3 Project Risks Not Covered Under Tariff

Posted in Uncategorized by qmarks on February 25, 2012

The Tariff structure in project finance does not cover 3 major risks that Project Co has exposure to:

Project cost overrun


Operating Cost


Project Cost Overrun: Tariff does not include the project cotst overrun and during the debt and equity financing it is assumed to be fixed

Availability: if the plant is not able to operate so as to produce the quantity of power required over time revenue is lost and sometime there are penalties for low performance

Operating Cost: if the power plant does not operate as expected for example heat rate is higher than planned therefore it uses more fuel to generate 1KW of electricity or maintenance costs are higher than expected, that is not reflected in the Tariff payment