cy of investment as markets adapt to the new competitive environment. Prior to the liberalisation of electricity markets, electricity companies were usually operated as integrated monopolies, able to pass on their full costs to energy consumers. In such an environment, there was only limited risk in investment decisions. With the introduction of competition in power generation and supply, investors are now more exposed to risk. As competition develops, power companies are being forced to improve their risk management skills and strategies. Physical transmission and distribution activities remain regulated natural monopolies in most cases, though regulated rates of return on capital invested in those areas still need to be high enough to give investors sufficient incentive to expand capacity as demand grows and to maintain existing infrastructure. Investment in power generation, transmission and distribution has fallen in some countries where market reforms have been introduced in recent years, raising fears of a shortfall in peak capacity in the future. The level of future electricity prices in competitive electricity markets can be a major source of risk to electricity generators and marketers. Price volatility can greatly affect investors' revenues and profits. Uncertain electricity prices expose projects that have a long lead and construction time to additional risks. Economies of scale favour large power projects over small ones, as capital costs per kW for a given technology generally decrease with increasing scale. However, the combination of a long lead time for constructors, uncertain growth in demand for electricity, and the cost of financing add to the risks for these types of investments. Estimates of profitability for such projects rely principally on a long- term market assessment, independent of the spot power market conditions. Very large projects that must effectively be built as a single large plant, such as a large- INFRASTRUCTURE TO 2030: TELECOM, LAND TRANSPORT, WATER AND ELECTRICITY - ISBN 92