NEW YORK--(BUSINESS WIRE)--As U.S. landfill gas (LFG) processing and energy projects gain momentum, long-term financing - and the associated credit strengths and risk mitigants required for an investment grade rating - take on increased importance, according to a new Fitch Ratings report.
'To achieve an investment-grade rating, LFG projects should mitigate completion risk with either an investment-grade-rated contractor or a contractor performance bond from a creditworthy counterparty. The adequacy of the liquidate damages stipulated in the contract to offset any performance shortfalls or completion delays is a key consideration,' said Nicole Czarny, Associate Director in the Global Infrastructure and Project Finance Group.
Fitch's evaluation of a project's operating risk is linked to the strength of the project sponsor or operator as the ability to maintain stable cash flows is reliant on availability and the ability to minimize losses during the extraction process.
Absent a strong and experienced sponsor, as well as adequate replacement operators for the site, it is unlikely that a project could reach investment grade.
Fitch would view positively an investment-grade sponsor or operator due to the uncertainty regarding the underlying supply risk and operation of a utility scale LFG project site.
Long-term, substantial supply uncertainty and unproven technology are risks to LFG project cash flows compared with other thermal plants. As a result, additional reserves may be necessary to fund any operational shortfalls with project level liquidity to ensure a stable cash flow profile over the life of the project.
For more information, a special report titled 'Landfill Gas to Energy Projects' is available on the Fitch Ratings web site at www.fitchratings.com.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research: Landfill Gas to Energy
Projects (Heaps of Potential)