DBRS Confirms Grand Renewable Solar LP at BBB with a Stable Trend

DBRS Limited (DBRS) confirmed Grand Renewable Solar LP’S (ProjectCo) Issuer Rating and 3.926% Series 1A-2016 Senior Secured Notes and 3.926% Series 1B-2016 Senior Secured Notes (collectively, the Notes) ratings at BBB. All trends are Stable. The pari passu Notes, with an outstanding balance of approximately $537.0 million, will fully amortize by the January 31, 2035, maturity date. The rating confirmations reflect ProjectCo’s relatively stable performance over the past few years, although performance for the recent 12 months was moderately below the rating-case projections, caused by lower-than-expected solar insolation levels.

ProjectCo, a special-purpose vehicle, owns and operates a 100-megawatt alternating-current ground-mounted solar photovoltaic (PV) generation facility in Haldimand County, Ontario. It also owns a 50% interest in the associated 20-kilometre transmission facilities connecting the PV facility to Hydro One Networks Inc.’s electricity grid (collectively, the Project or the Facility). ProjectCo sells all generated electricity to the Independent Electricity System Operator (IESO; rated A (high) with a Stable trend by DBRS) under a 20-year fixed-price power purchase agreement (PPA) until March 30, 2035 — two months after the Notes mature.

For the 12-month periods ended December 31, 2018, and March 31, 2019 (financial reporting dates), the DBRS-adjusted debt service coverage ratios (DSCR) of 1.35 times (x) and 1.34x, respectively, were below the forecast 1.40x in the rating case. Subpar financial performance was largely driven by the lower-than-expected revenue or generation. The 12-month actual generation represented 96.0% to 96.7% of the P90 level (the rating case) or 90.7% to 91.3% of the P50 level.

DBRS notes that other solar PV projects within the region experienced similar subpar performance as a result of heavy precipitation during the winter season and unusually low solar insolation during fall 2018. Despite the subpar generation driven by the low insolation, the Facility continued to maintain a high availability of 99%. The Facility also conducted an annual site testing and observed no material degradation in the panel’s performance. To date, the curtailment loss has been sufficiently compensated by the IESO under the PPA.

The ratings continue to be underpinned by (1) the 20-year fixed-price PPA with a highly rated offtaker, (2) the limited operating risk expected because of the proven technology and (3) an enhanced project finance structure. The ratings are constrained by (1) long-term module degradation risk, (2) exposure to long-term warranty providers with relatively weak credit quality and (3) revenue volatility, which is tied to a variable energy resource and the Facility’s performance ratio. These risks are partially mitigated by the conservative P90 rating-case projections and a reserving remediation mechanism in case the modules degrade faster than expected. DBRS expects the trends on the ratings to remain Stable for the next 12 months; however, a material and sustained underperformance could cause a negative rating action, while a positive rating action could follow if the Project can sustain at or above the P50 generation levels, impelling the DSCR to increase to above 1.50x for a sustainable period.

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

PXX means exceedance probabilities. A P50-P90-P99 value describes estimated minimum electricity generation with a probability of 50%, 90% or 99% in any given year (P50, one-year P90 and one-year P99). Unless otherwise specified, all PXX values are in reference to one-year PXX values, adjusted by DBRS, considering availability, degradation and curtailment factors.

Solar insolation is the amount of electromagnetic energy (solar radiation) that falls on the surface of the earth. The units used to express solar insolation levels are generally expressed in kWh/m2/day, which is the amount of solar energy that strikes a square metre of the earth’s surface in a single day.

The principal methodology is Rating Solar Power Projects (October 2018), which can be found on www.dbrs.com under Methodologies & Criteria.

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 under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

DBRS will publish a full report shortly that will provide addi¬tional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada