Table 1: The full range of financial risks affecting power generation
Main risk fields |
Non-systematic risk (adventitious, therefore mitigable) |
Systematic risk (embedded in the economy, therefore unmitigable) |
Costs |
Construction/finance (capital), equipment/labour (O&M), quality/supply disruption (fuel), regulatory/political (general) |
General risk that forward costs will vary from expectation, especially for fuel whose forward price volatility varies by fuel and whose impact varies by technology/fuel intensity |
Main characteristic |
Low forward volatility |
High forward fuel cost volatility |
Revenues electricity sales |
Supply and demand, revenue security, regulatory/political |
General risk that forward electricity prices will vary from expectation, uniform across technologies but emphasises fuel cost risk to impact project hurdle rate |
Main characteristic |
Very high short-term (supply/demand) volatility |
Low long-term price volatility due to many suppliers/technologies |
Source: Compiled from IEA, Power Generation Investment in Electricity Markets, and Shimon Awerbuch, Tyndall Centre, Sussex University