RISK MATRIX

Solar PV projects

Risk = severity*probability (Haimes)

Risk = severity*relative frequency (Bahill)
Residual risk = risk - mitigation

Risk-tier Description

Utility company or grid Risks related to operations: not meeting demand,

brownouts, blackouts, etc.
Project Management/Development Risks that may be encountered throughout the
development of the PV project: changes in costs, design
issues, permit issues, etc.
Hardware Risks related to the hardware components of the system:
reliability
Environmental and Social Risks related to the location and surrounding
environment of the project: effect on local habitats,
weather, environmental opposition, etc
Government Risks related to changes in governmental policies and
priorities

!!

Risk Severity and Frequency numerical values

Description Metric
Extreme Purple
Very High Light purple
High Red
Medium Light red
Low Yellow
Very Low Light Yellow
Negligible Green

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Risk Control Strategies*

Avoid Change the project plan to eliminate the risk or to protect the project objectives (time, cost, scope,
quality) from its impact. This can be achieved by modifying scope, adding contingency to the
project plan either as additional time for critical path activities, or adding resources. Some threats
that arise early in the project can be avoided by clarifying requirements, obtaining information,
improving communication, or acquiring expertise.
Mitigate Reduce the probability and/or impact of an adverse risk event to an acceptable threshold. Taking
early action to reduce the probability and/or impact of a risk is often more effective than trying to
repair the damage after the risk has occurred. Risk mitigation may take resources or time and hence
may represent a trade off. However, the overall result may reduce risk to the overall project
objectives
Transfer/Share Shift the negative impact of a threat to a third party through: insurance, performance bonds,
warranties, guarantees, incentive/disincentive clauses, cost+time contracts, provided the price for
the risk transfer can be supported by project cash flow.
Transference reduces the risk only if the person to whom the risk is transferred (such as the
contractor) is better able to take steps to reduce the risk and does so. Risk transference nearly
always involves payment of a risk premium to the party taking on the risk.
Acceptance Adopted if is either not possible to eliminate that risk from a project or the cost in time or money of
the response is not warranted by the potential impact of the risk. The most common active
acceptance strategy is to establish a contingency reserve, including amounts of time, money, or
resources to handle the threat or opportunity.

*source: Arthur D Little

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Events Potential Freq Seve Esti Mitigation/Strategy Risk Risk taker Notes
effect uenc rity mate Control
y d Strategy
(even risk
t/yea
r)
1. Technical
Performance Lower yield = Conti High Low Proven technology Transfer Manufactur Technology to be provided by
of lower revenues nued Quality components Correctly er, EPC Manufacturer – a company
technology Losses = lost dimensioned Contractor 60% owned by Project
MWh x tariff Manufacturer warranties and Sponsor. Full performance
performance guarantees and terms guarantees by the manufacturer
and EPC.
Technical Lower yield = Low High Low Proven technology Transfer Manufactur Technology to be provided by
Availability lower revenues Quality components Correctly er, O&M Manufacturer – a company
Losses = lost dimensioned Contractor 60% owned by Project
MWh x tariff Manufacturer warranties and Sponsor. Full performance
performance guarantees and terms guarantees by the manufacturer
O&M guarantees and O&M contractor.
Technical Reduced return Low Medi Low Proven technology Transfer Manufactur Would reduce the return to the
Lifetime from the um Quality components Correctly er, O&M equity holders. Lifetime
project dimensioned Contractor guarantee by Manufacturer and
Manufacturer warranties and O&M contractor
performance guarantees and terms
O&M guarantees
Equipment Lower yield = Low Medi Low Manufacturer warranties and Transfer Manufactur Degradation rate guaranteed by
defect / lower revenues um performance guarantees and terms er, O&M the manufacturer
decreasing Losses = lost O&M guarantees Contractor
yield MWh x tariff
(degradation)
Reduced Lower yield = High High Medi O&M guarantees Transfer O&M Would reduce the yield
yield due to lower revenues um Contractor severely, guaranteed by O&M
dusty panels Losses = lost contractor
MWh x tariff
Connection Power cannot High High High Substation constructed with the Transfer, Utility Power cannot be evacuated,

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to the grid be evacuated project Accept needs provision in the PPA
fails Take-and-pay PPA (take-and-pay)
Financial Inability to Low High Low Track record, financial strength of Transfer Manufactur Technology to be provided by
strength fulfil mother company er Manufacturer – a company
manufacturer warranties and 64% owned by Project
(low risk of guarantees Sponsor.
default =
capability to
fulfil
guarantees)
Technologica Panels get High High Low Distrust of project cost, resentment Accept sponsor/util The technology supplied
l change much cheaper. - in by the utility and users of electricity ity conforms to the best practice of
Panels get medi the day
much more um
efficient term Manufacturer performance
guarantees on the modules

2. Energy
Resource
Variability of Uncertain yield Medi High Low Use of different data bases, on-site Mitigate Developer/ A number of irradiation data
irradiation um irradiation measurements Consultants and models to be used by the
data developer, using reputable
consultants to perform the
feasibility studies. Theoretical
data to be combined with on
site measurements.
Quality of Overestimation Medi High Low Use of proven databases with well Mitigate Developer/ A number of irradiation data
irradiation of yield um correlated theoretical and empirical Consultants and models to be used by the
data data. Use of on-site measurements. developer, using reputable
consultants to perform the
feasibility studies. Theoretical
data to be combined with on
site measurements.
Simulation Overestimation Medi High Low Use of proven models. Use of Mitigate Developer/ A number of irradiation data
Model of yield um conservative P90 values. Consultants and models to be used by the
developer, using reputable

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 consultants to perform the
feasibility studies. Theoretical
data to be combined with on
site measurements.
3. Severe
Weather
Event
Lightning Damage of High High Low Use of technical protection measures Transfer, Designer/E Appropriate measures to be
Strike installation Mitigate, PC incorporated in the
Accept contractor installation’s design, Insurance
Extreme Damage of High High Medi Use of technical protection measures Transfer, Designer/E Appropriate measures to be
wind installation um Mitigate, PC incorporated in the
conditions Accept contractor installation’s design, Insurance
Extreme Low High High Medi Use of technical protection measures Transfer, Designer/E Appropriate measures to be
temperatures performance/d um Mitigate, PC incorporated in the
amage Accept contractor installation’s design, Insurance,
good resistance of
Manufacturer module
performance to high
temperature
Flood Damage of Low Medi Medi Site selection Transfer, Designer/E Appropriate measures to be
installation um um Mitigate, PC incorporated in the
Accept contractor installation’s design, Insurance
Sand storm Damage of High High High Use of technical protection measures Transfer, Designer/E Appropriate measures to be
installation/low Mitigate, PC incorporated in the
performance Accept contractor installation’s design, Insurance
Dune Damage of High High Medi Site selection Transfer, Designer/E Appropriate measures to be
movement installation um Mitigate, PC incorporated in the
Accept contractor installation’s design, Insurance
Earthquake Damage of Low High Low Site selection Mitigate, Designer/E Appropriate measures to be
installation Accept PC incorporated in the
contractor installation’s design, Insurance

4. Costs
Forecast
CAPEX Underestimates Medi High Low The cost estimates to be based on Transfer Sponsor/EP The budget will be based on

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 can lead to lack um recent quotes from the C fixed price EPC contract
of funds to manufacturer/suppliers. Fixed price contractor
complete the EPC.
project
Fixed OPEX Underestimates Medi High Low The cost estimates to be based on Transfer Sponsor/O The budget will be based on
can lead to um recent quotes from the O&M &M fixed price O&M contract
reduced contractor. Fixed price O&M with contractor
cashflow escalation built-in into the financial
model.
Variable Underestimates Medi High Low The cost estimates to be based on Transfer Sponsor/O The model will consider the
OPEX can lead to um the on-site conditions (dust, wind &M severity of the weather /
reduced rain etc.). contractor environmental conditions
cashflow
Maintenance Underestimates Medi High Low The cost of replacement to be build- Transfer Sponsor The model will consider the
Reserve can lead to um in in to the financial model, replacement needs based on the
Account reduced sufficient MRA to be envisaged in technical characteristics
(inverter cashflow the budget provided by the manufacturer.
replacement) Strong performance guarantees
to be requested.

5.
Constructio
n Risks
Cost overrun Can lead to Medi Medi Low Fixed time and budget turnkey Avoid, Manufactur Installation to be provided by
/ adjustments lack of funds to um um contract (Engineering Procurement Transfer, er, EPC Manufacturer – a company
complete the and Construction Contract (EPC)) Mitigate Contractor 60% owned by Project
project Completion Guarantees Sponsor.
Monitoring reports
Performance reports
Penalty clauses
Project's budgeted costs will include
cost contingency funds

Equipment Delay in Medi Medi Low Fixed time and budget turnkey Avoid, Manufactur Installation to be provided by
Delivery completion, um um contract (Engineering Procurement Transfer, er, EPC Manufacturer – a company
Delays loss of and Construction Contract (EPC)) Mitigate Contractor 60% owned by Project

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 revenue, Completion Guarantees Sponsor.
penalty for late Monitoring reports
completion Performance reports
under PPA Penalty clauses

Transportatio Cost overrun Medi Medi Low Fixed time and budget turnkey Transfer, Manufactur Transportation rate to be
n Price um um contract (Engineering Procurement Mitigate er, EPC included in EPC contract.
and Construction Contract (EPC)) Contractor
Completion Guarantees
Monitoring reports
Performance reports
Penalty clauses
Completion Delay in Medi High Medi Fixed time and budget turnkey Transfer, Manufactur Appropriate measures to be
delay / Non- completion, um um contract (Engineering Procurement Mitigate er, EPC incorporated in the completion
completion loss of and Construction Contract (EPC)) Contractor guarantees, Insurance
revenue, Completion Guarantees
penalty for late Monitoring reports
completion Performance reports
under PPA Penalty clauses
Sub- Sub-standard High Low Low Fixed time and budget turnkey Transfer, Sponsor/EP To be included in the EPC
contractors work contract (Engineering Procurement Mitigate C contract guarantee and
and Construction Contract (EPC)) contractor completion bond.
Completion Guarantees
Monitoring reports
Performance reports
Penalty clauses
Meeting Reduced High Low Low Fixed time and budget turnkey Transfer, Manufactur To be included in the EPC
Project performance contract (Engineering Procurement Mitigate er, EPC contract guarantee and
specification and Construction Contract (EPC)) Contractor completion bond.
Completion Guarantees
Performance guarantee
Monitoring reports
Performance reports
Penalty clauses
Land Inability to Medi High Low Exclusive land lease agreements Avoid, Sponsor/EP Full support of the state
availability construct the um with the Local Government. Mitigate C government.

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 project contractor
The Sponsor will make its best
endeavours to select land for
the projects that shows no
agricultural use and also where
minimum or no resettlement is
required.

6. Off-take
risk
Demand / Can lead to High Medi Medi Long-term Off-Take- Agreement Transfer, Sponsor/Of Full price and quantity
Price and decreased um um (PPA) take-and-pay Mitigate f- guaranteed by the off-taker.
Quantity project income taker/Feder
al Typical forms of credit
Lower yield = Governmen enhancement to be provided.
lower revenues t
Losses = lost
MWh x tariff
Tenor Reduced return Low Medi Low Long term PPA – 20 years Mitigate Sponsor/Of Negotiated PPA, including: sale
from the um Signing a long term PPA and Project f-taker and purchase of energy on take-
project Support Agreement with the relevant and-pay basis, defaults and
State and Federal authorities to remedies, liquidated damages,
counter the risk of arbitrary changes warranties, control and
of tariff, accelerated taxes, operation, metering, tariff,
regulations etc billing and payment, insurance,
liability and indemnification,
termination, taxes and law.

Financial Can lead to Low Medi Low Credit enhancement, Commercial Mitigate, Sponsor/Of Strong political and
strength of lack of funds to um and political insurance, undertaking Transfer f-taker institutional support from the
purchaser continually from the Government. /Federal State Government
purchase the Governmen
product t

7. Financing
risks

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Interest Rate Increased Medi Medi Medi Fixed rate Transfer Borrower, The interest rate increases can
volatility interest um um um Hedging Lender be contained by fixing the rate,
payments, Financial Covenants capping it and hedging it. To be
lowering the considered at Term Sheet
DSCR negotiations.
Currency Devaluation of High High High Transfer Borrower, A hedging must be arranged to
currency in a Hedging Lender protect from currency
foreign Financial Covenants devaluation. If the currency
currency loan Market Flex value changes between term
will result in PPA sheet and loan agreement, the
reduction of loan terms can be changed
the ability to (market flex). A provision in
repay the loan the PPA can stipulate a tariff
correlated to the currency of the
loan.
Inflation High inflation High Medi Low Fixed O&M Transfer O&M The O&M contract can be fixed
can result in um Hedging contractor with a fixed % indexation/year
increase to and the risk of inflation hedged.
increase of the
O&M costs
Refinancing Should the Medi Medi Low Financial Covenants Accept Borrower Increased perception of risks
Risk project returns um um and worsening market would
worsen, the make finding cheaper
refinancing on refinancing difficult.
better rates and
conditions
would become
less attractive
Violation of Would result in Medi Very Medi Financial Covenants Mitigate, Borrower, Such risks, particularly related
Terms default um high um Insurance Transfer Insurer to political and commercial will
need to be insured in the
interest of Borrower, or
accepted and managed by the
lender (if DFI).
Syndication Risk of Medi High medi Overall risk mitigation Mitigate, Sponsor, The risks, terms and conditions
unsuccessful um um Attractive terms Avoid MLA are attractive to other lenders.

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 syndication Financial Covenants The MLA approaches financial
would lead to Market Flex institutions, which accept the
not sufficient terms.
funds to
finance the
project

8.
Permitting
issues
Land Inability to Medi Medi Low Exclusive land lease agreements Avoid, Developer/ 300 ha land has been identified
License/Leas construct the um um with the Local Government. Mitigate Consultants for the project in Location. The
e agreement project State Government of Location,
as a partner to the project
Connection Inability to Medi High Low Exclusive Off-Take agreements with Avoid, Sponsor/ The projects are sited in a
approval distribute the um theBulk Trader ( ) and connection Mitigate Off-taker proximity of the grid.
electricity agreement with GRID OPERATOR.
Environment The project has Medi High Medi Use of environmental protection Avoid, Sponsor The State Government of
al Approval high um um measures Mitigate Location, as a partner to the
environmental project
impact
Appropriate measures to be
incorporated in the
installation’s design, Insurance
Safety The project not Medi High Medi Use of stringent safety protection Avoid, Sponsor/O Appropriate measures to be
Regulations able to meet um um measures Mitigate &M incorporated in the
the contractor installation’s design, Insurance
environmental/
safety
regulations

9. Political
Risks / other
Region Delay in High High High Political guarantee Accept, Sponsor/Ins Political insurance to be
Stability completion, Mitigate urer arranged with MIGA or other
loss of agencies. Involvement of DFIs

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 revenue.
Terrorism, Delay or stop Medi Extre Medi Use of stringent security protection Accept, Sponsor/Ins Political insurance to be
unrest, war of completion, um me um measures, political guarantee Mitigate urer arranged with MIGA or other
loss of revenue agencies.
or project
Theft, Delay in Medi Low Low Use of stringent security protection Mitigate Sponsor/Se The project will contribute to a
vandalism completion, um measures. curity local Social Programme. Local
loss of Contribution to local economy. contractor people will have vested interest
revenue. in the project success.
Expropriatio Loss of project Low Extre Low Project support agreement with the Mitigate Sponsor/Ins Political insurance to be
n, me Government, political guarantee. urer arranged with MIGA or other
nationalisatio Contribution to local economy. agencies. Involvement of DFIs
n
Change of Delay or stop High High Medi Strong political and institutional Mitigate Sponsor Political support agreement
law of completion um support from the State Government with the Government.
or operation, and from the State energy company
loss of revenue
or project
Amendment Loss of Medi High Medi Strong political and institutional Mitigate Sponsor Political support agreement
of terms revenue. um um support from the State Government with the Government.
and from the State energy company
Enforceabilit Loss of Medi Medi Medi Use of appropriate legal jurisdiction Mitigate Sponsor Political support agreement
y of contracts contracts, um um um Contribution to local economy. with the Government.
warranties and
guarantees

10.
Environmen
tal and
Social
Unacceptable Protected Medi Low Low Full Environmental and Social Avoid, Developer, Stringent environmental
environment territory, um Impact Assessment ("ESIA") will be Mitigate Designer/E procedures to be followed at
al impacts endangered performed as a part of the FS&D PC construction and operations in
species, process. contractor accordance to agreed
pollution etc. Environmental Action Plan
Use of stringent safety protection

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 measures. Environmental Action
Plan agreed and prepared.

Environment Pollution to the Medi Low Low Full Environmental and Social Avoid, Developer, Sponsor will make its best
al impact construction um Impact Assessment ("ESIA") will be Mitigate Designer/E endeavours to select land for
during area and performed as a part of the FS&D PC the projects that shows no
construction surroundings. process. contractor agricultural use and also where
Destruction of no resettlement is required. In
local habitat. Use of stringent safety protection the event that the selected land
measures. Environmental Action displays such impacts,
Plan agreed and prepared. appropriate mitigation
measures will be established.
Environment Visual impact. Low Low Low Full Environmental and Social Avoid, Developer, The design will follow the best
al impact of Disruption of Impact Assessment ("ESIA") will be Mitigate Designer/E international practice.
transmission local habitat. performed as a part of the FS&D PC
lines process. contractor
construction
Opposition Delay in High High Medi Social Programme contribution from Avoid, Project The Sponsor will make its best
by the local completion, um each project estimated at [] Mitigate Sponsor endeavours to select land for
community loss of million/yr (/yr) which will be further the projects that shows no
revenue. defined in the FS&D. agricultural use and also where
little, or no resettlement is
required and land owners/users
are fairly compensated.
Social Programme contribution
from each project estimated at [
] million/yr (USD /yr) which
will be further defined in the
FS&D.

11. Sponsor
Risk
Equity and Not sufficient Low Very Low The Sponsor commitment to provide Avoid Sponsor Project Sponsor is committed to
Leverage equity, high high sufficient equity and contingent provide sufficient equity
leverage would equity
worsen the

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 DSCR and
make the
project not
attractive to
lenders
Shareholders Disputes High High Low The Sponsor envisages a simple Avoid Sponsor Clear shareholders structure
structure amongst shareholder structure, where initially
shareholders 100% of the shares are with the
will make the Sponsor, with option of other
project not investors to buy in after financial
attractive to closure.
other financiers
Willingness Risk of High Very Low The Sponsor is committed to the Avoid Sponsor Commitment letter issued by
to support abandonment high project and invests development Project Sponsor
capital and equity
Corporate Results in High High Low The Sponsor and the operating Avoid Sponsor Corporate structure and
governance inefficient company are guided by Project governance to be presented and
management, Sponsor’s corporate governance approved by the lenders
PR and principles
compliance
issues
Project Inefficient High High Low The project will be managed by Mitigate Sponsor, Management procedures, O&M
management management, professional managers with proven O&M guarantees
delays and track record and under best contractor
losses management practices

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