Fitch: Brazil's Move to Wind Power Challenges Standby Producers

NEW YORK--()--Increased use of standby thermal plants may pose some unexpected operational challenges to power producers, Fitch Ratings says. Brazil's effort to diversify its electricity production into other renewable resources, including wind farms and expanded hydroelectric projects (currently being auctioned), should result in more frequent dependence on standby power producers.

Consistently high employment of standby services could cause operators to defer major maintenance and raise life cycle costs. We believe this cost increase would be particularly acute if the demand for standby power rises due to a prolonged drought or other supply interruption.

Thermal plant operators that do not meet the dispatches required by the National System Operator may be exposed to risks to their cash flow generation and debt coverage metrics if they must buy energy in the spot market. An operator's higher costs to purchase energy in the spot market due to operational issues such as maintenance of units would not be recoverable.

Fitch believes strong standby projects must fulfill power production requests and contracts should include pass-through mechanisms to fully recover variable costs - such as fuel (particularly for projects that are in remote areas where fuel supply may be subject to increase transportation cost) - in a timely manner.

The reliance on standby plants could play a more important role in the electricity system's reliability going forward. Fitch plans to produce a report soon that will analyze the associated risks to standby projects more deeply.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Alberto Santos
Senior Director
Global Infrastructure and Project Finance Group
+1-212-908-0714
33 Whitehall Street
New York, NY
or
Rob Rowan
Senior Director
Fitch Wire
+1-212-908-9159
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Alberto Santos
Senior Director
Global Infrastructure and Project Finance Group
+1-212-908-0714
33 Whitehall Street
New York, NY
or
Rob Rowan
Senior Director
Fitch Wire
+1-212-908-9159
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com