Effective risk management

Most independent power financial proposals contain one or more elements of a non-recourse nature. Traditionally, this means prospective lenders will not have a substantial corporate credit or state guarantee standing behind a project loan, which forces attention to be focused on a single asset as the security and debt repayment source. While this major risk remains present, if properly understood, uncertainty can be mitigated and managed, including financial and development hazards inherent in hydropower projects. The specific risk points that a project developer or sponsor must satisfy from the lender`s purposes are numerous. However, they can be grouped primarily into seven key risk areas: project profile, site securing, power sales agreements, government agreements, in-service management, construction and insurance. While a developer strives for a minimum internal rate of return of at least 20 percent, the lender`s expectations are much more modest. Often, developers need to place themselves in the proverbial shoes of the other entity, namely the independent lender, whose only attraction may be some interest, fee income and placement of capital in a safe investment which provides a return in an orderly and uninterrupted manner. Only then is it possible to objectively view and effectively manage the risks mentionedmore » earlier.« less