DBRS Morningstar Confirms Ratings on Dufferin Wind Power Inc. at BBB (high) with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed Dufferin Wind Power Inc.’s (the Issuer) Issuer Rating and the rating on the 4.317% Series 1 Senior Secured Bonds due November 30, 2033 (the Bonds) at BBB (high) with Stable trends. The Issuer is a special-purpose entity (SPE) created to acquire, develop, own, and operate the 91.4-megawatt (MW) Dufferin Wind project (the Project), located in Dufferin County, Ontario. The Issuer is indirectly and wholly owned by the Project Sponsor, China Longyuan Power Group Corporation Limited (the Project Sponsor). All energy is sold directly into the Independent Electricity System Operator (the IESO; rated A (high) with a Stable trend by DBRS Morningstar) transmission grid under a Feed-In-Tariff Contract (the FIT Contract) that expires on November 30, 2034, which is 12 months after the scheduled full repayment of the Bonds. The $200 million Bonds were issued on October 22, 2015; approximately $161.5 million is currently outstanding.

Since achieving the Commercial Operations Date (COD) under the IESO FIT Contract on December 1, 2014, the Project has had five and a half years of reported operating results, achieving an average of approximately 13% above the one-year P90 rating case, which is 1% above the P75 and 5.5% below the P50 generation levels for the five full years. In 2019, the Project generated 278.6 gigawatt hours (GWh) at an average realized price of $148.52 per MW hour. This generation level is 15.3% above the one-year P90 rating case of 241.6 GWh, 3.0% above the P75 plan of 270.6 GWh, but 3.7% below the P50 plan of 289.2 GWh, due to a lower wind resource. Generated electricity in 2019 includes 8.16 GWh of curtailment above the annual cap of 2.5 GWh. The Project is compensated for foregone energy sales in excess of an annual and cumulative cap where the Project is curtailed by the IESO from generating energy when it is otherwise able to do so. The resulting debt service coverage ratio (DSCR) for full-year 2019 is 2.02 times (x), well above the expected 1.61x in the rating case as in all prior years since COD. For the first half of 2020 (H1 2020), the Project generated 140.8GWh (versus 146.5 GWh in H1 2019) and revenue of $20.9 million (versus $21.8 million in H1 2019), resulting in a six-month DSCR of 1.91x. DBRS Morningstar expects the Project to exceed the P90 rating-case DSCR for full-year 2020.

The rating is supported by (1) the IESO FIT Contract, (2) robust financial performance and rating-case financial projections demonstrating minimum and average semiannual DSCRs of 1.61x and 1.64x, respectively, and (3) the operating and maintenance (O&M) arrangement with General Electric Canada Inc., the original equipment manufacturer. The rating is constrained by (1) the inherent uncertainty of wind forecasts and resource variability, (2) O&M cost management and (3) some exposure to negative hourly Ontario energy price (HOEP). These risks are partially mitigated by the Project’s actual performance, ability to maintain cost discipline and negligible exposure to negative HOEP. If the Project continues its strong performance consistently for the next several years, including cost discipline and adequate maintenance, DBRS Morningstar may take a positive rating action.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

The principal methodology is Rating Wind Power Projects (September 1, 2020), which can be found on dbrsmorningstar.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 [email protected].

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

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at [email protected].

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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