Power to the Fiscal? An Exploration of the Use of Credit Ratings to Estimate the Expected Cost of a Guarantee of a Power-Purchase Agreement
Ministries of finance are often asked to guarantee a state-owned electricity utility's payments to an independent power producer under a power-purchase agreement. To decide whether to grant the guarantee, the ministry should have at least a rough estimate of the guarantee's expected cost. Making use of an analogy between a power-purchase agreement and a debt contract, this paper shows how the ministry can get such an estimate by applying a method developed to estimate the expected cost of debt guarantees. An estimate of the probability of the utility's not being able to meet its obligations under the power-purchase agreement can be derived from the utility's actual or estimated credit rating in the absence of government support. The government's expected payments under the guarantee can then be estimated by multiplying the utility's payments under the power-purchase agreement by this probability. The estimates produced by the method will be imprecise, but the method may be easier to apply than alternative methods, and an imprecise estimate may be better for policy makers than no estimate.
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| Format: | Working Paper biblioteca |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020-06
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| Subjects: | FISCAL POLICY, GUARANTEES, POWER PURCHASE AGREEMENT, INDEPENDENT POWER PRODUCER, ELECTRICITY, FISCAL RISK, PUBLIC GUARANTEE, STATE-OWNED ENTERPRISES, ELECTRIC UTILITIES, |
| Online Access: | http://documents.worldbank.org/curated/en/865871591378220034/Power-to-the-Fiscal-An-Exploration-of-the-Use-of-Credit-Ratings-to-Estimate-the-Expected-Cost-of-a-Guarantee-of-a-Power-Purchase-Agreement https://hdl.handle.net/10986/33873 |
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dig-okr-10986338732024-08-09T06:20:04Z Power to the Fiscal? An Exploration of the Use of Credit Ratings to Estimate the Expected Cost of a Guarantee of a Power-Purchase Agreement Aslan, Cigdem Irwin, Tim FISCAL POLICY GUARANTEES POWER PURCHASE AGREEMENT INDEPENDENT POWER PRODUCER ELECTRICITY FISCAL RISK PUBLIC GUARANTEE STATE-OWNED ENTERPRISES ELECTRIC UTILITIES Ministries of finance are often asked to guarantee a state-owned electricity utility's payments to an independent power producer under a power-purchase agreement. To decide whether to grant the guarantee, the ministry should have at least a rough estimate of the guarantee's expected cost. Making use of an analogy between a power-purchase agreement and a debt contract, this paper shows how the ministry can get such an estimate by applying a method developed to estimate the expected cost of debt guarantees. An estimate of the probability of the utility's not being able to meet its obligations under the power-purchase agreement can be derived from the utility's actual or estimated credit rating in the absence of government support. The government's expected payments under the guarantee can then be estimated by multiplying the utility's payments under the power-purchase agreement by this probability. The estimates produced by the method will be imprecise, but the method may be easier to apply than alternative methods, and an imprecise estimate may be better for policy makers than no estimate. 2020-06-11T14:38:20Z 2020-06-11T14:38:20Z 2020-06 Working Paper Document de travail Documento de trabajo http://documents.worldbank.org/curated/en/865871591378220034/Power-to-the-Fiscal-An-Exploration-of-the-Use-of-Credit-Ratings-to-Estimate-the-Expected-Cost-of-a-Guarantee-of-a-Power-Purchase-Agreement https://hdl.handle.net/10986/33873 English Policy Research Working Paper;No. 9271 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank application/pdf text/plain World Bank, Washington, DC |
| institution |
Banco Mundial |
| collection |
DSpace |
| country |
Estados Unidos |
| countrycode |
US |
| component |
Bibliográfico |
| access |
En linea |
| databasecode |
dig-okr |
| tag |
biblioteca |
| region |
America del Norte |
| libraryname |
Biblioteca del Banco Mundial |
| language |
English |
| topic |
FISCAL POLICY GUARANTEES POWER PURCHASE AGREEMENT INDEPENDENT POWER PRODUCER ELECTRICITY FISCAL RISK PUBLIC GUARANTEE STATE-OWNED ENTERPRISES ELECTRIC UTILITIES FISCAL POLICY GUARANTEES POWER PURCHASE AGREEMENT INDEPENDENT POWER PRODUCER ELECTRICITY FISCAL RISK PUBLIC GUARANTEE STATE-OWNED ENTERPRISES ELECTRIC UTILITIES |
| spellingShingle |
FISCAL POLICY GUARANTEES POWER PURCHASE AGREEMENT INDEPENDENT POWER PRODUCER ELECTRICITY FISCAL RISK PUBLIC GUARANTEE STATE-OWNED ENTERPRISES ELECTRIC UTILITIES FISCAL POLICY GUARANTEES POWER PURCHASE AGREEMENT INDEPENDENT POWER PRODUCER ELECTRICITY FISCAL RISK PUBLIC GUARANTEE STATE-OWNED ENTERPRISES ELECTRIC UTILITIES Aslan, Cigdem Irwin, Tim Power to the Fiscal? An Exploration of the Use of Credit Ratings to Estimate the Expected Cost of a Guarantee of a Power-Purchase Agreement |
| description |
Ministries of finance are often asked to
guarantee a state-owned electricity utility's payments
to an independent power producer under a power-purchase
agreement. To decide whether to grant the guarantee, the
ministry should have at least a rough estimate of the
guarantee's expected cost. Making use of an analogy
between a power-purchase agreement and a debt contract, this
paper shows how the ministry can get such an estimate by
applying a method developed to estimate the expected cost of
debt guarantees. An estimate of the probability of the
utility's not being able to meet its obligations under
the power-purchase agreement can be derived from the
utility's actual or estimated credit rating in the
absence of government support. The government's
expected payments under the guarantee can then be estimated
by multiplying the utility's payments under the
power-purchase agreement by this probability. The estimates
produced by the method will be imprecise, but the method may
be easier to apply than alternative methods, and an
imprecise estimate may be better for policy makers than no estimate. |
| format |
Working Paper |
| topic_facet |
FISCAL POLICY GUARANTEES POWER PURCHASE AGREEMENT INDEPENDENT POWER PRODUCER ELECTRICITY FISCAL RISK PUBLIC GUARANTEE STATE-OWNED ENTERPRISES ELECTRIC UTILITIES |
| author |
Aslan, Cigdem Irwin, Tim |
| author_facet |
Aslan, Cigdem Irwin, Tim |
| author_sort |
Aslan, Cigdem |
| title |
Power to the Fiscal? An Exploration of the Use of Credit Ratings to Estimate the Expected Cost of a Guarantee of a Power-Purchase Agreement |
| title_short |
Power to the Fiscal? An Exploration of the Use of Credit Ratings to Estimate the Expected Cost of a Guarantee of a Power-Purchase Agreement |
| title_full |
Power to the Fiscal? An Exploration of the Use of Credit Ratings to Estimate the Expected Cost of a Guarantee of a Power-Purchase Agreement |
| title_fullStr |
Power to the Fiscal? An Exploration of the Use of Credit Ratings to Estimate the Expected Cost of a Guarantee of a Power-Purchase Agreement |
| title_full_unstemmed |
Power to the Fiscal? An Exploration of the Use of Credit Ratings to Estimate the Expected Cost of a Guarantee of a Power-Purchase Agreement |
| title_sort |
power to the fiscal? an exploration of the use of credit ratings to estimate the expected cost of a guarantee of a power-purchase agreement |
| publisher |
World Bank, Washington, DC |
| publishDate |
2020-06 |
| url |
http://documents.worldbank.org/curated/en/865871591378220034/Power-to-the-Fiscal-An-Exploration-of-the-Use-of-Credit-Ratings-to-Estimate-the-Expected-Cost-of-a-Guarantee-of-a-Power-Purchase-Agreement https://hdl.handle.net/10986/33873 |
| work_keys_str_mv |
AT aslancigdem powertothefiscalanexplorationoftheuseofcreditratingstoestimatetheexpectedcostofaguaranteeofapowerpurchaseagreement AT irwintim powertothefiscalanexplorationoftheuseofcreditratingstoestimatetheexpectedcostofaguaranteeofapowerpurchaseagreement |
| _version_ |
1807154615398957056 |