Risk Allocation in Independent Power Contracts

This paper reviews evidence on the allocation of risks in long term contracts between private power producers and utilities. The primary source of data for this analysis is a sample of actual contracts. The sample includes 20 contracts for 4570 MW from eight states and 13 utilities. There are nine IPPs and 11 QFs. Half the contracts resulted from some kind of competitive bidding process. The sample is skewed toward large projects and emphasizes contracts recently signed. Such projects are apt to indicate future directions better than a more strictly representative sample.