Table 1: The full range of financial risks affecting power generation

Source: Compiled from IEA, Power Generation Investment in Electricity Markets, and Shimon Awerbuch, Tyndall Centre, Sussex University

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