TRIS Rating Assigns Corporate Rating of ACE at BBB Outlook

TRIS Rating affirms the company rating of Absolute Clean Energy PLC (ACE) at “BBB+” with a “stable” outlook.

The ratings reflect the company’s stable cash flow from its long-term Power Purchase Agreements (PPAs) with government utilities under the Small Power Program. Producers — SPP and Very Small Power Producers — VSPP), as well as the satisfactory performance of the company’s power plants. The ratings also reflect the company’s capacity expansion plans to double within period of 5 years and the risk of developing new power plants as planned

Key Points Determining Credit Ratings

• Predictable cash flow from long-term PPAs Almost all of the Company’s power plants have long-term power purchase agreements with the Electricity Generating Authority of Thailand (EGAT) and the Provincial Electricity Authority (PEA).

As of June 2021, the company owns 21 operating power plants nationwide with a total capacity of 247.7 megawatts. The capacity from the 12 biomass power plants accounted for 47% of the company’s total capacity. While 46% of combined cycle power plants use natural gas as fuel, the remaining 7% is generated from waste power plants. 2 Waste-to-Energy (WTE) projects, 5 rooftop solar power projects and 1 floating solar power project.

The PPA of the Company’s biomass power plant receives a fixed electricity rate of 2.39 baht per kilowatt-hour (kWh) and a variable electricity rate of 1.85 baht per kilowatt hour, which is adjusted for inflation. In addition, in the power purchase agreement There is also a special electric charge of 0.3 baht per kilowatt hour during the first 8 years.

The Company’s combined cycle power plant has a 25-year long-term power purchase agreement with EGAT under the Small Power Producer Project with a contracted capacity of 90 megawatts. For Combined Cycle Power Plants, EGAT has agreed to call for electricity at least 80% of the contracted capacity based on the plant’s operating hours. The contract is take-or-pay, which gives the company a stable cash flow. The contract also includes a formula that combines adjustments to changes in fuel prices and foreign exchange rates, thereby reducing the risks associated with changes in fuel prices. oil prices and currency fluctuations as well.

• Reducing the risk of raw material procurement Most of the company’s power plants use biomass to generate electricity, which tends to fluctuate in supply and prices of raw materials. The risk is mitigated by having a major shareholder specializing in eucalyptus and wood chip plantations.

The company’s biomass power plants are located close to raw material sources and are also designed to be able to use a variety of raw materials such as wood chips, bark and agricultural waste. the power plant’s fuel efficiency The average fuel cost for the Company’s biomass power plants has continued to decline to 1.26 baht/kWh in 2020 from 1.54 baht/kWh in 2018.

The Company’s biomass power plants have long-term fuel supply contracts with related companies to ensure that the power plants have sufficient fuel for wood chipping and eucalyptus bark and are readily available at all times.

• Consistent operating results The company’s biomass power plants have achieved consistent performance over the past three years. The average readiness index of power plants is 92%-95% and the capacity rate in During 2018-2020, over 90% of full capacity Meanwhile, the average Emergency Stop Index was 1.2%-4.4% during the same period.

The Company’s combined cycle power plant has achieved the targets stipulated in the PPA since the commencement of operations in 2017, with a readiness index of 90%-99% and an unplanned turnaround rate. low level The heating rate is between 7,441-7,693 BTUs per unit, which is better than the 7,950 BTUs per unit specified in the PPA.

In the first six months of 2021, the company’s income before interest, tax, depreciation and amortization amounted to 1.2 billion baht, an increase of 12% y-o-y due to increased production capacity. up from the purchase of 3 new power plants

• Electricity capacity will be doubled by 2025 according to the company’s investment plan. The company’s electricity capacity will increase to 528.4 megawatts by 2025, doubling from 247.7 megawatts at the end of June 2021. The company has 35 projects under development, comprising 15 biomass power plants. 2 waste power plants and 18 biogas power plants under the community power plant project for local economy (pilot project)

During 2018-2020, the company’s earnings before interest, tax, depreciation and amortization stood at 1.6-2 billion baht per year. TRIS Rating expects the company’s earnings before interest, tax, depreciation and amortization to fluctuate in the range of Bt2.3-3.9 billion per year during 2021-2024 when new power plants start operating. commercial work

• Increased debt levels during capacity expansion The company’s debt level will increase over the next several years. TRIS Rating estimates that the company will need to invest Bt21 billion to develop new power plants between 2021 and 2024. The source of the investment is expected to come mostly from debt. The company’s total debt to capitalization ratio is expected to peak at Bt15-16 billion in 2024, a significant increase from Bt3.7 billion at the end of June 2021. The company will increase to 45%-50% between 2022-2024 from 21% at the end of 2020.

The level of leverage relative to cash flow will also increase during the capacity expansion period. TRIS Rating expects the debt-to-Earnings before interest, tax, depreciation and amortization ratio to peak at 6.1x in 2022 before gradually improving to a low level. More than 5 times during 2023-2024 when new power plants gradually opened for operations during 2022-2024.

• have sufficient liquidity Most of the Company’s power plants have been approved for long-term project loans. Both the Company and its subsidiaries were able to comply with the financial conditions related to bank loans. TRIS Rating assumes that the company’s liquidity is sufficient. As of June 2021, the company has debt of Bt620 million due over the next 12 months. meanwhile The company has cash on hand of 619 million baht and expects to have capital from operations of approximately 2.3 billion baht in 2021.
• Capital Structure At the end of June 2021, the Company had loan debt of 4.8 billion baht, excluding financial leases. All debts are debts of the subsidiary, which are considered to be debts that are in the first order of repayment. Therefore, the ratio of debts in the first order to total debt is 100%. There is an order of early repayment against the total debt is greater than 50% based on the credit rating criteria. TRIS Rating therefore views that the company’s unsecured creditors will be at a significant disadvantage in terms of rights to claim the company’s assets.

base case hypothesis

• The installed capacity is 247.7 MW in 2021 and will increase to 509 MW in 2024.
• Investment costs will be around 21 billion baht during 2021-2024.
• During 2021-2024, revenues will range between 5.7 billion baht and 12 billion baht per year. Estimated earnings before interest expense, tax, depreciation and amortization will be in the amount of 2.3-3.9 billion baht per year.

The “stable” outlook reflects TRIS Rating’s expectation that the company’s power plants will achieve smooth operating performance and recurring cash flow. While it is expected that the projects under development of the Company will be able to operate as planned.

Factors that could cause a change in credit rating The rating could be upgraded if the company is able to generate significantly higher-than-expected operating cash flows and continue to reduce its leverage relative to cash flow. go down If the company’s financial situation deteriorates dramatically, this may be due to delays or escalating costs of the company. developing new projects or having a weaker capital structure from investments with a large amount of debt