Risk Matrix for Power Generation

OPERATING RISKS

O&M costs overrun

Risk of O&M costs being higher than forecast or budgeted.

x

Evaluation of O&M cost assumption and the adequacy of tariff component for the recovery of O&M cost is critical in ensuring the selection of private sector with credible and robust business plan; specifying the requirement of a long-term O&M (e.g. LTSA) contract as part of IPP bid submission can also be a mitigation strategy.

Fuel price risk

Risk of fuel price fluctuation.

x

Typically borne by the off taker. Tariff component for fuel cost recovery will typically allow for fuel price pass-through/indexation.

Plant efficiency

Risk of plant operation not in accordance to design standard (e.g. thermal efficiency below contracted efficiency due to operational issue).

x

Borne by the private sector operator as efficiency is under the control and responsibility of asset owner. Therefore, only fuel price is a typically pass-through component.

DEMAND / REVENUE RISKS

Demand risk

Output of the plant subject to dispatch order by utility.

x

For non-renewable plant, typically tariff payment will be structured into availability payment and output payment, or a Take or Pay will be provided by off-taker.

IPP will be neutral on demand risk as it will typically structure its debt servicing and capital repayment requirement based on availability payment (or Take or Pay), which is a factor under their control. Output payment will be structured on cost recovery/cost pass through basis.

For renewable plant, where resource availability is a constraint, typically will be structure on a “must take” basis by the off-taker, with further compensation from off-taker in the event of risk event caused by the off-taker (e.g. curtailment beyond cap).

FINANCIAL

Failure to achieve financial close

Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal.

x

For IPP tender, evaluation of the comprehensiveness and robustness of IPP participant debt financing plan as part of bid submission is a way to mitigate financial close risk. As part of qualification process, typically shortlisted bidder will go through a screening process of financial strength and debt raising experience in ensuring credible IPP participants are selected for bid submission.

Foreign exchange rate risk

Fluctuation of foreign exchange rate.

x

Tariff components will allow for the allocation between foreign and local components, where foreign component is indexed to an agreed FX rate. Hence, private sector will be shielded from FX fluctuation risk if the allocation is done in accordance to the foreign-local component split of the cost component.

Inflation risk

Increase of inflation rate used for estimating operating cost.

x

Same as above, tariff components will typically allow for indexation of foreign and local cost component to the relevant CPI indices. This is applicable only to tariff components meant for the recovery of cost components that are subject to inflation indexation (e.g. O&M cost, but not capital recovery and not fuel cost).

Interest rate risk

Increase in interest rate (base interest rate).

x

Typically borne by private sector (IPP), who is responsible for arrange for debt financing for the capital investment. Mitigation strategy shall be to enter into hedge/swap to mitigate base interest rate fluctuation risk, or to even consider fixed interest rate.

POLITICAL FORCE MAJEURE (CHANGE IN LAW AND GOVERNMENT (IN-)ACTIONS

General change in law

Change in law such as taxation which impacts all businesses and industries.

x

(x)

Typically to be borne by the government/off-taker, usually with a threshold to be defined (material adverse change).

For bownfield assets (in the context of asset recycling transactions), the allocation of change in law risk can be split where the Relevant Authority/government-side party assumes discriminatory and certain specific changes in law.

FORCE MAJEURE

Natural disasters

The occurrence of natural disasters disrupting operations.

x

Insurance, to extent possible. In extended FM, parties will have the right to terminate.

Climate adaptation plan.

Emergency Preparedness and Response plan (EPR plan) / Disaster Risk Management plan (DRM plan).

Incorporate Qualified Climate Risk Events.

Other Force Majeure

Other force majeure events such as war, earthquakes, etc.

x

Insurance, to extent possible; termination with compensation if settlement cannot be reached.

Prolonged force majeure

If above prolongs for 6 to 12 months, may cause economic problems to the affected party (esp. if insurance does not exist).

x

Either party should be able to terminate the contract and trigger an early termination.

E&S Risks and Climate Risk

E&S risks management

Power gen plant development and operation create many E&S impacts and risks, which if not appropriately managed, can result in impact on the social and natural environment.

Impact of discharged water temperature on fish populations.

High chlorine content in the air.

Marine biofouling and/or microplastics affecting cooling systems.

Noise pollution affecting plant employees and nearby communities.

x

The party in charge for construction and Operation and Maintenance (O&M) should have undertaken E&S Studies prepared management plans to mitigate any adverse impacts and risks and consistent with applicable laws.

Convert to Closed-cycle cooling systems or implementing Cooling ponds or reservoirs.

Install noise control equipment (acoustic enclosure, baffles, exhaust silencers, absorptive panels, duct silencers, etc).

Cogeneration or Combined Heat & Power (CHP) facilities.

Install flue gas desulfurization equipment.

Install electric bag filters.

Risk of noncompliance on the E&S aspect of the concession agreement.

x

The parties to review compliance of the E&S aspect of the Concession Agreement, during construction and O&M.

Climate risks *

Insufficient cooling water.

Temperature of cooling water before and after use.

Increasing air temperature leading to reduced generation and efficiency of turbines.

Floods risks, particularly in coastal infrastructure.

Increasing intensity of storm events, sea-level rise, storms surges.

Increased precipitation could cause reduced coal quality (and combustion efficiency) due to higher moisture content of coal.

Reduced efficiency of solar energy.

Drought and/or reduced average precipitations affecting output from hydropower generation.

Variations in average wind patterns.

x

Integrate climate resilience in maintenance regimes and materials and equipment design specifications.

Improve emergency repair procedures.

Temporary shutdowns during heat waves.

Increase efficiency of cooling systems. Redesign cooling facilities (water recovery from condenser and heat exchangers, reduction of evaporative losses, secondary or wastewater usage, construction of dry cooling towers).

Install a demineralized water treatment system so that it can use saline water for cooling purposes.

Fortify coastal, offshore and flood-prone infrastructure against flooding. Develop flood control (embankments, dams, dikes, reservoirs, polders, ponds, relocated flood defense barriers, land levelling and higher channel capacity).

Specify cabling and components that can deal with high moisture content and flooding (solar power).

Select appropriate tilt panel angle to clean dust. Select module surface conducive to self-cleaning (solar power).

Consider effects of extreme temperatures on turbine and blade selection and operation (wind power).

Improve airflow beneath mounting structure to reduce heat gain and increase outputs (solar power).

Install lightning conductors.