Merchant Power Plants

Abstract

Two years ago, Standard & Poor's published its first criteria for rating proposed project financing of merchant power plants (MPP). To further facilitate the development and project financing of MPPs, the agency recently has revised those criteria. Because the forces affecting market share are the essence of business risk in power generation, the criteria emphasize competitive analysis. As sponsors develop mechanisms to unbundled the risk introduced by competition, stronger MPPs can - as some have - reach investment-grade or near investment-grade ratings. However, the fact that only a few projects have attained investment-grade ratings indicate just how challenging and risky MPP project financing may turn out to be.