Rating Criteria For Onshore Wind Farm Projects

Global Infrastructure & Project Finance
Power / Global
Rating Criteria for Onshore Wind Farm Projects

Sector-Specific Criteria
This report replaces the criteria report of the
same name, published 16 April 2012.
Scope
Application of Criteria: This criteria report outlines Fitch Ratings approach to rating debt
instruments where repayment is dependent on cash flows from the construction and operation
of onshore wind farm projects. This report covers greenfield and existing plants, and individual
or portfolio assets, typically financed with no formal guarantee of debt service from the
sponsors (non-recourse).
Inapplicable to Offshore Wind Farms: This criteria report is not applicable to offshore wind
farms. While the considerations outlined in this report also generally apply to such projects, the
challenges associated with their construction, operation and decommissioning result in their
risk profile materially diverging from that of a typical onshore project. Consequently, there is a
need for additional, specifically tailored analysis.
Global Criteria: This criteria report is intended for global application and focuses on matters
specific to the onshore wind power sector. The evaluation of any transaction involves
consideration of additional risks common to all project finance debt. As such, this report should
be read in conjunction with the agencys master criteria report, Rating Criteria for Infrastructure
and Project Finance, dated 12 July 2012.
Key Rating Drivers

Key Rating Drivers: The list below outlines Fitchs key rating drivers for rating debt financing
onshore wind farm projects. These are discussed at various points in the criteria report and will
be highlighted using the () symbol. Each specific rating action commentary or rating report will
discuss the drivers relevant to the individual rating assignment or action.
Completion Risk: Terms of the construction contracts; quality of construction contractor;
complexity and time scale of the construction phase.
Operation Risk: Operators experience; operation and maintenance (O&M) contract terms;
maintenance regime; technology reliability.
Revenue Risk Volume: Scope, quality and reliability of a projects energy production
forecast; variability of wind resource.
Revenue Risk Price: Strength, duration and flexibility of the power sales arrangements;
stability of regulatory support framework.
Analysts
Debt Structure: Composition of payment terms; strength of covenants to support debt

payment, maintain adequate liquidity and limit leverage.
Americas
Gregory Remec
+1 312 606-2339
gregory.remec@fitchratings.com
Debt Service: Cash flow resiliency to support timely debt payment under base case, stress
case, and break-even financial scenarios.
Cynthia Howells
+1 212 908-0685
cynthia.howells@fitchratings.com
EMEA
Federico Gronda
+39 02 879-087287
federico.gronda@fitchratings.com
Christiane Kuti
+44 20 3530 1396
christiane.kuti@fitchratings.com
www.fitchratings.com
11 April 2013

Framework for Onshore Wind Farm Project Rating Range
Across the Fitch-rated onshore wind farm portfolio, the vast majority of ratings falls between
BBB- and BB, reflecting the projects sponsors intention of maximising leverage at
reasonably moderate pricing levels. Downwards rating migration typically has affected projects
whose actual energy production proved materially lower than original expectations. Such
underperformance usually combined with unrelated operations and maintenance (O&M) cost
overruns.
Onshore wind capacity is second only to hydropower among the various forms of renewable
energy generation. The technology benefits from a reasonably long track record of large scale
commercial utilisation. Also, the significantly lower cost of onshore wind energy compared with
that of most other renewable power projects translates into more competitive power purchase
agreement (PPA) prices and lower subsidies, hence allowing for a more sustainable economic
profile for the projects in general.
Onshore wind farms tend to benefit from selling power to creditworthy offtakers under long-term
power purchase agreements or feed-in tariff regimes. When applicable, energy production
requirements are typically not onerous, resulting in low to moderate termination risk of the
offtake agreement. Merchant power price exposure, if present, is generally negligible.
With few exceptions, onshore wind farm projects rated by Fitch employ proven technology from
experienced and reputable manufacturers. Ratings on projects utilising technologies with
limited commercial operating experience are typically constrained to below investment grade
unless the enhanced technological risk is adequately mitigated.
Even if a project meets the financial metrics requirements for investment grade, other factors
may constrain it to a lower rating category. Factors such as weak sponsors, excessive
technical risk, partial merchant exposure, sub-investment-grade counterparties or other key risk
factor assessments may support a lower rating. Projects otherwise meeting investment-grade
requirements, but exhibiting debt service coverage ratio (DSCR) profiles lower than indicated
for investment grade, are assessed based on the facts and circumstances particular to the
project. For example, a contracted project with DSCR profiles near 1.20x under the Fitch
Rating Case could be rated in the BB category if it exhibits very low cash flow volatility, or
could be rated in the B category if it faces considerable cost risk. Projects with DSCR profiles
at or below 1.10x are generally constrained to the B category.
The fact that no ratings higher than BBB have been assigned so far to onshore wind farm debt
instruments is generally a reflection of the gearing of the debt structures analysed by Fitch and
is not due to a rating cap assumption on the asset class. Higher ratings could be achievable by
projects possessing mostly stronger attributes in respect of the risk factors identified in this
report and exhibiting sufficiently high financial coverage. Ratings are however not likely to be
above the A category due to the projects single asset nature, finite life and the limited
diversity typical for such financings.
Related Criteria
Rating Criteria for Infrastructure and Project
Finance (July 2012)
Rating Criteria for Thermal Power Projects
(June 2012)
Rating Criteria for Solar Power Projects
(February 2013)

April 2013

Global Rating Rationale Key Rating Driver Assessments
The table on the following page outlines the attributes that Fitch considers consistent with the
assessment (stronger, midrange, weaker) of a typical onshore wind power project. The table
provides qualitative guidance in the assessment of a project. Assessments are broadly
comparable across the entire portfolio of Fitchs infrastructure ratings.
The attributes are not exhaustive and some are not relevant for every project. While
investment-grade projects typically display attributes that are at least midrange, projects
normally display combinations of attributes. Fitchs assessment considers the various attributes
based on their materiality, potential effect on performance, and the projects general
characteristics. As such, a few strong attributes may outweigh a greater number of midrange
attributes to result in an assessment of stronger.
The assessments table primarily reflects project qualities that are typically considered in the
assignment of a new rating to a project under construction or with a limited operating track
record. The same considerations are relevant for the ongoing monitoring of existing ratings, but
attributes relating to forecasts (e.g. energy production and operating costs) may be
complemented and eventually superseded by the availability of actual performance data. An
initial assessment of Revenue risk Volume as midrange could, for example, migrate to
stronger as forecasts are confirmed by multiple years of actual energy production data.
Limitations
This criteria report does not cover circumstances such as a significant change in energy
demand, a complete realignment of the energy or electricity sector as currently structured in
individual countries, or the potential impact of climate change. If one of these or similar events
were to occur, Fitch would review the criteria and make appropriate changes to the
methodology and to the ratings covered. See the master criteria for a complete discussion of
limitations on methodology and ratings in the context of infrastructure and project finance.

April 2013

Figure 1
Key Rating Driver Assessments for Onshore Wind Farms

Completion risk
Achievement of COD
within cost, schedule,
Description and performance goals.
Stronger
Investment-grade BoP
and TS contractors.
Midrange
Weaker
Relevant
indicators
EPC fixed price, date

certain, turnkey.
Operation risk
Stability of technical
performance and O&M
cost adequacy.
Revenue risk - Volume

Revenue risk - Price
Likelihood of meeting planned Revenue stability with
energy production; variability of feasible production
wind resource.
requirements.
Completion guarantee
from investment grade
party or significant
performance bonding.
Liquidity covers LDs,

debt service.
Ample scheduling
allowance to achieve
completion.
Proven technology;
low construction risk.
Advanced stage of
construction.
Experienced, possibly
investment grade
contractors.
BoP and TS
agreements fixed
price, date certain,
turnkey.
Strong budget
contingencies and
performance bonding.
Liquidity covers LDs

and debt service.
Adequate schedule for
completion.
Proven technology;
more complex
construction.
Multiple weak
contractors.
Inadequate budget
contingencies and
weak parent
guarantees.
Delays easily lead to
PPA termination or
lower FIT; optimistic
completion schedule.
Unproven or
demonstration-phase
technology.
Contractors
experience.
Guarantees.
Liquidity strength.
Schedule allowance.
Investment-grade,
experienced operator.
Fixed-price scheduled
and unscheduled
maintenance over full
debt term.
Energy production forecast

based on at least five years
of onsite measurements
from well maintained and

properly located instruments
or multiple years of actual
production data.
Reliable data sources for
long-term wind resource

correlation using local
meteorological stations.
12 months O&M
reserve, adequate major
maintenance reserve.
Proven technology: long
operating history or
Proven turbine models
minimal incremental
installed in simple terrain.
change.
Five or more years of actual
Historical plant
operating plant energy
operation and costs
output shows low variability
show low variability.
around the P50 forecast.
Experienced, possibly
investment grade
operator.
Fixed-price scheduled
maintenance.
Contract term shorter
than that of the debt.

6 months O&M reserve,
adequate major
maintenance reserve.
Proven technology: long

operating history or
moderate incremental
change.
Historical plant
operation and costs
show modest variability.
Little experience with

the technology, limited
in-house resources.
Cost plus, short term
O&M agreement.
Limited O&M budget
analysis.
Limited O&M and major
maintenance reserving.
New or obsolete
technology.
Actual historical plant
operation and costs
show high variability.
Operator experience.
Contract scope.
Performance
incentives.
Cost and availability
of replacement parts.
Technology.
Energy production forecasts

are based on two to five
years of accurate onsite
measurements or at least
one year of actual

production data.
Reliable index or
meteorological station data
sources for long-term wind
resource correlation.
Reasonable assumptions on
the technologys
performance at the specific
site.
Two to five years of actual
plant energy output shows
modest variability around the
P50 forecast.
Energy production forecasts
based on less than two
years of onsite
measurements or lacking
reliable long term correlation
source.
Contain material
assumptions on the
technologys performance.
Less than two years of
actual operating plant
energy output shows high
variability around the P50
forecast.
Volatile or extreme
meteorological conditions.
Forecaster experience.
Wind data quality.
Technology.
Debt structure
Terms and conditions
of debt payment.
No merchant market
exposure.
PPA/FIT maturity exceeds
debt maturity.
PPA/FIT with counterparty

rated A category or
higher.
Project not materially

exposed to revenue losses
from grid curtailment.
PPA/FIT matches full term

of debt with counterparty
rated at least BB+.
Merchant exposure covers
small portion of debt.
Limited exposure to
revenue losses from grid
curtailment.
Senior-ranking, fully
amortizing, fixed-rate
debt matures prior to
PPA/FIT maturity.
Debt service
FCF to pay debt
commensurate with
rating category and
compared to peers.
Annual DSCRs
remain stable or
will increase in
later years to
support
amortisation profile
and declining plant
performance of
older assets.
DSRF greater than

six months of debt
service.
Other covenants to
ensure timely or early
debt payment, limit Low net
leverage, and provide debt/EBITDA or net
debt/CFADS.
adequate liquidity.
Senior-ranking,
amortizing, fixed-rate
debt with low
refinance risk.
Debt matures prior to
PPA/FIT maturity.
DSRF equal to six

months debt service,
funded upfront.
Other covenants to
ensure timely debt
repayment, limit
leverage, and provide
adequate liquidity.
Annual DSCRs
remain consistent
throughout
amortization
schedule; few
annual deviations
from average over
life of the debt.
Moderate net
debt/EBITDA or net
debt/CFADS.
Equity distributions at
least 1.20x DSCR.
PPA/FIT counterparty
Significant tail and/or Annual DSCR
below BB+ rating.
refinance risk.
pattern is declining
Weak PPA termination
Debt service reserve trend in later years;
material deviation
provisions.
less than six months
from average in
or not fully funded up
History of retroactive
some years.
front.
regulatory changes;
incentive framework has Weak provisions on High net
debt/EBITDA or net
no maximum capacity;
leverage of assets.
debt/CFADS.
incentive levels unusually Structurally
high; cost not passed to
subordinated debt.
end users.
Merchant exposure covers
significant portions of debt;
project is not competitive
under low-price merchant
power forecasts.
Significant potential
exposure to grid
curtailment.
Offtaker credit quality.
Portion of
DSCR.
fixed/variable debt.
Portion and duration of
LLCR.
contracted versus
Amortization profile. PLCR.
merchant sales.
Tail risk.
Net debt/EBITDA or
Production requirements. Refinance risk.
CFAD.
Regulatory stability.
Cash sweep/lockup
provisions.
BoP Balance of Plant. COD Commercial operation date. EPC Engineering, procurement, and construction. TS(A) Turbine Supply (Agreement). LD Liquidated damage. PPA
Power purchase agreement. FCF Free Cash Flow. FIT Feed-in tariff. DSRF Debt service reserve fund. CFAD Cash available for debt service. LLCR Loan life coverage ratio.
PLCR Project life coverage ratio
Source: Fitch

April 2013

Project Analysis Structure and Information
Use of Third-Party Reports ()
The two most important third-party reports for an onshore wind farm project debt rating are a
third-party wind energy production assessment and a third-party engineering report.
A wind energy production assessment estimates the average and probability-weighted annual
electric energy outputs that could be generated by the proposed project. In Fitchs experience,
overly optimistic pre-construction energy production forecasts are the most frequent reason
behind a projects underperformance against base case expectations. As a result, the agency
pays particular attention to the analysis supporting these studies and may apply haircuts to the
forecasts as explained in more detail in the Project Analysis - Revenue Risk - Volume section.
A third-party engineering report evaluates the viability of the design of the project, the
technology, the budget, the construction timeline, and the long-term operations and costs of the
plant, among other things. The engineering report should also validate assumptions made
regarding the availability of transmission resources and the risk of curtailment due to limits on
transmission capacity.
Where these reports contain matters of fact, Fitch will evaluate the source and reliability. Where
the information is a forecast or opinion, Fitch expects these reports to be based on well
reasoned analysis supported by facts. If Fitch does not receive these two reports, or
determines them to be inadequate in their scope, quality or authorship, Fitch may choose not to
provide a rating.
Project Analysis: Completion Risk ()

Fitch considers completion risk for onshore wind farms as low to moderate, particularly in
countries with a mature wind power industry and when compared to other energy infrastructure
projects, such as thermal power plants. There are extensive precedents of wind plant
construction in various terrains, ranging from simple (such as flat lands) to complex (such as on
ridge tops). The geology of the site usually determines the nature of the foundation suitable for
such site. Fitch will assess the construction arrangement to ensure that risks are allocated
properly to the appropriate parties; for example, determining who bears the subsurface risk on
a site with challenging geological conditions is an important consideration.
Evaluating the magnitude of completion risk is a key consideration in Fitchs assessment of the
likelihood and the extent to which a project may incur construction delays or cost overruns.
Fitch looks to the construction arrangement with a view to assessing the stage of development,
quality of the contractors and terms of the contracts.
Contractors ()
Most wind farm projects analysed by Fitch are generally erected under separate contracts for
turbine supply and installation, civil engineering and grid connection. Fitch analyses each party
involved in the construction process to form an opinion on their experience and credit quality.
Wind Turbine Suppliers

Wind turbine generator (WTG) manufacturers are key counterparties in a wind farm
development process, as the cost of the turbines and their installation represent the most
significant portion of the projects construction cost.
The global WTG manufacturing industry remains highly concentrated, with the top ten WTG
manufacturers accounting for nearly 80% of newly installed wind power capacity globally.
Established European and American manufacturers dominate Western markets while, projects
in China and, to a lesser extent, India tend to utilize generally less proven local technology.

April 2013

WTG manufacturers range from well diversified and financially strong industrial conglomerates
to those with a financial standing that is not investment-grade quality. In assessing these
manufacturers, Fitch will focus on their ability to support their technology through warranties
and performance guarantees as specified in the turbine supply agreement (TSA) and on
the history of such support for their products. This risk is usually higher for smaller
manufacturers and new entrants, as they tend to be more exposed to performance obligations
(while their turbines accumulate enough operating data to be considered proven and achieve
broader market acceptance). Whether a manufacturer constrains a projects rating is also
dependent upon whether the technology is proven, the complexity of the project, history of
timely equipment delivery, and the ease with which parts can be replaced.
Balance of Plant
Balance of plant (BOP) contractors operating in the onshore wind farm industry generally do
not display investment-grade characteristics. Hence, Fitch evaluates the ease of finding a
replacement contractor in the market and whether there are sufficient resources to replace a
defaulting BOP contractor and overcome any resulting delays. These may be through funded
contingencies, parent guarantees, performance bonding, letter of credit support, retainage or
some combination of the foregoing. The absence of such mitigants is likely to be considered a
rating constraint. Equally important in Fitchs assessment of the projects exposure to such
contractors is their relevant experience.
Transmission
The project should demonstrate that it will have adequate transmission access, including,
permitting, needed grid extensions and upgrades, especially for projects that do not operate in
close proximity to the load-serving area. An arrangement may exist where the project pays up
front for needed transmission that will be owned by a utility offtaker in which the utility
reimburses the project for the capital expenditure. This ensures that transmission development
occurs alongside the projects construction, mitigating the potential for delays in project
completion.
Construction Contract Terms ()

In reviewing the adequacy of construction contract terms, Fitch examines the responsibilities of
contractors and project sponsors, the schedule for achieving commercial operation,
performance requirements and guarantees, and liquidated damages (LDs) for failure to perform
by either party.
Prevalent in the wind sector is a two contract model where the WTG manufacturer, pursuant to
a TSA, is engaged to provide the WTGs and commission them after the BOP contractor has
cleared the site, built the foundations and erected the turbines. A clear delineation of the
responsibilities is important in this arrangement. In investment grade projects these contracts
customarily are fixed-price and date-certain. To the extent there is one fixed price, turnkey
engineering procurement and construction (EPC) arrangement to construct the wind plant,
Fitch would consider it a credit positive. Fitch has not observed many instances of an owner
construct model where the sponsor manages the BOP work by subcontracting individual
segments of the construction work without a proven BOP contractor in place. Such an
arrangement would be considered a credit negative, unless the sponsor guarantees completion
on a strong balance sheet.
Fitch will check the cushion provided by the LD cap, in terms of whether it covers incremental
costs of delays or shortfalls in performance, plus the debt service. Fitch will also consider the
length of the warranties and the level of coverage to ensure they are industry standard and
protect the project from teething issues, technology, and operation risks during the applicable
period. The performance guaranteed level will act as a guide in the agency's base and rating
cases.

April 2013

Delay Risk
Delay risk is generally lower for onshore wind projects than for other large power projects, due
to the nature of construction. Once TSAs are in place, the risk of material cost overruns is
generally low. However, a number of projects have, in the past, incurred significant construction
delays, primarily as a result of bottlenecks in the WTGs supply chain. This situation is
considered by Fitch when assessing the construction schedules attainability.
Construction Technology Risk

Construction of an onshore wind farm generally entails civil engineering works far less complex
than those normally required for the building of most other power projects. Fitch evaluates the
extent to which technology risk can increase completion risk by assessing whether the project
entails: (i) works carrying higher than average complexity (possibly because of the
characteristics of the terrain where the project is built or the newness of the technology); (ii)
whether the scope of the work is particularly broad (for example, if extended transmission
infrastructure also needs to be constructed); and (iii) the extent to which the construction
contractor is familiar with the technology.
Figure 2
Indicative Construction Terms for Investment-Grade Ratings ()

Contractors
BoP contractor and turbine manufacturer with direct experience completing similar
projects; usually investment-grade rating or adequate performance bonding; availability
of potential replacement contractors; favourable third-party engineer opinion regarding
contractors ability to properly design, equip, and construct the project.
Contracts type Fixed-price or limited cost-based contracts; adequate cost overrun contingencies and
completion guarantees; performance guarantees assuring compliance with off-take
agreement; substantial price certainty through fixed prices and detailed design;
favourable third-party engineer opinion regarding adequacy of budget, schedule and
project performance requirements; construction monitoring and reporting by third-party
engineer.
Liquidated
LDs sufficient to cover project delay penalties and fixed costs, including debt service for
damages (LD), at least three months; performance LDs sufficient to offset cash flow reduction due to
bonding &
failure to meet guaranteed performance levels or achievement of lower than expected
performance
tariff (due to late commissioning); performance bonds for a significant percentage of the
guarantees
value of the applicable contract if contractor is below investment grade.
Performance
Performed to international engineering standards, as confirmed by the third-party
tests
engineer; tests are structured to demonstrate the performance of the facility to design
standards and to meet offtake agreement requirements, guaranteed levels of availability,
and electric energy output.
Warranties:
Standard industry warranties for power curve and availability; preferably investmentTurbine
grade or high BB manufacturers with financial capacity to honour longer-term
manufacturer
warranties.
Warranties: BoP Completed project performance warranted through final completion; preferably
contractor
investment-grade or high BB or bonding, or strong parent guarantee sufficient to meet
warranty obligations.
Source: Fitch
Project Analysis: Operation Risk ()

Operator ()
An experienced operator is critical for mitigating the risks that the project may suffer a reduction
in productivity (as a result of outages and/or failure to meet expected performance standards)
or may incur costs that are greater than projected. A good operator will also be instrumental in
ensuring not only that the WTGs are ready to generate, but also that their operating
performance is optimised.
Fitch looks for an operator experienced with the same or similar technology, and in the same
region, to manage the day-to-day monitoring and maintenance and longer-term major
maintenance of the plant. Operators should have adequate resources and qualified staff to
execute operational tasks, as demonstrated by balance sheet strength and operating track
record. Fitch also relies on the third-party engineers evaluation to assess the operators
performance capabilities, especially for smaller, lesser known entities.

April 2013

In addition to assessing the experience of the operator, Fitch evaluates how the operator is
incentivised to maximise the projects performance. Operator performance-based bonuses and
penalties for non-performance are considered a credit positive as a mechanism to ensure that
the wind farm would operate above minimum thresholds dictated in the PPA or other operating
agreements.
Operating Costs ()
O&M services for onshore wind farms may be provided under various arrangements, such as
fixed-price contracts, management fee with out-of-pocket cost reimbursements, or on a costplus basis.
Subject to the operators financial strength, longer and more comprehensive O&M agreements
normally result in a stronger mitigation of the risk that operation and maintenance costs are
higher than budgeted. Projects structured with O&M agreements for the provision of scheduled
and unscheduled maintenance services at a fixed-price for the full term of the debt offer the
highest degree of risk mitigation, particularly if the operator is of strong credit quality. Such
structures reduce the relevance of the customary operation and maintenance reserves.
The initial O&M contracts are typically with the WTG manufacturers for the first years of a
project, after which they may be renewed or transitioned to an operator that is an affiliate of the
sponsor or a third-party operator.
Fitch has observed on a number of projects a general underestimation of operating costs. In
some cases, such cost increases typically in conjunction with lower than expected energy
production lead the agency to downgrade its assessment of the credit quality of the affected
projects.
Fitch reviews in detail the assumptions on which such cost budgets are based, paying attention
to the third-party engineers report for validation of assumptions regarding the evolution of
these costs over the life of the debt. Benchmarking of the projects O&M budget against those
of similar projects is also used. In its assessment, the agency looks favorably at the availability
of consistent and reliable historical data, as these are expected to provide a reasonable basis
for prediction of the costs that can be expected to be incurred. Fitch also undertakes stress
testing, as described in the Financial Analysis - Debt Service section below.
The teething issues normally experienced by wind farms during the first years of operation
suggest that O&M costs may be higher in the early years, even if these are often mitigated by
the availability of warranties and guarantees from the WTG manufacturers. Increases in O&M
costs are also likely to be experienced late in the life of the project, as a result of the ageing of
the equipment. These risks are evaluated based on the third-party engineers report, together
with historical data where reasonably available and relevant.
Project Analysis: Revenue Risk Volume ()

A typical wind energy assessment for a greenfield project involves modeling the local wind
speed, duration and direction. Site-specific characteristics, such as the topography and wake
losses between the wind turbines, are incorporated into the wind energy assessment, together
with assumptions relating to the technologys onsite performance.
Once a wind farm is in operation, many of the correlations can be improved or replaced. For
example, wake and topography effects can be measured instead of simulated, and wind
measurements are replaced by actual production data. To the extent actual wind farm data is
incorporated in the assessment, the uncertainty of modelling non-wind-related variables is
significantly decreased. The availability of multiple years of actual production data is
considered as a stronger feature in Fitchs assessment of Revenue Risk Volume.

April 2013

Whether the data relate to wind measurements or actual energy production, a key element of
the forecasters analysis is the correlation to a long-term reference. Fitch expects this to be
performed on the basis of sound statistical methods and on reliable and representative data. In
Fitchs experience, meteorological stations located in proximity to the wind farm usually
represent the most dependable sources of long-term correlation data. Instead, the use of
indexes or wind atlases appears to have contributed to inaccurate forecasts in the past and
Fitch considers such measures to offer lower certainty unless they benefit from a sound
historical track record.
The result of the wind energy assessment is a prediction of the wind farms long-term average
production, as well as various levels of production that can be exceeded with a corresponding
degree of confidence, reported as a probability of exceeding, associated with a certain time
period. Accordingly, a P50 output level is the long-term annual average output that will be
exceeded with a probability of 50%. All production levels apart from the P50 are associated
with a specific period: a one-year P90 value refers to the annual output level that should be
exceeded over any one-year period with a 90% probability, while a 10-year P90 value refers to
the average annual output over a 10-year period that should be exceeded with a 90%
probability. Since the variance over a one-year period exceeds the variance over a 10-year
period, a one-year P90 estimate results in a lower annual production compared to the 10-year
P90 estimate.
Fitch believes that all wind assessments carry with them a degree of uncertainty and potential
for error. Indeed, there has also been some recognition among well qualified independent wind
consultants that energy production forecasts have been subject to overestimation in the past.
This is explained as having been due to a variety of factors, among which the most important
are:
imprecise or not sufficiently lengthy wind measurements, together with unreliable data for
long-term correlation;
difficulty in modelling a turbines power curve in real world conditions, particularly when
these operate in complex terrain or challenging meteorological conditions; and
lower than expected project availability.
Energy production assessment methods continue to be refined, primarily thanks to the

availability of more performance data and through the use of more sophisticated models and
improved data sources. Many independent wind consultants have been calibrating their
forecasting models to incorporate lessons learned, resulting in apparently more accurate wind
energy production forecasts.
Nevertheless, to allow for uncertainties, and in light of the performance observed in a number
of wind farms, the agency may apply a haircut of up to 10% to the results of the wind energy
assessment. Greenfield projects with midrange energy production forecasts typically attract a
3% to 5% haircut. For operating projects with a pattern of performance, or in case of stronger
production forecasts, Fitch may reduce or even eliminate the production haircut. Conversely, a
more severe haircut may be imposed if appropriate for a projects circumstances. If, after
accounting for actual operating conditions, a project's energy production deviates from the
forecasts, Fitch may adjust its energy production haircut to reflect the information inferred by
historical results in its base and rating case energy output assumptions. In order to form an
opinion on the appropriateness of the energy production haircut, Fitch compares, where
possible, the forecast outcomes and the shape of the distribution to forecasts for similar
projects. Where a material difference exists, Fitch will seek explanations on that difference and
will assess whether additional adjustments to the energy production estimates should be made.
When a portfolio of different wind farms is considered, there is the potential for an overall
reduction in the uncertainty of the ensemble, compared to the sum of the individual projects.

April 2013

This is commonly referred to as the portfolio effect and it is due to the statistical
independence of some of the uncertainty parameters between projects. The extent of this
diversification benefit depends on the diversity of the wind farms, both geographically due to
the variation in regional wind regimes and technically, in terms of the variation of turbine
technology and project infrastructure.
Fitch understands that for a well-diversified set of projects, the portfolio effect may result in an
increase in the aggregate 10-year P90 estimate by some 2% to 5%, compared to the sum of
the 10-year P90 of single projects. When determining the amount of credit (if any) to give in its
analysis to the portfolio effect, Fitch looks for transparent wind energy assessments, reflecting
well reasoned assumptions. No credit is likely to be given in case of weaker forecasts.
When assigning a rating to wind farms debt instruments, Fitch primarily focuses its analysis on
how the cash flows are affected by single year events. In the case of energy production, this
translates into analysing the effect of a one-year below average wind pattern. To evaluate this
risk, the agency uses the one-year P90 estimate in its rating case, giving adequate credit to the
portfolio effect if relevant. This amount is also adjusted depending on the haircut discussed in
the paragraph above.
Technology Risk ()
When analysing the energy output expected to be produced by the project over the life of the
debt, Fitch pays particular attention to the assumptions made in respect of wind farm
availability. Technical availability is intended to measure the time a project as a whole is ready
to produce revenue.
Availability levels are primarily dependent on the reliability of the technology and the quality of
the maintenance services. Turbines from technologically less sophisticated manufacturers (e.g.
using lower quality materials or less stringent quality control processes) may result in higher
outage frequencies. Delivering a high quality maintenance regime is not only a function of the
skills of the operator, but may also be influenced by specific circumstances, such as project
location or spare parts provisions. Long-lead times to order replacement parts or the need to
locate alternative replacement parts as a manufacturer has ceased production or has gone into
default may significantly affect a projects availability.
Fitch has observed a variety of issues that negatively affect project availability. These range
from temporary stand-still periods, due to adverse metrological conditions (e.g. icing on the
blades) to technical failures, the most common of which relate to the blades and the gearboxes.
These display various degrees of severity: turbines suffering from blade asymmetry, for
example, can be fixed, while blades with cracks need to be replaced. The most serious
technical issues usually occur soon after project commissioning. Also, projects located in
countries with a developing wind power industry may suffer from lower availability levels
compared to those achievable by projects in Europe or North America (due to a more difficult
access to spare parts or less experienced operators).
Wind farm projects located in countries with a mature wind power industry, employing tested
technology in standard meteorological conditions, are typically expected to operate at around
95%-97% long-term system availability. Such projects may experience lower availability levels
(possibly in the low 90% range) during the early period of operation, as the initial teething
issues are being resolved. Fitch has observed that this phase generally lasts up to one year,
possibly two in case of more complex technical issue involving a large number of WTGs.
Competent operators and turbine manufacturers, however, generally ensure that the wind farm
settles at the expected long-term availability level afterwards. It is reasonable to expect
deterioration in availability in the later years of operation, particularly if O&M budgets are not
suitably increased to counterbalance the ageing of the equipment or in cases where the
turbines are from manufacturers with weaker financial or technological capacity.

April 2013
10

Fitchs experience suggests that similar availability levels can also be achieved by large
portfolios of small projects, which use various turbine models, possibly from less established
manufacturers. Availability levels for a specific wind farm may be temporarily lower for a variety
of reasons (technical issues with the turbines or the electrical system, noise regulation
prohibiting operation during night hours, for example). However, the diversification provided by
a large number of projects and different turbine models can ensure satisfactory availability at
portfolio level.
Fitch reflects the considerations above in its assumptions regarding project availability. The
agency further relies on the opinion expressed by the third-party engineer, which is particularly
relevant in case of newer and less proven technology. Increased technology or manufacturer
risk is typically assessed through stress testing in the financial analysis.
Project Analysis: Revenue Risk Price()

Excluding projects located on sites benefiting from exceptionally favourable wind conditions,
onshore wind farms are not yet independently economically viable in a competitive energy
market. Consequently, their success is predicated on revenue stability through long-term PPAs
as well as feed-in tariffs (FITs), subsidy payments, and other supporting regulatory
mechanisms.
While strong projects typically have a secure revenue stream through long-term contracts,
some exposure to merchant market power prices does not necessarily preclude a project from
achieving an investment-grade rating. In the case that a project has meaningful exposure to the
merchant power market, Fitch will apply financial stresses to determine the projects regional
competitiveness in a low power price merchant market environment and its prospects for timely
debt repayment.
Public Incentives
The most investor-friendly incentive systems have proved to be those that give wind farms
priority of dispatch, thereby removing balancing and dispatch risks from the project, together
with long-term fixed prices. FITs are the most widely used support framework and allow for
certain, long and stable price assumptions under which to structure the debt repayment,
typically taking the form of full amortisation within the fixed-price tariff term.
Some incentive systems provide a premium (either in the form of a fixed amount per megawatt
hour (MWh) or various types of renewable obligation or green certificates) on top of merchant
power prices. Projects operating under such frameworks are exposed to the market risk
inherent to their revenue components. In Fitchs financial analysis, both the price of power and
that of renewable certificates are considered in accordance with their market prevalence and
subject to the relevant applicable provisions (for example, where the price of green certificates
benefits from a fixed floor). In determining its assumptions on the price scenarios, Fitch will rely
on a combination of the opinions of independent market experts, Fitchs internally generated
market forecasts and expectations, and historical price and volume trends (if the quality and
evidence are considered to have predictive value). Fitch will generate the projects expected
revenues and would look to these price risk-exposed projects to have the capacity to survive
higher sensitivities than those benefiting from fixed long-term prices.
In Fitchs experience, US renewable energy certificates (REC) tend to be a minute part of a
projects revenue composition in the US. Therefore, Fitch generally excludes their contribution,
unless they are contracted, in the financial stress scenarios to assess the projects reliance on
a scheme that is not well established.
As is the case for any industry relying on government subsidies, the financial performance of
wind farm projects is dependent on the supporting regulations not being modified within the
time frame of the financing. Fitch cautions that even in countries with strong credit ratings a

April 2013
11

threat to subsidy stability and longevity exists. Financial pressures and competing national
priorities may force countries to re-examine the amount of subsidies they provide.
Stronger public incentive schemes are considered to be those of countries with a record of
longstanding support to renewables (as demonstrated, for example, by the grandfathering of
the interests of incumbent operators in case of enactment of new laws), where the subsidies
are financed from system charges and are not counterparty dependent and where particular
features of a systems structure (e.g. regulated end-user tariffs) do not put excessive pressure
on the incentive systems sustainability.
Fitch does not rate to a change in law or regulation. For existing projects, Fitch generally
assumes in its analysis that once approved, governments will not apply targeted retroactive
cuts. A change in the regulatory regime that reduces a projects subsidy support during the life
of the debt will trigger Fitchs revaluation of the projects credit quality. However, if there are
compelling reasons to doubt the stability and longevity of the regulatory framework, Fitch will
factor the risk into its analysis by testing a projects ability to withstand temporary liquidity
stresses as well as permanent reductions in the level of subsidies. In case of particularly high
regulatory uncertainty, projects will be subject to harsher stresses and the debt ratings may be
precluded from achieving investment-grade level.
Projects, operating in jurisdictions offering regulated price protection, are exposed, to a certain
degree, to credit risk with regard to the offtaker, as power is normally bought by the regional
electricity supplier. In these countries, however, local grid operators are required by law to
purchase the electricity produced by the wind farms. In the case of a default of an offtaker,
therefore, the same obligation would continue to apply to the grid operator replacing the
defaulted entity. The risk to the project therefore is only one of a temporary suspension in
inflows, and not of exposure to market risk.
PPAs
For projects deriving their revenue through long-term PPAs, the credit quality of the power offtaker serves as a cap on the project rating, since the reliability of revenue payments is based
on the purchasing entity. A typical project will have a PPA with investment-grade offtakers (e.g.
government entities, regional power market operators, and utilities). Fitch will assess the
financial strength of below investment-grade offtakers to meet payment obligations under the
PPA.
Fitch reviews the PPA to determine how stringent power plant performance requirements are
as regards receiving projected payments and avoiding PPA termination. Some PPAs have a
simple requirement that the utility offtaker purchases whatever electric energy output the
project produces. Other PPAs have more stringent requirements whereby the project has to
achieve minimal performance thresholds regarding the plants availability and capacity factors
and total electric energy output. Fitch will stress the projected cash flow to determine the
projects capacity to meet PPA performance requirements.
Curtailment Risk
This is the risk that a wind power projects generated energy may be rejected, or curtailed, by
the transmission system with which it is interconnected. This risk does not typically apply to
projects operating under public incentive frameworks, as these generally award wind farms
priority of dispatch over other forms of power generation.
A wind power project can be curtailed when the transmission system experiences unexpected
levels of congestion that threaten system reliability, which can be caused by numerous factors
including:

April 2013
insufficient available transmission capacity, either temporary (e.g. equipment outages) or

permanent (e.g. low system capacity);
12
significant fluctuations in electricity supply/demand profiles, challenging a grids ability to

match generation to load;
high proportion of intermittent generation (typically wind generation); and
minimum generation situations, when base load and must-run units have been lowered to
their minimum output levels.
Curtailment risk is best mitigated by contractually excluding it in the PPA, placing all curtailment
risk on the power purchaser. More frequently, PPAs define allowable causes and limits for
compensated and non-compensated curtailment. Projects without any PPA protection from
curtailment risk can partially mitigate the risk through firm transmission capacity contracts in
areas with significant excess capacity, supported by an independent consultants transmission
study.
Fitch has observed higher than expected grid curtailment levels in a number of US wind farm
projects, which on occasion severely affected project cash flows. Transmission studies should
quantify the amount and likelihood of potential curtailment, and identify any equipment
upgrades required to minimise curtailment. Fitch evaluates the financial impact of potential
levels of non-compensated curtailment in its financial analysis. Actual curtailment significantly
and persistently exceeding expected levels may result in rating action.
Financial Analysis: Debt Structure ()

As with any power project financing, Fitch considers each rated debt instruments individual
characteristics, structural features, security rights, and other terms and conditions. While each
debt issue is unique, Fitch looks for debt characteristics and terms in wind power projects that
are overall typical and customary for the power industry.
Debt Characteristics and Terms

The analysis of onshore wind farm debt features follows Fitchs customary approach, outlined
in the Master Criteria. Considerations specific to this asset class relate to the debts maturity, in
that repayment profiles stretching beyond the current industry average, or that are not
commensurate with the economic and commonly accepted life for the relevant technology, are
considered to be weaker. As such, no credit is given to cash flows beyond the expected useful
life of the project, which is generally deemed to range between 20 and 25 years depending on
projects characteristics such as technology reliability, operator experience and maintenance
plan and budget.
The typical debt instrument financing onshore wind farm projects fully amortises before the
assets useful life and is not exposed to interest rate risk. The DSCR levels outlined in this
report reflect such financial structure.
Structural Features
The structural features of a transaction can have a significant impact on its rating. Debt issues
that include a debt service reserve (principal and interest) of at least six months are considered
midrange, while 12 months debt service is considered stronger. Additional reserves, including
an operating expense reserve of greater than six months and accrual of a major maintenance
reserve prior to the expenditure, are each considered stronger. Projects are also expected to
accrue an adequate decommissioning reserve over the life of the plant.
Financial Analysis: Debt Service ()

Consistent with the Master Criteria, Fitch develops base case, rating case and individual
financial stress scenarios to assess cash flow resiliency and capacity for debt repayment.
The scenarios outlined below reflect Fitchs indicative financial analysis scenarios. While the
scenarios reflect Fitchs typical approach to financial analysis, Fitch may apply more or less
stress to key performance variables to adequately reflect the distinct characteristics of each
April 2013
13

project with respect to technology, project location, construction contractor and operator; in the
case of projects with a reasonably long operating history, such stresses will reflect the
observed pattern of performance. Based upon the third-party engineers opinion and peer
comparisons of other Fitch-rated projects, Fitch will adjust stress scenarios accordingly.
Key performance variables for onshore wind farm projects include electric energy output
estimates (calculated on the basis of P50, one-year P90, and one-year P99), plant availability
and operations and maintenance expenses (including major maintenance).
Base Case
When analysing a wind farm transaction, Fitch first builds a scenario reflecting the projects
expected long-term sustainable performance, based on the agencys experience with the
industry and with similar projects (the Fitch base case). This is also used as a common starting
point for stress analysis and it constitutes the base line for surveillance over the debts life.
Firstly, Fitch makes certain adjustments to the sponsors projections, where appropriate, based
on its experience and the guidance of the third-party engineer. The adjustments aim at bringing
parameters such as availability and operating costs in line with expectations for the specific
technology in similar environments and conditions. Also, Fitch is likely to apply a haircut to the
sponsors base case energy production assumption (if this, as is generally the case, is the P50
forecast) to reflect the uncertainty in wind energy assessments, as discussed in the Revenue
Risk -Volume section of this report. In case of exposure to the risk of grid curtailment, Fitch
reflects in its revenue projections the level of non-compensated curtailment that may affect the
project on the basis of the considerations expressed by the third-party engineer in the
transmission study.
In case of exposure to power or renewable certificates price risk, the Fitch base case is also
likely to incorporate adjustments to the sponsors underlying market price assumptions. In
these cases, Fitch sets its base case price forecast at a level it considers sustainable on
average over the long term (through-the-cycle profile). This may be based on Fitchs internally
generated market price forecasts, with due consideration given to the market advisers
projections.
Rating Case
The rating case evaluates the resiliency of the projected cash flows to a combination of
stresses that together simulate a scenario of material underperformance, which is conceivable
but not expected to persist during the life of the project financing. Fitch typically combines risk
factors assessed in the individual stress cases and applies a combination of stresses that are
most likely to affect the projects performance.
Fitch seeks to assess with a high level of confidence the probability that a project can meet
debt service obligations. Therefore, Fitchs rating case is based on a one-year P90 electric
output estimate. This is adjusted in line with the haircut applied to the base case expected
output. Credit may be given to the portfolio effect, if this is adequately supported in the wind
energy assessment.
Stresses to project availability and O&M costs are normally applied during the first two years of
operation, as the teething issues are worked through, and after year 15 of operation due to the
risk of higher failure rates and the associated increase in O&M costs. Availability-level
assumptions primarily depend on Fitchs assessment of the technology risk and of the operator,
if this is contracted under a long-term agreement. Lower availability than the levels indicated
below may be assumed for projects employing unproven technology or suffering from potential
challenges in accessing spare parts and competent maintenance services.
Figure 3 is intended to provide illustrative guidance on how Fitch might undertake its financial
analysis. Base and rating case adjustments are predicated on Fitch's experience and

April 2013
14

consultation with the third-party engineer. A review of the reports from the third-party resource
consultants and third-party engineers will be a source for assigning values in actual cases.
Figure 3
Indicative Fitch Base and Rating Cases

Energy production scenario
Energy production haircut
Grid curtailment
Availability, years 1-2
Availability, years 3-15
Availability, years 16+
O&M costs, years 1-15
O&M costs, years 16+
Fitch base case

P50
0-10%
Based on third-party assessment
90-96%
92-97%
90-96%
Based on third-party assessment and
peer analysis
Based on third-party assessment and
peer analysis
Fitch rating case

1-year P90
Same as in base case
Base case minus 1% every 2
years
Base case plus up to 10%
Base case plus up to 15%
Source: Fitch
In evaluating projected financial performance

profile of the DSCR. This profile consists
of: the average of DSCRs over the life of
the project; the degree that the minimum
DSCR deviates from the average; and the
magnitude and frequency with which
DSCRs persist below the average. The
DSCRs in the rating case reflect the levels
of cash flow cushion available (on top of
the transactions internal liquidity available
through reserve accounts) to mitigate other
possible reductions in cash available for
debt service.
in the rating case, Fitch considers the overall

Figure 4
Indicative Rating Case DSCR Profile

for Fully Contracted Revenue
Structures
Rating category
BBB
BB
B
DSCR profile (x)

1.30 or higher
1.15 and higher
1.00 and higher
Source: Fitch
Some examples of the type of risks that this cushion is designed to accommodate include:
uncertainty surrounding wind energy production forecasts and high volatility in the wind
resource;
uncertainty regarding the long-term performance of technology; and
uncertainty of long-term O&M cost budgets.
The indicative threshold under the rating case for achieving an investment grade rating is 1.30x
for projects not exposed to price risk and higher for partially contracted projects, depending on
the revenue streams risk profile.
The indicative investment-grade coverage ratios are a guide, not a prescription, for achieving
an investment-grade rating. While Fitchs rating seeks to quantify major credit risks, as
reflected in Fitchs projection of DSCRs under stress scenarios, the rating is also informed by
qualitative factors previously discussed, such as technology risk, operation risk, debt structure,
and Fitchs view of the projects competitive market position.
On occasion, Fitch may have tolerance for lower DSCRs at the investment-grade level, based
upon structural and qualitative strengths of the project, which may not be fully reflected in the
financial analysis. Conversely, Fitch may see a need for DSCRs that are higher than the
indicative profile, to provide greater financial protection due to structural and qualitative
weaknesses not fully reflected in the financial analysis. Investment-grade ratings are typically
associated with transactions displaying predominantly stronger or midrange attributes, as
described in this report. In addition to superior financial metrics, A category rated debt
instruments would display mostly stronger attributes with respect to the key rating drivers.

April 2013
15

Individual and Breakeven Financial Stresses
In addition to the Fitch base and rating cases described above, the agency runs scenarios
incorporating severe stresses on the projects key performance drivers (stress cases) to
determine the level of exposure and sensitivity of the projects cash flow to individual events.
Availability/Capacity Factor: Fitch considers the impact of reduced availability and capacity
factors to assess the projects ability to withstand a post-warranty generic defect scenario, by
modeling a drop in availability combined with the incurrence of lumpy refurbishment costs
(possibly expressed as a percentage of the turbines cost).
O&M: Fitch considers the cash flow impact of a sustained increase in O&M expenses, direct
(including major maintenance) and indirect such as general administration, including property
taxes.
Energy Production Scenario - P99: Fitch will assess a projects performance under a one-year
P99 scenario in which investment-grade projects are expected to achieve DSCR results that
are at or above 1.0x (adjusted for the same energy production haircut applied in the base and
rating cases).
Curtailment: Potential reductions in energy output due to transmission congestion, grid
emergencies, and other regional operator issues.
Merchant Prices: When a project is exposed to price risk, or when, because of a weak offtaker,
there is material termination risk on a highly priced PPA, Fitch will consider the level of market
price decrease a project can sustain and still meet debt obligations at a particular rating level.
Other Stresses: Fitch will apply, as it deems appropriate, additional stresses consistent with
project financings in other power sectors. These additional stresses include construction delays,
financing costs, and inflation.
Break-even stresses allow Fitch to determine the level of financial stress that a project could
absorb while producing the minimum amount of cash flow to meet debt service payments just
before the point of default, as reflected in DSCRs around 1.0x.
Having identified energy production overestimation as the most critical risk factor for onshore
wind farm debt instruments, Fitch investigates the resilience of transactions to extremely low
production scenarios. To this mean, Fitch calculates, and compares with other projects, the
decline in energy production (from P50 and one-year P90) that leads to a 1.0x DSCR and
assesses whether this percentage provides sufficient downside cushion in extreme scenarios.
Metrics
The following is a list of relevant financial indicators that are considered in Fitchs analysis on
both a historical and forward-looking basis. Many are universal, regardless of geography. Some
or all of the metrics will be evaluated.
Debt Service Coverage Ratio (DSCR): Total operating revenues minus total operating
expenses net of depreciation, divided by debt service.
Loan Life Coverage Ratio (LLCR): Ratio of the present value of net cash flows to outstanding
net debt.
Project Life Coverage Ratio (PLCR): This is the net present value of cash available for debt
service (CFADS) over the remaining project life, divided by the outstanding debt at the
calculation date. Typically project life will refer to the remaining economic life of the asset.
Net Debt/EBITDA or Net Debt/CFADS: Gross debt less unrestricted cash balances and debt
reserve funds divided by EBITDA or CFADS.

April 2013
16
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reserved. In issuing and maintaining its ratings, Fitch relies on factual information it receives from issuers and underwriters and from other
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its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are
available for a given security or in a given jurisdiction. The manner of Fitchs factual investigation and the scope of the third-party verification it
obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the
rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the
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and a variety of other factors. Users of Fitchs ratings should understand that neither an enhanced factual investigation nor any third-party
verification can ensure that all of the information Fitch relies on in connection with a rating will be accurate and complete. Ultimately, the
issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offeri ng documents and
other reports. In issuing its ratings Fitch must rely on the work of experts, including independent auditors with respect to financial statements
and attorneys with respect to legal and tax matters. Further, ratings are inherently forward-looking and embody assumptions and predictions
about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings can be affected
by future events or conditions that were not anticipated at the time a rating was issued or affirmed.
The information in this report is provided as is without any representation or warranty of any kind. A Fitch rating is an opinion as to the
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April 2013
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Rating Criteria For Onshore Wind Farm Projects

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