Energy Risk Debates: risk management in the clean energy space
Panellists discuss the unique issues facing firms in renewables, clean energy and carbon markets
Working for a company involved in clean energy can be quite a different experience for a risk manager compared to working in firms involved mainly in fossil fuels. While the risk management tools are the same, there’s far more exposure to regulatory risk and political unpredictability that could pose existential risks to some markets.
While renewable asset developers, for example, can usually mitigate long-term price risk through power purchase agreements, volumetric risk poses a high level of complexity. Volatility or variation in generation is driven by several factors, including weather and operational constraints. Firms are still developing the tools, techniques and structured products to facilitate the management of volumetric risk.
It can be more risky operating in some of the smaller green markets, such as niche certificate markets, which are opaque, illiquid and less regulated. Firms may need to deal with a lot of smaller counterparties that pose increased credit risk. There’s potentially a higher risk of fraud as well in these smaller, emerging, more opaque markets.
The rapid pace of change in these markets can make calibrating models extremely challenging. The supply and demand of clean energy evolves constantly, making it harder to predict prices. Variables such as policy, regional regulation and advancing technology are unpredictable and can have a huge impact on outcomes.
This forces the risk manager to re-evaluate assumptions and challenge models all the time, the panellists say.
Panellists
Brett Humphreys, head of risk management at environmental markets specialist Karbone.
Tuncay Pekin, head of risk management at MN8 Energy, formerly Goldman Sachs Renewable Power.
Federica Strumia, senior director of risk management at sustainable energy services firm, Targray.
Key discussion points
1.27 What are the major differences for risk managers working in the clean energy space as opposed to fossil fuels?
2.57 What types of challenges within the renewable space are risk managers still trying to work out?
9.49 What is the biggest challenge in your role in this space?
15.43 How optimistic are you on the outlook for the energy transition?
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