Design risk

Hydro power Hydro power

Description (What is the Risk)

The risk that the project has not been designed adequately for the purpose required.
Feasibility study.
Approval of designs.
Changes to design.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Private Partner will have principal responsibility for adequacy of the design of the facility and its compliance with the output / performance specification.

Any changes to the design after being awarded as a preferred bidder requires the consent of the Contracting Authority, although the Contracting Authority takes no responsibility for the inaccuracy of the design or the risk of delays in approving any changes.

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

Pass through obligations to the construction contractor and project relief principles equivalent to those set out in the power purchase agreement will need to be incorporated into the EPC contract.

The Private Partner may seek to be prescriptive with the EPC contractor regarding the output specification. It may seek a degree of cooperation and feedback during the development phase to ensure that an appropriate risk allocation for design responsibility is reached when finalising the output specification.

Comparison with Emerging Market

Contracting Authorities take little or no design risk in emerging or developed markets, however, Contracting Authorities in emerging markets are more prescriptive about the required specification.

Back to Hydro power

Description (What is the Risk)

The risk that the project has not been designed adequately for the purpose required.
Feasibility study.
Approval of designs.
Changes to design.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Private Partner will have principal responsibility for adequacy of the design of the power plant. Whether or not the Contracting Authority is concerned with the way in which the plant is designed, or merely with the output / performance of the plant, will depend on whether the plant is be transferred by the Private Partner at the end of the concession period.

For a BOOT project the Contracting Authority will be more concerned with the detail of the specification as it will be thinking ahead to the time when it takes over the plant. However, it needs to be careful not to intervene unduly, as this can lead to the Private Partner seeking to limit its liability on the basis that its control of the project has been fettered by the Contracting Authority.

The Contracting Authority may be more prescriptive regarding design for hydroelectric projects within a cascade, where efficiency of the system as a whole should be maximised.

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

Where the project is competitively tendered the Contracting Authority will typically specify the outputs required from the plant and, subject to ensuring compliance with applicable legal requirements and good industry practice standards, leave bidders to innovate in the design.

Failure to get the minimum functional specification right for the project effectively transfers risk back to the Contracting Authority.

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

Where certain performance indicators cannot be met due to actions by the Contracting Authority or unforeseen circumstances, the Private Partner may be eligible to seek relief or compensation (see also completion (including delay and cost overrun) risk with respect to commissioning).

Comparison with Developed Market

Contracting Authorities take little or no design risk in emerging or developed markets, however, Contracting Authorities in emerging markets are more prescriptive about the required specification.

Back to Hydro power