Construction delays, solar energy output, unpredictable technology and regulatory stability all present distinct risks to solar power projects, according to a new Fitch Ratings report.
The report's findings are based on Fitch's rating of more than 25 public and private utility-scale photovoltaic, concentrating PV, and thermal concentrating solar power projects over the past two years.
With an average land requirement of six to ten acres per MW, solar projects are vulnerable to unforeseen environmental and archeological risks resulting in construction delays. Archeological sites in particular can cause significant construction delays of three months or longer, amounting to considerable cost overruns. Fitch assesses construction delay risk based on construction agreement terms, adequate liquidity, permitting status, and the independent engineer's input.
There is also a risk that solar production may deviate from historical patterns over the next 20 years due to the uncertain accuracy of solar production forecasts and potential impact of climate change. Fitch assesses the scope, quality, and reliability of a project's energy output forecast and applies solar resource bias adjustments to account for data collection and assessment issues.
Limited long-term operational performance data for certain solar technologies raises the specter that actual performance may be lower and actual costs higher than anticipated. Fitch considers the technology employed, maintenance regime, and technology operating history, and uses degradation, availability, and cost stresses to capture potential operational and financial impacts.
In Europe, most projects rely on the payment of regulated feed-in-tariffs (FITs). Fitch views direct retroactive cuts to FITs unlikely, but short-term measures, such as a temporary reduction in remuneration, tax increases, or re-profiling of payments, are a possibility in some countries that face public and private budgetary pressures. Projects with higher liquidity levels are better positioned to withstand such risks.
For more information, a special report titled 'Construction and Operational Solar Project Issues' is available on the Fitch Ratings web site at www.fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: Construction and Operational Solar Project Issues: A Review of Siting, Sun, Technology, and Regulation
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