Disruptive technology risk

Hydro power Hydro power

Description (What is the Risk)

The risk that a new emerging technology unexpectedly displaces established technology used in large scale hydro projects.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

Power purchase agreements do not address the issue of disruptive technologies. To the extent that the Contracting Authority agrees to purchase a firm quantity of energy on a take or pay basis, the Contracting Authority assumes the risk that disruptive technologies may render alternative forms of generation more attractive.

Even where the Private Partner does not have a firm energy commitment, in a grid which contains conventional forms of fuel based generation, hydro generation's position in any merit order dispatch insulates the Private Partner from the risk that it will not be dispatched by the Contracting Authority.

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

The Contracting Authority needs to be cognisant of potential disruptive technologies when planning the generation portfolio for the grid.

Comparison with Emerging Market

Contracting Authority assumes the risk of disruptive technologies.

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Description (What is the Risk)

The risk that a new emerging technology unexpectedly displaces established technology used in large scale hydro projects.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Contracting Authority bears the risk of obsolescence. The power purchase agreement does not specifically deal with the issue, but the take or pay commitment ensures the Private Partner continues to be paid regardless of whether emerging technology makes alternative generating sources more attractive.

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

The Contracting Authority needs to be cognisant of potential disruptive technologies when planning the generation portfolio for the grid.

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

Take or pay commitments by Contracting Authorities with a poor credit rating are often backed by Government guarantee.

Comparison with Developed Market

Contracting Authority assumes the risk of disruptive technologies.

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