North American energy projects resilient against Coronavirus

Financial markets have experienced vast pandemic-related fallout; however, energy projects throughout North America have largely withstood the effects of the coronavirus pandemic, according to Fitch Ratings in a new report.

Volatility has been limited thus far, with Fitch affirming 37 of its 46 North American energy projects against five Outlook revisions to Negative; three downgrades; and one project that Fitch placed on Rating Watch Negative.

"Contractual features and stable operating profiles contributed to the resiliency of these projects and their ability to withstand the near- to medium-term impacts of the coronavirus," said Senior Director Andrew Joynt. "The few rating actions taken on credits due to the coronavirus were mainly related to counterparty risk or market dynamics accelerated by the coronavirus."

Most Fitch-rated North American energy projects are contracted under long-term power purchase agreements (PPAs) that insulate them from market volatility in price and dispatch risk. This has resulted in fully contracted projects being better positioned to weather volatility in loads and wholesale power prices over the past several months.

That said, counterparty risk is a heightened concern, particularly for projects with off-takers in the oil and gas sector, and commercial and industrial customers. "Projects with merchant exposure, weak contractual protections or counterparty linkage risk generally experienced higher rating volatility," said Joynt.