DBRS Finalizes Provisional Rating of BBB (high) for Northland Power Solar Finance One L.P.

DBRS has today finalized the provisional rating of BBB (high) with a Stable trend to the Series A Senior Secured Amortizing Bonds (the Bonds) of Northland Power Solar Finance One L.P. (ProjectCo or the Issuer). The obligations of ProjectCo under the Bonds are guaranteed on a joint and several basis by the Project LPs. The Project LPs are six operating solar power project sites with a contracted generation capacity of 10 megawatts (MW) each, or a total of 60 MW, located across Ontario (together, the Facilities). Each facility benefits from fully contracted power prices at attractive rates under 20-year feed-in-tariff (FIT) contracts with the Ontario Power Authority (OPA, rated A (high)), and is connected to Hydro One Networks Inc.’s low voltage distribution system under separate and identical connection agreements.

The rating is at the higher end of the relevant rating category, due to: (i) relatively strong financial ratios, (ii) good panel technology with well-established performance and (iii) strong initial solar resource performance relative to projections. Each facility reached commercial operation between June 21, 2013, and September 23, 2013, selling electricity to the OPA. Under the FIT contract, the OPA agrees to pay for all power generated by each facility at a price of 44.3 cents per kilowatt hour (kWh) for the term of the contract. This is an above-market price for power (required to support the higher cost of solar energy) and is considered positive for the Facilities’ credit quality. The FIT contract prices are not adjusted for inflation over the life of the contract.

DBRS generally views the primary risks during the operating phase of solar projects to be higher-than-expected panel degradation and solar resource forecasting error. The solar resource assessment was completed by Luminate, LLC (Luminate) and reviewed by Black & Veatch Canada Company, and was based on solar resource data from the Canadian Weather Energy and Engineering Dataset and the SolarGIS satellite-modelled data (SolarGIS) for the sites. Each individual facility uses polycrystalline silicon modules provided by SunEdison Products Singapore Pte. Ltd. (SunEdison), a subsidiary of SunEdison Inc., and inverters provided by SMA Solar Technology Canada, Inc., a subsidiary of SMA Solar Technology AG.

Crystalline silicon technology is considered to be more efficient than thin-film solar technology, has much more commercial operating experience and is the most widely used technology for solar modules. SunEdison modules have some of the lowest warranty claims compared with other PV module manufacturers, at 0.01%. SunEdison Inc. has also provided a module performance warranty for long-term degradation of no more than 0.7% per year for 25 years.

The Facilities are expected to achieve a minimum P90 senior DSCR of 1.57x. There is approximately one year of actual operating data, which indicates that operating levels have exceeded the P90 base case and are closer to the P75 levels. The panel degradation risk is considered somewhat mitigated by the dynamic degradation reserve testing and module warranty reserve account mechanism, resulting in a moderate risk. The financial structure includes a debt service reserve account and an O&M reserve account. Low-risk, high-severity events related to extreme weather (e.g., hurricanes, hail and lightning) are covered by the Facilities’ business interruption insurance program.

DBRS’s sensitivity analyses show that the Facilities have robust resiliencies and can withstand a number of shocks, including a panel degradation of 3.22% per year, and still be able to service debt obligations. The senior DSCR also provides sufficient protection against variability in solar resource, O&M costs and inflation, which are the basis for the BBB (high) rating. DBRS views the structure and key contract terms as also supportive of the rating.

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

The applicable methodology is Rating Solar Power Projects, which can be found on our website under Methodologies.

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.