Maintenance risk

Hydro power Hydro power

Description (What is the Risk)

The risk of maintaining the asset to the appropriate standards and specifications for the life of the project.
Increased maintenance costs due to increased volumes.
Incorrect estimates and cost overruns.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Private Partner will have responsibility for maintenance necessary to ensure performance standards are met.

The Private Partner generally assumes the overall risk of periodic and preventative maintenance, emergency maintenance work, work stemming from design or construction errors and rehabilitation work.

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

The power purchase agreement will contain a tariff mechanism under which part of the payment will be fixed by reference to the plant meeting or exceeding an availability performance standard. This mechanism will allow for the plant to reduce/shut down generation for a certain number of days each year to carry out planned maintenance. The maintenance risk can also be partially passed through from the Private Partner to the O&M contractor and/or long term service agreement provider.

Comparison with Emerging Market

The market standard is for the Private Partner to take maintenance risk in order to ensure that specified standards and outputs are met.

Back to Hydro power

Description (What is the Risk)

The risk of maintaining the asset to the appropriate standards and specifications for the life of the project.
Increased maintenance costs due to increased volumes.
Incorrect estimates and cost overruns.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Private Partner will have responsibility for maintenance necessary to ensure performance standards are met.

The Private Partner generally assumes the overall risk of periodic and preventative maintenance, emergency maintenance work, work stemming from design or construction errors and rehabilitation work.

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

The power purchase agreement will contain a tariff mechanism under which part of the payment will be fixed by reference to the plant meeting or exceeding an availability performance standard. This mechanism will allow for the plant to reduce/shut down generation for a certain number of days each year to carry out planned maintenance. The maintenance risk can also be partially passed through from the Private Partner to the O&M contractor and/or long term service agreement provider.

Comparison with Developed Market

The market standard is for the Private Partner to take maintenance risk. In emerging markets, build, operate, transfer (BOT) projects are more common than in developed markets. Where the plant will transfer at the end of the term of the power purchase agreement, the Contracting Authority is generally more concerned with the standard of maintenance and may impose warranties as to the condition of the plant at the time of handover.

Back to Hydro power