• the commissioning date of the various plant which already existed; and • the differences in lives dependent on the technology/ fuel source employed by the plant.
Given this it is important to consider what elements of the estimate might change as the time horizon changes. There are two key elements: • the risk-free rate; and • the debt premium.
It is normally expected that there is an upward sloping yield curve, i.e. borrowing longer maturity funds is more expensive than short. This is because of the ume value ot money, risk etc. As such, we would expect the long maturity W'ACC to be higher than a short maturity one, ceteris paribus. Of course, there may be periods when short-term money is more expensive than long maturity money, owing to short-term risks — the current financial crisis is an example ot this.
That can change the slope of the yield curve.
The debt premium is also expected to increase the longer the maturity of the bond owing to the greater risk compared to the government bond. As such, a long maturity W'ACC should be higher than a short-maturity one, ceteris paribus. Anecdotal evidence in the 19S>i is suggested that every additional year of maturity added 2 basis points (0.02%) to the debt premium. However, it is also possible that if the maturity impact on the risk-free rate is significant then the debt premium may adjust for this and be lower for long dated debt (but still having an overall long dated COD greater than a short dated one).
To take account of the possible impact of maturity we calculate three maturities of W'ACC: • Short-dated (under 10 years); • Medium-dated (between 10 and 30 years); and • Long-dated (above 30 years), In our main conclusions we match the maturity of each PPA or CMEC agreement to the maturity categories above.
3.3.2. Fuel type It is possible that the choice of fuel type will affect more than just the maturity of the plant, especially if the exposure to risk is different. The most obvious example ot this would be the comparison of thermal plant and hydro-electric ones. The latter are unlikely to tace fuel cost risk while this can be important for thermal plant. ОІ course, whether the thermal plant faces a different level of risk will depend on the structure of the contract under which the power is being sold. For the PPA-backed generators in Portugal, our analysis indicates that you would not expect to see significant differential pricing according to fuel type.
Unfortunately, given the time and data limitations no meaningful information on the impact of technology has been discernible from our analysis.
II SÉRIE-B — NÚMERO 226
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