Renewable Resource
resource (e.g., hydrology, wind volume, or solar irradiance). For hydro projects, hydrology variability
can be managed through transfer to the off-taker, storage or operational design characteristics. A detailed
independent consultant review of the resource and expected power production is a critical component
of risk assessment. Origin notes that the quality of this study can be affected by the amount of historical
data available; for example, a renewable project at a new site with limited onsite historical data could
increase risk.
both off-taker and ProjectCo. Regulatory and community support for a project can decline if costs rise.
If a project supplies a consistently economic source of power under most market conditions, stakehold-
ers are motivated to keep the project operating. Contracts that pass fuel costs on to the purchaser reduce
market risk. However, if contracts increase the price to the end-consumer, this may provoke opposition
from the purchaser, and the project may experience political pressure. In general, merchant contract
strategies exposed to market prices for both input costs and revenues are expected to be inferior to fully
contracted arrangements from a ratings perspective.
be fixed prior to a significant and sustained decline in spot prices, making the project expensive vis-à-vis
other projects that have sourced market-priced fuel. In evaluating competitiveness and the input costs
of a contracted project, Origin considers, among others, the following factors: (1) efficient and proven
generation technology compared with current alternatives; (2) fuel arrangements that provide stabil-
ity against price hikes, including the credit strength of fuel suppliers; (3) potential for low fuel cost or
other energy source cost; (4) above-market pricing arrangements with related parties and/or politically
motivated entities; (5) risky fuel, pricing or operating strategies; (6) proximity to customer base and fuel
supplies (lower transportation costs); (7) potential for liability (e.g., environmental, land claims) that may
cause expensive litigation or delays, and (8) potential emissions costs (a coal-fired project versus natural
gas-fired or renewable).
operating costs (i.e., excluding capital costs). Of the renewable asset types, hydroelectric has a very long
proven history of low and predictable operating costs. While solar and wind have a shorter track record,
they are also characterized by low complexity and low-cost O&M requirements, although there may be
higher capital costs per megawatt (MW) of capacity.
that overall project risk from O&M cost increases is generally low to moderate. In certain circumstances,
O&M costs can be affected by the performance of the O&M contractor or owner operator, particularly
where outages and availability below prescribed thresholds have a material negative economic impact.
Power projects are often operated by affiliates of the equity sponsor where that arrangement has a consis-
tent history of on-budget, low-outage operating performance and the affiliate operator's interest is aligned
with that of the equity sponsor and ProjectCo. If third-party service companies are responsible for opera-
tion and maintenance, then appropriate controls are required to ensure compliance with maintenance
guidelines and to contain costs. In general, pass-down of risk to an operator under a long-term fixed-price
contract (versus retention of that risk at ProjectCo) does not typically have a rating impact for non-PPP
projects, so long as O&M costs are stable and constitute a small percentage of the cost structure (and the
operator is a proven performer).