DBRS Assigns BBB Provisional Rating to Dufferin Wind Power Inc.

DBRS Limited (DBRS) has today assigned a provisional rating of BBB with a Stable trend to the Senior Secured Bonds (the Bonds) to be issued by Dufferin Wind Power Inc. (the Issuer). The Issuer is a special-purpose entity created to acquire, develop, own and operate the 91.4 megawatt (MW) Dufferin Wind Project located in Dufferin County in Ontario (the Project). The Issuer is indirectly and wholly owned by the Project Sponsor, China Longyuan Power Group Corporation Limited (CLYPG).

The Project comprises 31 1.6MW and 18 2.75MW turbines supplied by General Electric Canada and a 47 kilometre (km) transmission line connecting it to the transmission grid. The Project is fully operational, having achieved Commercial Operations under the FIT Contract on December 1, 2014. All energy is sold directly into the Independent Electricity System Operator (IESO; rated A (high) with a Stable trend by DBRS) transmission grid, with the energy price supported by a Feed-In-Tariff Contract (the FIT Contract) with the IESO. The effective energy price realized by the Project is currently $146.60 per megawatt hour, indexed at 20% of the consumer price index in Ontario. The FIT Contract will expire on November 30, 2034, which is 12 months after the scheduled full repayment of the Bonds.

Until December 16, 2019, operations and maintenance of the turbines is subcontracted to General Electric Canada under a Full-Service Agreement. Maintenance of the balance-of-plant will be performed by a local subcontractor under a three-year Master Services Agreement, which may be terminated for convenience by the Issuer. The Issuer is self-performing administration and accounting services, with support under a Services Agreement with Longyuan Canada Renewables Ltd., a wholly owned subsidiary of the Project Sponsor.

The key credit risks facing operational wind power projects are availability of sufficient wind resource and the effectiveness of the Project’s conversion of wind into saleable energy. An Independent Engineer (IE) firm, Luminate, LLC, performed an in-depth review of the technical and environmental aspects of the Project. This included a wind resource and energy production forecast.

This aspect of the IE’s work was subjected to a desktop review by AWS Truepower, LLC (the Wind Reviewer).

The Wind Reviewer concluded that the methodology employed and conclusions reached by Luminate regarding the energy production potential of the Project are reasonable and acceptable.

The collection of on-site wind data commenced in January 2007, before the Project Sponsor acquired the Project in June 2011. The IE’s review of the data concluded that only data collected in the period January 2007 until October 2008 was of sufficient quality and reliability to use in the wind resource forecast. The IE concluded that the one-year P90 (90% probability of exceedance) energy sales level of the Project is 251.6 gigawatt hours, implying a 31.4% capacity factor. The Wind Reviewer did not calculate an equivalent value. However, its conclusions regarding gross energy production under different calculation parameters were approximately 0.2% higher.

To take into account some additional uncertainties in the calculation methodology that DBRS considers prudent, the Rating Case for DBRS’s financial projections is set at an energy generation level 3% below the IE’s one-year P90 level. The resulting financial projections are strong, demonstrating minimum and average semi-annual debt service coverage ratios of 1.60 times (x) and 1.63x. Taking this together with other strengths of the Project, this would indicate a rating level of BBB (high). However, the limits on the quality and quantity of the collected on-site wind data (which nevertheless is more than sufficient for the assigned rating) currently precludes a higher rating than provisionally assigned. Once sufficient operational and production data is available to validate the wind resource and energy production forecasts, it is likely that the rating could be upgraded by one rating notch.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is Rating Wind Power Projects (December 2014), which can be found on our website under Methodologies.