2024 Global Project Finance Outlook: Essential Digital Infrastructure Powers Up; Renewable Energy Needs More Juice - 2024-01-11T07:00:00.000Z | Morningstar DBRS (2024)

In 2024, we believe the global project finance sector will stay largely unscathed from the slowing economy and elevated interest rate level. In 2024, the credit risk of this sector will remain stable because most project finance transactions are designed to insulate the cash flow and credit metrics from macroeconomic volatility under long-term revenue contracts with creditworthy counterparties.

Other key highlights include:
-- It will likely be another difficult year for the renewable sector as greenfield renewable projects are continuously and disproportionately affected by the higher cost of capital, spikes in the input material costs, the long permitting process, and uncertainty of government policy.
-- The investment in data centres and fibre optics will continue to accelerate in 2024, which is further fueled by the heightened connectivity needs with the coming age of generative artificial intelligence.
-- We expect European and North American merchant power prices will continue to bifurcate in 2024 as natural gas prices, a key driver to power prices, continue to diverge in these two locations.

“In 2024, we expect the overall stable trend of our rated project finance portfolio will continue as a majority of the rated transactions are contracted, with no direct exposure to market volatility, so the underlying cash flows will be stable,” said Biao Gong, Senior Vice President, Project Finance. “Any positive or negative credit rating actions will likely be triggered by the idiosyncrasy of individual projects, as opposed to market volatility.”