DBRS Morningstar Confirms Grand Renewable Solar LP at BBB With Stable Trends

DBRS, Inc. (DBRS Morningstar) confirmed Grand Renewable Solar LP’s (ProjectCo) Issuer Rating and the ratings on the 3.926% Series 1A-2016 Senior Secured Notes and 3.926% Series 1B-2016 Senior Secured Notes (collectively, the Notes) at BBB. All trends are Stable. The pari passu Notes, with an outstanding balance of approximately $422.5 million, will fully amortize by the January 31, 2035, maturity date. The rating confirmations reflect ProjectCo’s relatively stable performance and operating expense profile over the review period.

RATING RATIONALE/DESCRIPTION
ProjectCo, a special-purpose vehicle, owns and operates a 100-megawatt alternating-current ground-mounted solar photovoltaic (PV) generation facility. It also owns a 50% interest in the associated 20-kilometer 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) under a 20-year fixed-price power purchase agreement until March 30, 2035. The off-taker, IESO, has a strong credit quality that does not constrain ProjectCo’s ratings.

The Project has more than eight years of stable operating history. For the 12-month periods ended December 31, 2022 (LTM 2022), and March 31, 2023 (LTM 2023), the operations performed well; the DBRS Morningstar-adjusted debt service coverage ratios were 1.52 times (x) and 1.50x, respectively, comfortably above the 1.40x in the rating case. The Project's 12-month actual generation represented 107.3% and 105.1% of the P90 level (the rating case) for the LTM 2022 and LTM 2023, respectively. Generation exceeded the forecast P50 level for the first time during LTM 2022, at 101.2%; LTM 2023 generation was at 99.2% of the forecast P50 level.

The improved financial performance in YE2022 and the LTM 2023, compared with YE2021, was driven by higher insolation levels and stable operating costs. DBRS Morningstar also notes that the Facility has (1) maintained a high availability of 99% and (2) conducted annual site testing and observed no material degradation in the panels’ performance.

A defect with some of ProjectCo's modules was discovered in 2022. Approximately 11% of the modules may have a problem with the back sheet. Performance has not yet been affected, but could eventually if the modules are not repaired or replaced. Canadian Solar Inc. (CSI), the module manufacturer, will be responsible under the warranty and is working with ProjectCo to reach a resolution in 2023. DBRS Morningstar expects this problem to be remedied at minimal cost to ProjectCo and for the Project’s performance to remain unaffected.

RATING DRIVERS
DBRS Morningstar expects the trends on the ratings to remain Stable for the next 12 months. A material and sustained underperformance of ProjectCo, compared with the rating case, could cause a negative rating action; whereas a material and consistent outperformance compared with the rating case may cause a positive rating action.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022) at https://www.dbrsmorningstar.com/research/396929.

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

PXX means exceedance probabilities. A P50-P90-P99 value describes the estimated minimum electricity generation with a probability of 50%, 90%, or 99% in any given year (P50, one-year P90, and one-year P99).

DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Solar Power Projects (September 6, 2022) - https://www.dbrsmorningstar.com/research/402404

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223.

The rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at [email protected].

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