Demand risk

Water Desalination Water Desalination

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

In the majority of developed world desalination projects, demand risk will be taken by the Contracting Authority with the Private Partner remunerated on an availability basis. Water resource risk is also likely to be borne by the Contracting Authority.

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

The Contracting Authority should do a full assessment of demand as part of the project feasibility study to ensure that the plant is appropriately sized.

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

As the Contracting Authority will be retaining demand risk, it will need to ensure that it is comfortable (both politically and economically) with demand forecasts.

Comparison with Emerging Market

In developing markets, the Contracting Authority should have access to various data sources to develop accurate consumption forecasts, such that the Contracting Authority is well placed to manage potable water demand.

Back to Water Desalination

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 default position for desalination projects in emerging markets is that the Contracting Authority is a monopoly off-taker and will guarantee the purchase of all water output. Water resource risk is also likely to be borne by the Contracting Authority.

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

The Contracting Authority should do a full assessment of demand as part of the project feasibility study to ensure that the plant is appropriately sized.

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

As the Contracting Authority will be retaining demand risk, it will need to ensure that it is comfortable (both politically and economically) with demand forecasts.



Comparison with Developed Market

For emerging markets, particularly in the case of market first projects, the preparation of demand profiles by the Contracting Authority is complicated by the lack of relevant and/or historical market data.

The high incidence of delayed project execution in emerging markets means that demand forecasts are often out-dated by project completion. Regimes for plant expansion are often drafted into the concession agreement in order to facilitate quick and efficient project expansion.

Back to Water Desalination