Risk Management in Hydro Power

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Risk Management In Hydro Power Plants –

18th African Hydro Symposium
October 2006

By Joshua Chirikutsi –

Zimbabwe Power Company-
Kariba South Power station


Hydro power plants like any other business encounter risks in all areas of its operations, but especially in the areas of producing and marketing electricity. As the Electricity supply industry reforms unfold the resultant deregulation brings in several market regulatory and trade related risks. The paper will discuss the general risks affecting Power utilities and will place particular emphasis on hydropower plant operations by analysing the effect of maintenance and operations quality in power plant risk management.


Electric power companies and their insurers/insurance advisors are required to understand and manage risk. Risk management is commonly seen as considering security, insurance and safety issues only. It is however a broad management methodology that includes all areas and aspect of the organisation. There are many elements that contribute to risk management –behaviours, management systems and practices, processes and cultures. A comprehensive risk management framework and structure is necessary to ensure that all participants in the organisation’s business think, live and breathe risk management. The most important contributor are employees ‘s understanding of how all the elements of the system fit together, i.e. how work practices, their knowledge, skills, and attitudes make the whole risk management system work. Organisations develop Risk Management Policies and Procedures to define risk strategies, demarcate and delegate responsibilities, and find ways to interweave procedures for determining and managing risks.

2. Definition of Risk.

A business risk is the threat that an event or action will adversely affect the business unit’s ability to maximize stakeholder value and to achieve its business objectives. Alternatively risk is the chance of something happening that will have an impact on objectives Business risk arises as much from the possibility that opportunities will not be realized as it does from the possibility that threats will materialize or that errors will be made.

3. Why manage risk

The business environment is fraught with risk (systematic and unsystematic, controllable and uncontrollable, internal and external, technical and human. Management has the role of identifying, preventing, reducing mitigating and controlling the effects of such risk on the organisation

There are risks that help achieve goals and risk the thwart achievement of goals. A common perception is that all risk is bad: however risk can be taken to achieve advantage. To survive and create value organisations must manage risk by controlling the negative consequences of risk and capitalising on opportunities presented by the risk to be taken. At the utility level Risk Management Committee, which oversees and directs risk management activities, reports regularly to the Management Board, and suggests needed measures. It is therefore essential to established a risk management organisation and process which is comprised of the following components: Standardised risk definitions.

Identifying origination of risks.
Reliable methods for measuring risks.
Effective risk management for manageable risks.
Reporting in accordance with established routines.
Management in accordance with established strategies and fixed rules. Responsibility for managing the risks
Developing grassroots awareness and responsiveness to risk Develop appropriate risk management structures

Generally organisation s face risks that into the following general broad categories. Strategic
Stakeholder issues
Market structure
Physical assets
People and culture
Liquidity and credit
Capital structures
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