CFA Level I · CFA Level I Exam · Real Estate and Infrastructure
An investor in a greenfield renewable power project that has signed a 20-year fixed-price offtake agreement with a creditworthy utility is most exposed to which risk during the first two years?
The investor is most exposed to construction and completion risk in the first two years. The project is still being built, so delays and cost overruns threaten returns, while the long-term fixed-price offtake contract already limits demand and tariff risk once operations begin.
- AVolume risk from fluctuating consumer demand
- BConstruction and completion riskCorrect
- CRegulatory resetting of tariffs
Explanation
During the build phase a greenfield project generates no revenue and may suffer cost overruns or delays. The fixed-price offtake agreement largely removes demand and price risk once operating, and tariffs are contracted rather than regulator-reset.
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