Financial Risk Analysis for Water and Energy Projects

Investments in the water and energy sectors are characterized by multiple financial risk components which significantly affect the feasibility of the interventions. What are the acceptability levels of this risk? The objective of the paper was to define a protocol for project risk management. The idea was to introduce two thresholds for financial risk: the acceptability threshold and the tolerability threshold. These thresholds were conceptually borrowed from the As Low As Reasonably Practicable (ALARP) principle, according to which a risk is ALARP if the costs for its mitigation are not disproportionate to the benefits that can be achieved. These risk levels are useful to guide the analyst in assessing the economic viability of investments. For the estimation of acceptability and tolerability thresholds, we proposed a methodology based on the statistical analysis of the profitability indices of the sector companies operating in a given territorial context. An application to water and energy projects in Italy makes it possible to verify the effectiveness of the defined protocol.