LONDON: Fitch Ratings says in a new report that its outlook for EMEA energy infrastructure remains largely stable, with the exception of renewable energy projects.
The recently enacted reductions to the incentive frameworks in Italy, for photovoltaic plants, and in Spain, for renewables in general, are high-profile examples of the current regulatory instability affecting the renewable energy industry across several European jurisdictions. The negative outlook for the European renewable energy sector reflects such regulatory risk and the ongoing industry adaptation to less favourable operating requirements and economic incentives.
Low break-even price levels and, generally, firm bases of long-term take-or-pay contracts are the key strengths underpinning Fitch-rated oil & gas projects. These features support the projects’ ability to weather the possible toughening of hydrocarbon market conditions in the form of low prices and/or demand contraction.
Fitch-rated gas infrastructure projects are generally characterised by stable revenue profiles, due to regulation or contractual arrangements isolating the project from demand and price risks. This is further supported by their natural monopoly status in providing an essential service. This generally results in rating stability, unless there are transaction-specific issues or regulatory instability.
The operating performance of offshore transmission operators (OFTOs) in the UK remains positive, with OFTOs achieving high availability levels above license threshold requirements. A failed transmission cable at the Blue Transmission Walney 2 led to the regulation provisions supporting the project being tested for the first time. Positively, the regulator’s decision was in favour of the project, and in line with Fitch’s understanding of licence provisions.