Risk management is a continuous process running through the lifetime of the Program where risks are identified and categorized, and measures introduced to reduce or eliminate the risks. Risks are categorized according to the risk assessment table below. Probability of the risk occurring on the x-axis (low, medium of high probability) and level of potential (negative) impact on the y-axis combined determine the risk category i.e. : a) acceptable risks; b) ensure follow-up of risk; or c) reduce the risk.
Table 5 – Risk categorization tool
The full risk matrix for the Program can be provided by the GET FiT Secretariat upon request. The risk assessment is subject to regular review and update. In 2015, no new major risks emerged but some were re-categorized. The following risks have been added and/ or re-assessed over the past year:
- Risk of not achieving adequate and timely grid interconnection for GET FiT projects (High impact, high probability). As outlined in chapter 2.5, progress has been made in terms of securing financing and moving towards implementation for critical grid infrastructure investments. However, progress on certain components remain uncertain due to financial or regulatory obstacles. Consequently, the risk of not being able to provide adequate grid interconnection for full power evacuation for some GET FiT projects has increased during 2015. The highest risk rating is thus maintained. Ensuring progress on these interventions will be a key priority of GET FiT going forward, to avoid severe negative implications for the portfolio and overall success.
- Exchange rate risk (Medium impact, medium probability). As outlined in Chapter 4, exchange rate fluctuations have had a negative impact on the funds available for GET FiT premium payments. Exchange rate risks related to future disbursements is now reduced (from high impact) due to i) fixed DFA exchange rates for remaining projects and ii) early disbursements from donors to the Program. Nonetheless, a limited share of undisbursed donor commitments are still subject to fluctuations. KfW and the GET FiT Secretariat thus monitor developments and update budgets regularly.
- Lack of developers’ capacity to implement projects according to IFC environmental and social standards (High impact, high probability). This risk has increased from its original medium-to-low rating through several rounds of revision as it has become increasingly clear that the majority of developers lack experience and competence to manage their projects according to the IFC environmental and social performance standards. In 2015, GET FiT has maintained an active approach to enable developers to meet the IFC performance standards (see Chapter 2.9 for details). Nevertheless, E&S issues remain with a high risk rating.
As an increasing number of projects are moving into construction, the nature of E&S related risks will gradually shift from capacity gaps in studies and planning, to challenges related to implementation during construction. The GET FiT Implementation Consultant will oversee implementation of E&S measures through regular supervision visits to the construction sites.
- Delayed implementation of projects (medium impact, high probability). Several GET FiT projects have already faced delays in reaching financial close and construction start. While these delays can partly be attributed to developers (i.e. failure to meet IFC Performance Standards), others are related to bottlenecks in the legal, regulatory and/or political framework. The latter includes delays related to signing of key agreements (IA, PPA). As several projects started construction during 2015, the overall pre-construction risk for the portfolio has been somewhat reduced. Notably, such risks appear to have been reduced as a result of the efforts made by GET FiT, Ugandan authorities and project developers to establish standardized agreements (see the GET FiT Annual Report 2014 for more details).
Furthermore, delays in CP clearance as set out in the DFA is a key driver to project delays. As mentioned above, E&S related CPs in particular have caused project delays thus far.