Methods of risk analysis for private power projects
- Sargent and Lundy, Chicago, IL (United States)
Power plants and related facilities are large, complex, expensive to build, and take years to turn a positive cash flow for its owners. At the same time, however, they are attractive investments: stable, substantial, and long-term with highly predictable cash flows. With the proper power purchase agreement, steady fuel supply, and interconnected transmission, they can be among the best investments available to those knowledgeable of the market. Up until five to ten years ago, the responsibility for power generation, transmission, and distribution was in the hands of government- or public-owned utilities, highly monitored by government regulators. Internationally, the process of building new generating and transmission facilities had involved sovereign financing in which governments borrowed from institutions like the World Bank without the scrutiny required for private transactions. The transaction was a political decision first and a financial decision second. As more market control passed into private hands through privatization and independent power production (IPP) schemes, the risks of power supply shifted from being mainly sovereign risks to being private project development and ownership risks. This paper addresses how these risks can be assessed, managed, and mitigated. It is based on work the author has performed during the last five years on over 70 power projects worldwide through due diligence assignments for lenders and through direct involvement in turnkey contracts (engineer-procure-construct, or EPC), or through owner`s engineer assignments provided to developers, investors, and financial institutions. This paper addresses mainly greenfield projects. Obviously, many risks associated with greenfield projects are also applicable to the acquisition of existing power assets.
- Research Organization:
- Illinois Inst. of Tech., Chicago, IL (United States)
- OSTI ID:
- 696728
- Report Number(s):
- CONF-990410--PROC.-Vol.2
- Country of Publication:
- United States
- Language:
- English
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