(Repeat for additional subscribers)
April 11 (The following statement was released by the rating agency)
The European Commission's latest guidelines on support for renewable energy will weaken the
risk profile of new projects by exposing them to both price and volume risks, Fitch Ratings
says. In the longer term, however, the guidelines should help provide a stable regulatory
environment by reducing the risk of incentives becoming unsustainable.
The guidelines are intended to reduce market distortions and limit the cost to
consumers by introducing market-based mechanisms to support renewables. These
include competitive bidding processes for allocating support and replacing
feed-in-tariffs (FITs), which provide a guaranteed price for electricity, with
feed-in-premiums, which pay a premium on top of the market price. The
guidelines, which will only apply to future projects, are in line with the
direction already taken by several European countries, including Germany and the
The main change in the risk profile of renewables as a result of the
introduction of market-based remuneration will be the exposure to price risk.
Exposure to merchant power prices in market-based support systems will lead us
to analyse a project's economics on the basis of stressed power prices or floor
prices, where applicable. In contrast, the revenue of projects with guaranteed
FITs is only exposed to the plant's technical performance and volatility in the
relevant natural resource.
Renewables have also typically benefitted from priority of dispatch, providing
generators with certainty that they can sell all the power they produce. This,
together with higher marginal cost of production, has created challenges for
traditional power providers, for example by forcing the mothballing of gas-fired
plants in Germany as they have been priced out in the merit order.
The commission's intention to create a level playing field within the industry
may therefore result in renewables generators no longer benefitting from
preferential grid access. Generators may become exposed to greater volume risk
including possible curtailment of production in situations of low demand or grid
We will therefore evaluate the financial impact of non-compensated curtailments
in our rating analysis. However, the marginal cost of production of wind and
solar power is likely to stay below that of fossil thermal plants. This in turn
means that these proposals offer little relief for the generation segment of
incumbent utilities, which continue to suffer in most of the EU and especially
Regulatory stability and transparent policies give developers and industry
sufficient time to plan investments. This is as important as the level of
support. Regulation is most likely to be stable if the implemented policies
strike a balance between environmental targets, security of supply and price
affordability. These guidelines should aid stability in the long term, but the
impact will depend on how they are implemented in individual countries.