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 its credit rating on Acciona Energía Financiación Filiales, S.A.'s existing Euro Medium Term Notes programme at BBB (high). The trends on all ratings remain Stable.
KEY CREDIT RATING CONSIDERATIONS
Over the last year, CAER reported growth across all business lines driven by the Spanish power generation business, the international power generation business, as well as supply activities on the back of very high generation prices especially in Spain. At the end of 2022, the Company reported record revenues, EBITDA, and EBT of EUR 4,351 million, EUR 1,653 million, and EUR 1,057 million, respectively, as a result of unusually high energy prices, appropriate commercial and risk management, and stable financial costs. The positive results strengthened the company’s financial position in a global context that is characterised by the need for hefty investment in decarbonisation initiatives and reducing energy dependence on carbon emitting fuel sources.
CAER´s business risk profile is partially supported by its stable cash flows from regulated generation assets mainly in the Spanish market. In 2022, regulated activities worldwide accounted for around 38% of total generation revenues, of which 83.2% came from the domestic market. The regulatory regime in Spain has been stable since 2014, providing a reasonable return on capital investment and floor-price protection against volatility in Spanish wholesale power prices. However, the very high generation prices seen during 2022, while boosting earnings and cash flow generation, have accelerated the payback of the regulatory net asset value associated with CAER's regulated activities in Spain. DBRS Morningstar anticipates CAER’s EBITDA contribution from regulated activities to moderate over the short and medium term, before likely declining below 20% by FY 2024. If that happens, DBRS Morningstar may consider assessing CAER’s ratings solely using the "Rating Companies in the Independent Power Producer Industry" methodology and may no longer apply as a component of the ratings assessment the "Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry" methodology. In addition, in line with CAER’s strategy, DBRS Morningstar expects the Company to continue increasing the contribution from medium and long term hedging through financial forwards and end-user contracts for regulated energy that no longer benefits from regulatory hedges. This strategy should mitigate the merchant exposure with electricity price volatility risk during the lower price environment expected for the coming years.
In the international market, CAER's business risk profile is also supported by long-term contracts for its nonregulated power generation assets, which accounted for approximately 54% of the Company's international generation revenues in 2022 and is expected to reach around 65% in 2023 and 2024. Such contracts have an average remaining duration of approximately nine years with solid credit counterparties that are mostly utilities and governmental organisations in 17 countries. Long-term contracts significantly mitigate the risk associated with power price volatility. In Spain, despite CAER's nonregulated renewable generation output being generally sold under shorter-term contracts of around 12 months, the Spanish power market has lately shown an appetite for longer contract terms. In 2022, the Company signed 2.3 TWh of long-term supply contracts starting in 2023-2024, mostly with a duration of 10 years of which the 53% was for contracts in Spain. For 2023 the Company is expected to add 600 GWh in the domestic market.
In 2023, CAER expects to add about 1.8 GW in generation capacity as planned and 1.8 GW in 2024, reaching 20 GW by 2026-2027. The planned timeline to add capacity has been updated and is 12 to 18 months later than previously expected because of delays due to global supply chain disruptions during the latter part of 2021 and 2022, particularly with respect to global freight/logistics, and lack of available PV modules for the US market. Tensions in the supply chain have eased significantly, reducing uncertainty and delays in project construction. The Company feels comfortable with the current growth plan.
The Company expects capacity under construction at year end to remain at 1.6 gigawatts (GW), mainly in the U.S. and Australia. CAER has been proactively taking actions to contain disruptions/risks in Australia and Europe during 2021 and 2022, securing and locking in logistics, equipment, supply, and contractors. It is noted that renewable energy capital expenditure (capex) costs in the market have increased by about 20% since before the Coronavirus Disease (COVID-19) pandemic, although capex inflation at CAER has been lower than market averages. 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 allowed the Company to self-fund the exigent growth plan capex in 2022. DBRS Morningstar expects that, despite the lower price environment and lower operating cash flow expected for 2023 and 2024, the Company’s favourable liquidity position should help lower the amount of debt to be raised. As a result, all key credit metrics are expected to materially strengthen over the forecast horizon and stay at a level that fully compensates (1) the expected decrease in the proportion of regulated EBITDA, (2) the heightened regulatory risk, and (3) the inflationary pressures and supply chain disruptions.
CREDIT RATING DRIVERS
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 ambitious expansion plans; (2) heightened 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 30.0% and net debt-to-capital above 35.0% on a sustained basis and without the implementation of financial remedies.
CREDIT RATING RATIONALE
CAER’s Issuer Rating is supported by the Company’s (1) stable cash flows from regulated generation assets located mainly in Spain; (2) long-term contracts for a moderate percentage of its nonregulated 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 nonregulated 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/416784 (4 July 2023).
All figures are in euros unless otherwise noted.
DBRS Morningstar applied the following principal methodologies:
-- “Global Methodology for Rating Companies in the Independent Power Producer Industry” (9 May 2023) - https://www.dbrsmorningstar.com/research/413646/
-- “Global Methodology for Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry” (13 September 2022) - https://www.dbrsmorningstar.com/research/402616
The following methodology has also been applied:
-- “DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support” (28 March 2023) - https://www.dbrsmorningstar.com/research/411694
The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
A description of how DBRS Morningstar analyses corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223.
The primary sources of information used for these credit ratings include audited financial statements, quarterly results reports, management projections and budgets, and external correspondences. DBRS Morningstar considers the information available to it for the purposes of providing these credit ratings to be of satisfactory quality.
DBRS Morningstar does not audit the information it receives in connection with the credit 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 credit 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://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.
The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://www.dbrsmorningstar.com/research/417701.
These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Giuseppe Fresta, Senior Vice President.
Rating Committee Chair: Victor Vallance, 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 2022 and 3 September 2022, respectively, as noted above.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at email@example.com.
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