Wind projects in chronic production shortfall

Fitch sees production estimates as the sector’s main risk driver, with the projects it analysed underperforming initial expectations by 9.7 percent over the last eight years.

Most wind projects fail to meet initial expectations in terms of electricity production, according to a fresh study by Fitch.

In an analysis of 19 operating projects, the rating agency found recurring and widespread underperformance on a number of key indicators, which it said should support the use of conservative energy production assumptions when assessing the solvability of wind projects.

“The combined impact of lower-than-expected production and, in some cases, higher-than- expected operating costs resulted in weaker financial performance than expected when initial ratings were assigned,” says Jelena Babajeva, director in Fitch's global infrastructure group.

In the study, only 20 percent of annual observations recorded actual production at or above P50, an estimate of the long-term annual level of output, when this number should by statistical definition stand closer to 50 percent. Only three out of the 19 projects analysed managed to generate output at or above P50 on a consistent basis.

Over 60 percent of observational years, by contrast, showed actual production of more than 5 percent below P50. This lead the wind projects looked at in the study, on average, to underperform the base case by 9.7 percent over the eight years to 2013.

Production was also shown to be subject to frequent and significant swings in production, with volatility averaging 14 percent across the portfolio.

In that context, the study said, production estimates should be considered as the key risk weighting on wind investments. Projects indeed suffered cash flow volatility of around 18 percent year-on-year, due to production swings of sometimes 26 percent observed at single-site projects.

The report also found that forecasts based on historical production at completed projects were more accurate than those based on pre-completion studies, and that average operating cost across Fitch-rated wind projects, at $56 per megawatt (MW) of installed capacity, had increased substantially. These were nonetheless broadly in line with Fitch's original cost projections, the report said.