DBRS Ratings GmbH (DBRS Morningstar) confirmed both the Issuer Rating and the Short-Term Issuer Rating on Corporación Acciona Energías Renovables S.A. (CAER or the Company) at BBB (high) and R-2 (high), respectively. DBRS Morningstar also confirmed the rating on Acciona Energía Financiación Filiales, S.A.'s Euro Medium Term Notes programme at BBB (high). All trends are Stable.
KEY RATING CONSIDERATIONS
Over the last year, CAER reported growth across all business lines driven by the Spanish generation business, the International generation business, as well as supply activities on the back of very high generation prices especially in Spain. In the last 12 months ended 30 June 2022, the Company reported record revenues, EBITDA, and EBIT of EUR 3,637 million, EUR 1,495 million, and EUR 1,097 million, respectively. This is a marked change in trajectory from the lower results of 2020, which were mainly affected by a decrease in energy supply sales because of the impact of the Coronavirus Disease (COVID-19) pandemic; a decrease in the average electricity sale prices; and, to a lesser extent, lower consolidated production. The major increase in Spanish power prices commenced in H1 2021, with the average price of EUR 58.6/megawatt hour (MWh), increasing to EUR 164.4/MWh in H2 2021, and further increasing to EUR 205.9/MWh in H1 2022.
While boosting earnings and cash flow generation, the very high generation prices also accelerated the payback of the regulatory net asset value associated with CAER's regulated activities in Spain. DBRS Morningstar expects regulated activities over the Company’s revenues to decrease in the medium term. In 2021 regulated activities accounted for 54% and this proportion is expected to decline from 2022 onwards, falling to 20% by the end of 2024. This year, DBRS Morningstar continued to assess CAER under two methodologies: "Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry" and "Rating Companies in the Independent Power Producer Industry". However, as the proportion of regulated EBITDA is expected to progressively decrease over time, DBRS Morningstar may consider a change in approach in the future.
DBRS Morningstar also notes that the Spanish Government has launched a series of initiatives aimed at reducing the average electricity bill for consumers (e.g., a gas claw-back), including changes to the current Spanish regulatory regime, thus increasing the regulatory risk perception. While these measures have a limited impact on CAER earnings and cash flow generation over the forecast horizon 2022–24, such impact is more than compensated by the very high energy prices in Spain. As a consequence of the Russia-Ukraine conflict, CAER also had to write off part of the value of some of the assets that are located in Ukraine; however, these assets represent only a small fraction of total production capacity.
In 2022, CAER expects to add about 540 MW in generation capacity. This is 290 MW less than initially planned because of the disruptions in the supply of photovoltaic modules to the U.S. market, which were severely aggravated by the Department of Commerce Anticircumvention filing and subsequent initiation of an enquiry. The Company expects capacity under construction at year end to remain at 2.1 gigawatts (GW), mainly in the U.S. and Australia. CAER has been proactively taking actions to contain disruptions/risks in Australia and Europe, securing and locking in logistics, equipment, supply, and contractors. While metal prices seem to have past their peaks, the price of polysilicon continues its strong escalation. Against this backdrop, CAER has secured the bulk of modules needed for the 1.3 GW of short-term ongoing projects in the U.S. The Company is also trying to optimize construction works and minimize the impact of limited module supply in H2 2022. It is noted that renewable energy capital expenditure (capex) costs in the market have increased by about 20% since before the pandemic, although capex inflation at CAER has been lower than the market. Against this backdrop, the amount to be spent on capex across the forecast horizon is lower than envisaged last year.
DBRS Morningstar notes that the stronger operating cash flow generation resulting from very high generation prices in Spain, coupled with some capex reduction especially in 2021 and 2023, has materially lowered the amount of debt to be raised to fund such investment activities. As a result, all key credit metrics are expected to materially strengthen over the forecast horizon and stay at a level that fully compensate (1) the expected decrease in the proportion of regulated EBITDA, (2) the heightened regulatory risk, and (3) the inflationary pressure and supply chain disruptions.
DBRS Morningstar considers a positive rating action in the medium term to be unlikely. However, DBRS Morningstar could take a negative rating action as a consequence of (1) significant project delays and cost overruns associated with CAER’s aggressive expansion plan; (2) a heightening in regulatory risk; or (3) a decline in credit metrics to below DBRS Morningstar’s required levels, for example with a cash flow-to-net debt below 35.0% and net debt-to-capital above 30.0% on a sustained basis and without the implementation of financial remedies.
CAER’s Issuer Rating is supported by the Company’s (1) stable cash flows from regulated generation assets in Spain; (2) long-term contracts for its international generation assets; (3) good geographic diversification; (4) solid credit metrics, strong liquidity, and good capital management policy; and (5) strong operational expertise and a good track record in the development of power projects. CAER´s Issuer Rating is constrained by the Company’s (1) capex intensity and project development risk, (2) exposure of non-regulated generation to price volatility in the long term, (3) operational risk, (4) currency and interest risk, and (5) intense competition in non-regulated operations. The Stable trends incorporate DBRS’s Morningstar’s view that—notwithstanding the expected large capex requirements—CAER´s credit metrics will remain supportive of a BBB (high) Issuer Rating.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental (E) Factors
As CAER is a pure-play leader in the renewable energy sector, the Environmental factor Carbon and GHG Costs is considered to have a relevant effect, with a modestly positive impact on DBRS Morningstar’s overlay analysis.
There were no Social (S) or Governance (G) factors that had a significant or relevant effect on the credit analysis.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
All figures are in euros unless otherwise noted.
The principal methodologies are Rating Companies in the Independent Power Producer Industry (18 May 2022) and the Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (24 September 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include DBRS Morningstar Criteria: Guarantees and Other Forms of Support (4 April 2022) and DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022).
The primary sources of information used for this rating include annual and quarterly reports and financial statements, management projections and budgets, and external correspondences. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.
DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.
The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/402213.
This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Giuseppe Fresta, Senior Vice President
Rating Committee Chair: Andrew Lin, Managing Director
Initial Rating Date: 26 August 2021 (CAER’s Issuer Rating), 3 September 2021 (CAER’s Short-Term Issuer Rating and Acciona Energía Financiación Filiales, S.A.'s Euro Medium Term Notes)
Last Rating Date: 26 August 2021 and 3 September 2021, respectively, as noted above.
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-- Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (24 September 2021), https://www.dbrsmorningstar.com/research/384922.
-- Rating Companies in the Independent Power Producer Industry (18 May 2022), https://www.dbrsmorningstar.com/research/396971.
-- DBRS Morningstar Criteria: Guarantees and Other Forms of Support (4 April 2022), https://www.dbrsmorningstar.com/research/394683.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022), https://www.dbrsmorningstar.com/research/396929.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.