Resource or input risk

Hydro power Hydro power

Description (What is the Risk)

The risk that the supply of inputs or resources required for the operation of the project is interrupted or the cost increases.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Private Partner bears the principal responsibility to ensure sufficient water flow for the project.

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

The Private Partner will be required by its lenders to justify its hydrology assumptions based on several years of hydrology data collection and probability analysis of water levels.

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Description (What is the Risk)

The risk that the supply of inputs or resources required for the operation of the project is interrupted or the cost increases.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The nature of the risk will vary, depending on whether the project is run-of-river or a dam. But in either case it is to be expected that the reliability of the water supply will be assessed by reference to historical records which should have been maintained over a long period of years by the host country. If detailed and accurate records exist a Private Partner may accept the risk. In many cases, data of this nature has not been collected or maintained for a sufficient period of time. There are other issues which can also make this risk difficult for a Private Partner to bear - for instance, if there is a possibility that the host country could take actions upstream of the power plant location which would affect the water supply ( e.g. granting concessions for other power projects).

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

The Private Partner can mitigate any element of hydrology risk by providing in the power purchase agreement that non-availability of water will not be a contract default and it should still be paid availability payments.

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

Monthly payments to the Private Partner may include certain calculations that could alleviate this risk - e.g. deemed availability payments.

Comparison with Developed Market

Emerging markets are generally more likely to host hydro projects in situations where there is inadequate hydrology data and/or a shortage of water could be an imminent risk.

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