Risk Management in Renewable Energy Projects

Risk Management in Renewable Energy Projects The needed of introduce renewable energy in the grid system is a clear reality. Traditional energy sources like fossil fuels or nuclear energy carry complex risks which has been evaluated and optimized in the last decades. Meanwhile, renewable energy project outlines new risk that has to be taken into consideration. Some of these problems are not well address yet, increasing the uncertainty in some of these technologies. Wind energy is not total stable, for the discontinuity of the wind. Solar energy policies are not clear in many countries, changing continuously depending of the government. Or biomass energy, which addresses the shortage and supply chain problem. Risk is a key part of all these technologies and how to manage it is a challenge which is going to be faced for the global society in the following years.

Introduction

Energy sector is known for being complex and uncertain ^[1]. Energy market is changing continuously, appearing new products, tools, processes and policies ^[2]. Because of this, the risk is inherent and companies must take into consideration many factor and variables to decide which projects they are going to invest. Especially important is risk management in renewable energy projects where the horizon is larger and the amortization of the projects is a key factor ^[3]. In this article is discussed different attributes which have in common the different energetical technologies and the specific characteristics in the risk management of them.

Traditionally, fuel and nuclear industry has been the areas which higher risk. Fuel industry outline the exploration problem. Oil wells are not exactly localized and thousands of miles of dollars are spending every year to find new wells. The prospecting stages included desk-top studies, geological mapping, geochemical surveys, geophysical surveys and multi-client seismic surveys ^[4]; all of them without knowing if it will we find a well at the end. The financial risk is high, being the main reason why oil company agree venture to share the risk and the benefits. According to Deloitte ^[5], about a third of global oil and gas companies are at risk of insolvency. Bad decisions about how manage these risks has been fatal for companies like Canadian-listed Pacific Exploration & Production with $5.3 billion in debt in 2016 ^[6]. Another risk related to this resource are environmental, an example is the great disaster which happened in Spain in 2002 with Prestige sinking, with 11,000 tonnes of toxic fuel oil ^[7].

Nuclear technology has also numerous risk factors. Risk management in nuclear energy is different than risk management in fuel energy; in this case it is more important prevent from any fail than budget; due to the catastrophic consequences of an accident ^[8]. The two main risks are human health and policies. Nuclear energy is potentially dangerous. An accident could cause human loses, environmental catastrophes, inter alia. To avoid this the power stations has a strong security system which a lot of redundancy system and there are specific software packages who optimize the probability of accident. A nuclear accident is almost impossible that happen but the consequences would be terrible if it is not mitigated fast enough. Political risk is liked directly with the previous one. Because of its potential effects, public opinion does not feel comfortable with this type of power stations, tending to make a social amplification of the risk ^[9] ^[8]. As result, some governments have decided to close them; an example is Spanish nuclear park, which is being closed after a strong public opinion opposition ^[10].

Although non-renewable energy sources are an inherent risk source and should be managed carefully, this article is going to be focus on the renewable energy projects. Firstly, main considerations are addressed and risk analysis is presented. After that, different type of risks and risk sources are explained, stressing the evaluation and the response in order to mitigate them. In the following sections this article proposes a risk evaluation of three technologies, wind, solar and biomass energy. Finally, how all these risks are going to affect renewable industry in the next years is discussed.