Demand risk

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Description (What is the Risk)

The availability by both volume and quality along with transportation of resource or inputs to a project or the demand for the product of service of a project by consumers/users.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Contracting Authority will take the principal role in managing the demand risk, but a degree of risk may be shared with the Private Partner. The power purchase agreement will contain a volume of firm energy on a take or pay basis. That volume will be sufficient to secure the long term revenue stream to ensure repayment of the debt financing.

Mitigation Measures (What can be done to minimize the risk)

As it will be absorbing the principal demand risk, the Contracting Authority should do a full assessment of demand risks. The Private partner will model their base case on the firm energy and run upside projections on the excess energy that may be dispatched.

Government Support Arrangements (What other government measures may be needed to be taken)

Generally no Government support would be required.

Comparison with Emerging Market

The volume of firm energy is likely to be lower than in an emerging market.

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Description (What is the Risk)

The availability by both volume and quality along with transportation of resource or inputs to a project or the demand for the product of service of a project by consumers/users.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

Contracting Authority will have primary responsibility to manage the demand risk.

Mitigation Measures (What can be done to minimize the risk)

As it will be absorbing this demand risk, the Contracting Authority should do a full assessment of demand risks.

Government Support Arrangements (What other government measures may be needed to be taken)

Depending on the credit rating of the Contracting Authority, Government support may be required to guarantee the take or pay payments to the Private Partner, as well as a put option should the Contracting Authority default and the power purchase agreement is terminated.

Comparison with Developed Market

Commonly, the project's energy output is contracted on a take or pay basis for base load.

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