S&P says U.S. hydro asset transactions experiencing a renaissance

A new report from S&P Global Ratings says existing hydro assets in the U.S. seem to be experiencing a renaissance, with recent transactions commanding substantial EBITDA (earnings before interest, taxes, depreciation and amortization) multiples.

Hydropower Projects 101: How S&P Global Ratings Views the Risk of Hydro says that although America’s hydro fleet of about 80 GW has remained largely flat since the 1970s, there is a resurgence in financing hydro assets. Why? The report points to several factors:

  • These assets continue to provide one major advantage to ratepayers: insulation against commodity price
  • Increasing decarbonization of North America makes hydro assets very valuable
  • The low power pricing environment that has weakened merchant generators’ fortunes during the past two years makes the case for maintaining hydro assets.
  • Incumbent plants retain significant value and are a scarce resource
  • With variable generation sources coming online, the ability of hydro facilities to adjust their production relatively quickly and offer load following services is becoming more valuable

The report says more than $6 billion of capital has been spent on hydro assets between 2005 and 2013 in the U.S.

Key takeaways from this report, per S&P, are:

  • Despite hydrological and financial complexities, hydro fleets can be rated according to their resource risk, the risk of non-performance and liquidity features
  • A deluge of hydro closures is unlikely. Instead, these assets’ relative resilience and ability to renew via capital investments mean they are likely to play a significant role in the U.S.’ energy plans
  • Despite substantial proliferation of hydropower in the Pacific Northwest, it is possible that hydro imports from Canada could increase, given the favorable economic benefits of hydropower

The report contains a section on hydro and the Clean Power Plan that says, “… we still believe that even if the new composition of the Supreme Court does not uphold the rule, there is likely to be some form of carbon regulation in the U.S. longer term, and, if so, the maintenance of hydro assets is likely to play a significant role in reducing carbon emissions.”

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