Despite tepid economic growth, the outlook for fully contracted power projects is stable as they continue to meet expected financial metrics and maintain good operating performance, says Moody's Investors Service in an industry outlook.
The outlook for merchant power projects, however, remains negative.
"Our negative outlook for power projects with wholesale power price exposure continues to largely reflect sustained weak natural gas prices, since the majority of US electricity markets price power off natural gas prices," says Moody's Analyst Charles Berckmann in the Report "US Power
Projects: Low Gas, Low Demand Growth to Keep Margins Suppressed in 2013."
"We believe that merchant margins have reached the lower end of the cycle," adds Berckmann. "While power margins are expected to remain weak, they should not drop by double digit percentages as they did last year."
Poor operations and moribund project economics forced a number of projects into bankruptcy or caused them to pursue other strategic activities in 2012. Moody's expects the asset sales and restructurings to continue.
Fully contracted projects continue to reflect strong operating performance and the high-investment grade ratings on many of the off-takers. They also typically are exposed to very little limited fuel or price risk, says Moody's, leading to stable credit metrics.