North America energy infrastructure outlook holds stable for 2012 - report
The outlook for North American energy infrastructure projects in 2012 is stable, according to a new report from credit-watch firm Fitch Ratings.
The stable outlook is supported by largely contracted revenue streams mitigating price and volume risk, including continuing strong support for renewable power projects through renewable portfolio standards.
However, exposure to merchant market energy and fuel price risk increases cash flow uncertainty for projects across multiple sectors, resulting in negative outlooks for select projects.
"Long-term power purchase contracts underpin many of the projects rated by Fitch," says Gregory Remec, senior director for Fitch's global infrastructure team in Chicago.
"Contracted revenues and an ability to pass through operating costs to investment grade counterparties continue to support stable outlooks for the majority of Fitch's portfolio. Projects reliant on selling power at merchant rates are more susceptible to credit quality erosion."
Fitch notes that vastly increased projections for North American natural gas supply, combined with generally flat demand in a slowly recovering economy, imply an extended period of relatively low gas prices.
Conversely, coal prices remain persistently high and have reversed the historical relationship to gas pricing. These relative fuel pricing trends present particular challenges for merchant coal-fired generators selling power at prices typically set by gas-fired assets.
Pending environmental compliance regulations will further pressure cash flows for thermal power projects lacking contracts allowing full cost recovery.
An unexpected improvement in North American economies could lead to increased demand for capacity and energy, improving prices and cash flow for merchant generators.
However, slower than expected economic recovery or failure to resolve European economic challenges may prolong currently weak demand and further suppress gas and electricity prices.
Timing and magnitude of emissions compliance requirements may also affect 2012 outlooks.
For more on the report, titled: '2012 Outlook: Energy Infrastructure North America', visit the Fitch website by clicking here.
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