongedmerchant tails, sub-investment-grade counterparties, or other key risk factoassessments. Projects otherwise meeting investment-grade requirements, buexhibiting coverage ratios lower than indicated for investment grade, are assessedbased on the facts and circumstances particular to the project. For example, a

contracted project with minimum coverage near 1.20x could be rated in the BBcategory if it exhibits very low cash flow volatility, or could be rated in the B categoryif it faces considerable cost risk. Projects with minimum coverage at or below 1.10x aregenerally constrained to the B category. It is quite rare that a project is so heavilycapitalized initially that its initial rating is above BBB.

Fitch recognizes that the utility-scale operating history of many solar technologies isrelatively modest compared with the expected duration of debt for these projectsUnlike fossil fuel generating projects, there isnt a long track record of actual cash flowgeneration compared with initial projections for utility-scale solar projects. Fitchexpectations of utility-scale solar project financial performance will be fine-tuned asthe industry matures and implements lessons learned.


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Individual and Break-Even Financial StressesFitch places severe stress on individual key performance variables to determine thelevel of exposure and sensitivity of the projects cash flow to individual events. Fo

example, Fitch has found that higher-than-expected degradation can materially erodecash flow for PV projects, while they are less sensitive to plant availability stressesBreak-even stresses allow Fitch to determine the level of financial stress that a projectcould absorb while producing the minimum amount of cash flow to meet debt servicepayments just before the point of default, as reflected in DSCRs around 1.0x. Fitch wilalso run financial stresses based upon manufactures minimum performance guaranteesfor availability, capacity, degradation, and electric energy output.

Estimated Electric Output: For PV and CSP, Fitch may reduce the overall estimatedelectric output by up to 10% to account for measurement bias errors.

Availability/Capacity Factor: Fitch considers the impact of reduced availability andcapacity factors for PV and CSP.

O&M: Fitch considers the cash flow impact of a sustained increase in O&M expensesdirect (including major maintenance) and indirect such as general administrationincluding property taxes.

Panel Degradation: The percentage of annual degradation that Fitch applies will beinformed by the third-party engineer.

P99: Fitch will assess a projects performance under a one-year P99 scenario in whichinvestment-grade projects are expected to achieve DSCR results that are at or above1.0x.

Merchant Prices:Fitch has observed that solar power projects generally do not faceexposure to merchant market prices. However, Fitch may apply merchant pricesensitivity analysis when there is a high-priced PPA with a weak counterparty, as thereis a potential for contract termination causing the project to sell power on the openmarket. In cases where the project is exposed to merchant risk, Fitch will consider thelevel of market price decrease a project can sustain and still meet debt obligations at aparticular rating level. Fitch generally relies on its third-party market consultants view

Indicative Solar Project Financial Cases

Base Case Rating Case Break Even (BE)

PV Project Stresses

Electric Output Probability Scenario P50 1-year P90 1-year P99Solar Resource Bias Adjustment Up to 5% Up to 10% To BEAnnual Panel Degradation 0.3% to 1.0% 0.5% to 2.5% To BE

Availability, Years 115 97% to 99% 92% to 99% To BEAvailability, 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 BECosts (including O&M and MM), Years 16+ Third-party resource +10% to +15% To BE

CSP Project StressesElectric Output Probability Scenario P50 1-year P90 1-year P99Solar Resource Bias Adjustment Up to 5% Up to 10% To BEAvailability 95% to 98% 90% to 98% To BECosts (including O&M and MM) Third-party resource +5% to +20% To BE

MM Major maintenance. Note: The base and rating case ranges above are indicative only. Base and rating case adjustmentare predicated on Fitch's experience and consultation with the third-party engineer. A review of the third-party resourceconsultant's and third-party engineer's reports will be a source for assigning values in actual cases.Source: Fitch.


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of market price projections and adjusts these projections based on Fitchs experienceand market outlook.

Fitch will also apply as it deems appropriate and in accordance with the projectscontractual agreements, additional stresses consistent with project financings in othepower sectors. These additional stresses include construction delays, financing costsand inflation.

Financial AnalysisCounterparty RisksCounterparty risk addresses the financial obligations of project counterparties such aoff-takers, affiliate-contractors, affiliate-operators, affiliate or non-affiliate equipmenwarranty providers, and third-party insurers. It does not address third-party consultantthat are not defined as financial counterparties by Fitch. As with any counterpartyFitchs rating of the counterparty is the starting point. There are typically moresituations for solar project counterparties where a Fitch rating is not available, or theanalyst relies on an internal or private credit opinion. In this case, an internal rating

may need to be assigned to the counterparty. Legally binding counterparty contractsno counterparty history of payment delays, or contract disputes, and a legally bindingobligation with strong legal jurisdictional enforcement are considered stronger.

Risk Factor Assessment:Counterparty Risks()

Stronger counterparties arerated above the seniorproject debt rating, arecapable of replacementwithout impacting the rating,

and have legally bindingobligations to the project.

Midrange counterparties arerated at the senior projectdebt rating, and contractenforcement is subject to theregion or jurisdiction butwith a precedent ofenforcement.

Weaker counterparties arerated below the seniorproject debt rating and arenot capable of replacement.

Weaker counterparties mayalso have a history ofcontract dispute or paymentdelays and some or allcontracts may not beenforceable.


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Appendix A: Key Rating Drivers for Solar Power Projects

Completion Risk

Information Quality Completion Risk Warranties Operation Risk Revenue Risk Debt StructureStronger Solar resource

assessment appliesmost rigorousmethods andmeasurement toolscommensurate withprojects technologyincluding at leastone year on sitedata correlated tolonger industry dataset.

Energy productionunder P50, 1-yearP90, and 1-year P99scenarios aredeveloped.

Third-party reportsaddress the budget,

technology,manufacturer,completion andoperation risks.

Contractors Investment-grade

EPC or owner/constructor.

Contract Terms EPC fixed price,

date certain,turnkey.

Completionguarantee fromcreditworthy party.

Liquidity coversliquidated damages,debt service.

Schedule isadequate tocomplete projectand avoid PPA/FITtermination.

Technology Risk Proven technology;

low construction risk

Warranty Performance Warranty exceeds

the industrystandard.

Manufacturer Investment-grade

manufacturer. Long history of

stable operating andfinancialperformance.

National orinternational marketpresence.

Conglomerate that isnot dependent onnascent sectors.

Fixed-price, long-term O&Magreement withinvestment-gradeproviders or,

Incentive-basedO&M agreementwith investmentgrade provider,

Major maintenanceor O&M reserves isfully funded inadvance to coveroverhauls during theterm of the debt

Technology is provenwith a longoperating historyand less

performanceuncertainty.

No merchant marketexposure.

PPA/FIT maturityexceeds debtmaturity.

PPA/FIT with stronginvestment-gradecounter party(AAA/AA).

Oversized solar fieldthat exceeds PPArequirement forenergy delivery tomitigate risk of less-than-projected solarinsolation.

Fully amortizing,fixed rate with debtthat matures priorto PPA/FIT maturity.

Equity distributionthreshold: at least1.2x DSCR.

Debt service reserveaccount greaterthan six months ofdebt service.

Other covenants toensure timely orearly debtrepayment; preventover leveraging ofassets; and provideadequate liquidity atproject level.

Midrange Solar assessment isbased upon ground-based data locatedclose to the site andcorrelated to longersatellite data set.

Third-party reportsadequately address: Energy production

under P50 and1-year P90scenarios.

Technology risk. Manufacturer risk. Completion and

operational risk. Adequacy of

sponsors budget.

Contractors Experienced possibly

investment grade.

Contract Terms Owner/contractor,

with strong budgetcontingencies andcreditworthy parentguarantees.

Liquidity coversliquidated damagesand debt service.

Schedule isadequate tocomplete projectand avoid PPA/FITtermination.

Technology Risk Proven technology;

more complex.

Warranty Performance Standard industry

warranty coveragefor serial defectsand long-termoutput. For PV thisincludes five-yearwarranty on panelsand 90% of initialnominal output infirst 10 years and80% for 2025 years.CSP technicalwarranties range

2436 months.

Manufacturer Investment-grade

manufacturerconcentrated in thesolar sector, orexperiencedconglomerate closeto investment gradewith solid financialposition to fulfillguarantees.

O&M agreementwith experiencedprovider.

Agreement is shorterthan the term of thedebt.

Performanceincentives.

Agreement mayhave fixed orescalatingmanagement feesplus out-of- pocketreimbursements.

Major maintenanceis adequately fundedon an accrual basis.

Technology is provenwith limitedcommercialapplication andmidrangingperformanceuncertainty.

PPA/FIT matchesfull term of debtwith investment-grade counterparty;or,

Merchant exposurecovers small portionof debt for a projectthat is price-competitive underFitchs power pricestress scenarios.

Fully amortizing,fixed rate, no tailrisk.

Distributions:1.15x1.19x DSCR.

Debt service reserveequal to six monthsdebt service, fundedupfront.

Other covenants toensure timely debtrepayment; preventover leveraging ofassets; and provide

adequate liquidity atproject level.

Weaker No independentelectric outputestimate or only P50is provided.

Solar assessment isbased solely onsatellite data

without appropriateadjustments for dataquality andtechnology; subjectto material caveats;limited scope.

Inadequate reviewof completion, oroperation risks.

Contractors Multiple weak

contractors.

Contract Terms Inadequate budget

contingencies, weak

parent guarantees. Delays easily lead to

PPA/FIT terminationor optimisticcompletionschedule.

Technology Unproven or

demonstration-phasetechnology posegreater scale up andcompletion risks.

Warranty Performance Warranty is below

the industrystandard.

Manufacturer Experienced but

below investment-grade manufactureror,

New manufacturerwith littleexperience,questionablelongevity, andfinancial strength,non-investmentgrade.

O&M provider withlittle experiencewith the technology.

Cost plus agreementlacking incentives.

Inadequatemaintenance

reserves. Proprietary, new, or

obsolete technologywhere parts are noteasily replaceable orare expensive, and ahigh level ofperformanceuncertainty over thelong term.

PPA/FIT with belowinvestment-gradecounterparty.

Weak PPAterminationprovisions.

Merchant exposureto cover significantportions of debt.

Merchant project isnot competitiveunder Fitchs low-price merchantpower projections.

Tail and/orrefinance risk.

Debt maybe withinuseful life of assetbut longer thanindustry average.

Distributions below1.15x.

Debt service reserveless than six monthsor not fully fundedupfront.

Weak provisionsallow overleveragingof assets.

EPC Engineering, procurement, and construction. PPA Purchase power agreement. FIT Feed-in tariff.Source: Fitch.


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Appendix B: Solar Technologies

Photovoltaic (PV)PV panels are appealing as a generation source because of their simplicity, easyscalability, long history as a commercially viable product, and relatively simpleoperation and maintenance when compared with other forms of generation. Theessential building block of a PV solar plant is the PV cell, a solid state technology withno moving parts. This very simple design is by definition modular: each cell is groupedwith more replicas of itself into a panel, and any number of panels can be grouped toproduce the desired output of electricity. Scale-up risk of PV is fairly small becausepanels are used in typical size, only in greater number, to reach the utility scale. PVpanels were first applied as back-up power in space satellites in the mid-1960s, andhave enjoyed a long history primarily as a distributed generation source or foresidential use since that time.

Crystalline Silicon PV: The oldest PV technology employs crystalline silicon (c-Si) as thesemiconductor material in the PV cell, including both monocrystalline andpolycrystalline silicon panels. Fitch considers crystalline silicon PV technologycommercially proven based on seven to 10 years of utility-scale use, its well knownwell-researched properties, and more than 30-year commercial track record as nonutility-scale electric power source.

Thin Film PV: Considered the second generation of PV technology, thin film solar cellshave been developed and commercially deployed in utility-scale projects since 2005Fitch 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 withcrystalline silicon. The three most prevalent thin film technologies are amorphoussilicon (a-Si), cadmium telluride (CdTe), and copper indium gallium diselenide(CIGS)/copper indium diselenide (CIS).

Concentrating PV: Concentrating PV (CPV) is considered an emerging technologybecause it does not have a commercial track record. While not yet employed at theutility scale, several utility-scale CPV plants are currently in development. CPV makethe cross between traditional PV and CSP (discussed in the next section) in that CPVconcentrates sunlight onto a photovoltaic surface using either reflective mirrors oacrylic lenses. Current CPV panels include up to three layers of nonsilicon


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semiconductors stacked on top of another that each convert a different portion of thesolar spectrum into electricity to permit a higher conversion efficiency than traditionaPV 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-likeclimates, similar to traditional CSP plants.

Concentrating Solar Power (CSP)CSP technology is appealing because of its ability to generate massive amounts of heat,and its ability to either convert that heat into electricity or store the heat temporarilyusing conventional thermal storage technologies. CSP is a proven but complextechnology that can be susceptible to scale-up risks and operates more like atraditional power plant for operations and maintenance and use of water cooling. Thi

technology employs reflective mirrors with tracking systems and conventional steamturbines that utilize many moving parts to produce electric output.

There are important differences that distinguish CSP plants from traditional thermafossil fuel plants. Unlike fossil fuel plants, CSP plants with traditional turbines have nodispatchability without a storage mechanism, and even now storage acts to smoothoutput rather than permit dispatch based on demand. Heat storage systems captureexcess concentrated heat and retain it in nitrate molten salts that can achievetemperatures approaching the concentrated heat of the plant. When the horizon iscloudy or the sun has set, the molten salts heat the steam that drives the turbines. Inthe middle of the schematic below, the hot and cold tanks show where the heated andcooled molten salt is stored. The risks of using molten salts for thermal storage includeavoiding their freezing temperature (still above 200-degrees Celsius), and thecorrosive properties of these materials that require higher maintenance outlays.

A final distinguishing factor of CSP plants versus traditional thermal fossil plants ithe requirement of a solar tracking system. Solar tracking is a mechanical system thacontinually positions the mirrors or lenses of a solar thermal plant perpendicular tothe sun as it moves across the sky. Because solar thermal plants use only DNI togenerate heat, a tracking system is vital to maintaining their energy output. Trackingcan be single-axis, which moves a maximum of 180 degrees from east to west in alinear fashion, or dual-axis, which can move a full 360 degrees in a circle as neededto collect direct sun. Tracking systems are electronically controlled, and areprogrammed to optimize DNI by time of day and time of year. The greatest commonthreat of damage to a CSP plant is wind, which can break the mirrors. Operators use

PV Technology Comparison

Feature c-Si a-Si CdTe CIGS/CIS GalnP/GaAs/Ge

Semiconductor Carbon silicon Amorphoussilicon

Cadmiumtelluride

Copper indium(gallium)diselenide

Gallium indiumphosphide and/ogallium arsenideand/or germaniu

Type Bulk silicon Thin Film siliconThin Film non-

siliconThin Film non-

siliconConcentrating PV,

nonsiliconFirst Application Space

satellites in1960s

Calculators in1970s

Electricity in2000s

Electricitygeneration

Space satellites

Utility-Scale History 7

10 years(2000) 5 years (2005) 3 years (2007) In development In development

Utility-Scale Use Proven Proven Proven Unproven UnprovenComplexity Low Low Low Low HighEfficiency (%) 1419 612 1012 1015 20 +

Panel Degradation (%) 0.31.0 0.71.5 0.71.5 1.02.0 Unknown

Source: Fitch.


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the tracking system to turn the mirrors to stow position to protect them during highwinds.

Currently there are four primary variations of CSP technologies: parabolic troughpower tower, dish engine, and linear Fresnel reflector.

Parabolic Trough: Parabolic troughs collect the suns energy using long rectangularparabolic U-shaped mirrors and single-axis tracking. Fitch considers parabolic troughtechnology to be commercially proven, based on the 20-year or more operating historyof the technology in the U.S. Parabolic troughs have more widespread successfuapplication internationally than any other CSP technology. Parabolic troughs havesuccessfully employed heat storage.

Solar Power Tower: Another, more recently implemented, utility-sized CSP technologyis a solar power tower. A solar power tower utilizes a field of dual-axis tracking mirrorscalled heliostats, which reflect direct radiation onto a receiver that is located at thetop of a tall, centrally located tower. Based on its successful utility-size operatinghistory since 2007, Fitch considers the power tower a proven technology with a limited


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application, and therefore, a midrange technology risk. Solar towers have alsosuccessful

fitch rating soalr power projects

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