ICRA Nepal has assigned a long-term rating of [ICRANP] LBB- to Chhyangdi Hydropower Limited’s (CHL) long-term loans worth NPR 815 Million and a short-term rating of [ICRANP] A4 to the short-term loans worth NPR 10 Million.
The assigned ratings consider the good energy generation 1 from the operational 2MW Chhandi Khola Small HPP and the moderate project cost of the under-constructional 4MW Upper Chhandi Khola Small HPP amid the availability of access roads and operational evacuation structures 3. Further, the ratings factor in a firm long-term PPA with defined tariff escalations for both the projects, which eliminate the offtake and the tariff risk. The assigned ratings also factor in the prior experience of the promoters in hydropower project development, operation and maintenance, which is expected to aid the completion of the 4MW project, within the required commercial operation date (RCOD) of July 20, 2021. Further, low funding risk for the development of the 4MW project with entire debt having already tied up and around 47% of equity already injected remains a comfort.
The ratings take comfort from the positive demand outlook of the energy sector, owing to the supply-demand gap in the power sector as well as the increasing energy consumption in the nation. However, the assigned ratings are constrained by the relatively higher project cost of the 2MW project at NPR 443 million, which has kept the average project cost to NPR 197 million per MW for the total capacity of 6 MW (2MW+4MW). This, along with lower contract PLF of ¬60% for both the projects, loss of one tariff escalation for the 2MW project due to delayed commissioning and high finance cost, has an impact on the return as well as the coverage indictors of the company.
Further, the exposure of the 4MW project towards the short supply penalty if the project fails to meet the 30% dry energy could suppress the return and coverage indicators for the company amid the fixed tariff structures. Nonetheless, the return and coverage indicators remain comforted, to some extent, by the high levelised tariff of the 4MW project amid the 6-6 months dry-wet energy PPA model, resulting from a higher dry energy mix of 30% along with eight times tariff escalations on the base rate, which has improved the average levelised tariff for both the projects.
Going forward, the good energy generation from the 2MW project as per the current trend as well as CHL’s ability to commission the 4MW-project within the estimated cost and timeline and achieve its designed operating parameters as well as interest rate volatility in the market would be the key drivers for determining the project return metrics and other coverage indicators for the company.
Source: ICRA Ratings Nepal