Risk Management and the Stated Capital Costs by Independent Power Producers

Bahman Kashi

No 2014-03, Development Discussion Papers from JDI Executive Programs

Abstract: In this article we argue that the conventional financing and contractual arrangements in private power generation projects encourage the independent power producers (IPPs) to overstate the capital cost as a risk-mitigation strategy. Since the markup is only added to the capital cost, and not to the operating costs, it promotes the use of cheaper and less efficient power plants. The distortion in the choice of technology results in economic losses over the life of the plants. The findings of this research have important policy implications that can assist regulatory bodies, governments, and international financing agencies to adopt a more informed approach to the integration of private investment into the electricity generation capacity of developing countries.

Keywords: IPP; PPA; privatization; power generation; electricity; risk management (search for similar items in EconPapers)
JEL-codes: D61 L20 L33 L94 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2014-03
New Economics Papers: this item is included in nep-ene, nep-ppm, nep-reg and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:qed:dpaper:248

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