-64-02398-4 © OECD 2006 OUTLOOK FOR GLOBAL INVESTMENT IN ELECTRICITY INFRASTRUCTURE scale hydroelectric facility, are more vulnerable to this type of risk than projects that can be developed as several smaller power plants, in response to market conditions. There are a number of ways to manage electricity price risk, for example through the use of long-term bilateral contracts, futures and forwards contracts, either through established or over-the-counter exchanges. The more liquid these markets become, the easier it will be to use these tools. Although fuel prices have always been uncertain, fuel price risks are increased by the liberalisation of the natural gas market. Very long-term contracts are not generally available, with the exception of "take-or-pay" arrangements in LNG markets. Reserve margins - the difference between maximum available capacity and peak demand - have declined in most countries that reformed their electricity markets in the 1990s. This partly reflects more efficient management and the elimination of excessive spare capacity that had been built previously - a key objective of liberalisation. But this trend has provoked a debate about the appropriate level of reserve margin to ensure that electricity demand will be met during peak demand periods. Supplying electricity at these times requires maintaining adequate generating capacity or buying power from another generator in a market which has a different peak, as well as maintaining adequate transmission capacity. Peak demand is most economically met with power plants of low capital cost, since fixed expenses can be recovered only over relatively short annual periods of operation. The risks to investors building this type of peaking capacity may be high, especially when compared to base-load plant. Such risks include: Market risk. Peak demand is greatly influenced by weather conditions. Unusual weather patterns such as very warm winters or cool summers could result in certain types of peaking plant not being required at all, and SO yielding