Sustainability and climate change issues (Green House

Gases\CO2 Emission)
Electricity generation is one of the major sources of carbon dioxide
emissions, providing about one third of the total and one half of the
increase expected 2005-30. Coal-fired generation* gives rise to twice as
much carbon dioxide as natural gas per unit of power at the point of use,
but hydro, nuclear power and most renewables do not directly contribute
any. If all the world's nuclear power were replaced by coal-fired power,
electricity's carbon dioxide emissions (now about 9.5 billion tonnes per
year) would rise by a quarter - about 2.5 billion tonnes per year.
Conversely, there is scope for reducing coal's carbon dioxide contribution
by substituting natural gas or nuclear, and by improving the efficiency of
coal-fired generation itself, a process which is well under way.
In order to meet the challenge of global warming, the power generation
companies are diversifying their generation mix towards the use of low-
carbon technologies and resources, with a focus on renewables and
nuclear power, develops strategies to acquire allowances at competitive
prices and, above all, enhances the environmental performance of their
generation plants, increasing their energy efficiency.

Stringent environmental law and regulations

The power generaton activities are subjected to stringent laws and

regulations which generally concerns emissions into the air,effluents into
the water,wetland preservations,waste disposal etc.Failure to comply with
such laws and regulations or to obtain necessary environmental permits
pursuant to such laws and regulations could result in fines and other
sanctions.Environmental laws and regulations affecting power generation
and distribution are complex and have tended to become more stringent
over time.The inability of power generation companies to predict,influence
or respond to appropriately to changes in law and regulatory schemes
could adversely impact the results of their operations.
Development, operational and regulatory challenges in
implementing renewable energy projects
Renewable energy projects are relatively new in nature and are supported
financially by favourable regulatory incentives and have been developed
through advancements in technologies which may not be proven yet.
These projects face considerable risk, including the risk that favourable
regulatory regime expire or are adversely modified. Moreover at the
development or acquisition stage because of the nascent nature of these
industries it may be difficult for the power generation companies to predict
the actual performance results.
Apart from the above risks, many of these projects exist in new or
emerging markets, where long term fixed price contracts for the major
cost and revenue component may be unavailable. Also these projects are
capital intensive projects which require third party financing.

Change in operating performance and cost structure

The power generation business involves certain risks that can adversely
affect financial and operating performance, like
• Change in the availability of generation facilities due to increases in
scheduled and unscheduled plant outages,equipment failure,labour
disputes,disruption in fuel supply,inability to comply with regulatory
requirements or catastrophic events such as fires,floods,storms
,hurricanes, earthquakesetc
• Increase in cost relating to gas,coal oil and other fuels ,fuel
transportation,purchased electricity,operations,maintenance and
repair,environmental compliance,including the cost of purchasing
emissions offsets and capital expenditures to install environmental
emission equipments.

Complying to Government regulations and laws

The power generation operations are subjected to significant government
regulations and the business as well as the result of the operations could
be adversely affected by the change in the law and regulatory schemes.
The regulatory landscape can be particularly complex for utility
companies. Not only do they have to conduct operations in a variety of
regulatory and tax regimes but they also have big upfront investment
needs, which often go hand in hand with great uncertainty about long-
term outcomes. The geopolitical, environmental, energy and natural
resource supply and trading environment, combined with often complex
stakeholder and business relationships, adds to the complexities utility
companies face.
Commodity prices and supply continuity

To ensure the availability of the fuel supply in order to maintain the

continuous operations is a major challenge faced by the power generation
companies. Changes in the prices of fuel and electricity, can have a
significant impact on the results of the power generation companies.
In order to ensure the continuity of fuel supply, most of the power
generating companies have developed a strategy of stabilizing margins by
contracting for supplies of fuel and the delivery of electricity to end users
in advance
Exchange rate and interest rate risk

exchange rate risk associated with cash flows in respect of the purchase or
sale of fuel or electricity on international markets, cash flows in respect of
investments or other items in foreign currency and, to a marginal extent,
debt denominated
in currencies other than the functional currency of the respective
countries.
Increased competition

The power production industry is becoming more and more competitive in

recent years with respect to both obtaining power sales agreement and
acquiring existing power generation assets. In certain markets, these
factors have caused reductions in prices contained in new power sales
agreement and higher acquisition prices of assets through competitive
bidding practices.

Dependence on limited number of customers and fuel

suppliers under long term contracts

Many of the generation plants conduct business under long term power
sales contracts with one or limited number of customers for majority of
the relevant plants output and revenues over the term of contract.
Additionally these power generating companies also limits their exposure
to fluctuations in the fuel prices by entering into long term contracts for
fuel with limited number of suppliers.Thus the ability of the consumers
and suppliers to meet their obligations under the respective contracts
plays an important role in determining the cash flows and results of
operations of power generating company.
Operational Risks

The power generation involves a number of operational risks which, if not

addressed properly, may result in serious consequences. Some of the
operational risks are
• Equipment failure causing unplanned outages
• Dependence on specified fuel source, including the transportation of
fuel
• Catastrophic events like fire,earthquakes etc
• Environmental compliance
In addition to the above mentioned risks, other risks in the operations of
power plant may result from inadequate internal processes , technological
flaws and human errors.
The occurance of any of the above mentioned events may result in the
loss of the goodwill of the company and any successful claim resulting
from the inability to manage above mentioned risks for which the
company is not fully insured can hurt the financial results of the company.

http://www.pplweb.com/newsroom/newsroom+quick+links/archived+news/2010/February/PPL
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