A drawing showing windmills and solar panels

Managing risks in renewables: a Swiss Re-sponsored report by the Economist Intelligence Unit

Renewable sources of energy hold out the promise of helping secure future energy supplies and putting the world on a low-carbon growth path. But financiers and operators of renewable energy projects face significant risks and difficulties in managing them, says a report by the Economist Intelligence Unit (EIU) and sponsored by Swiss Re.

Investments in renewable energy have jumped from USD 30 billion in 2004 to USD 211 billion in 2010 and are now outpacing investments in new fossil fuel-fired plants. But power producers using renewable fuels and investors in renewable energy assets grapple with a wide array of risks which, if unaddressed, could jeopardize the future development of the sector.

Based on a survey of over 280 senior executives from the renewable energy sector, “Managing the risk in renewable energy” highlights the pitfalls in financing, owning, constructing and operating power plants run on renewable fuels. It also showcases the growing risk management challenges that the industry must confront. While 70% said they are successful at identifying their risks, only 61% confirmed they are good at reducing the risks and 50% said they transfer risks to others.

A major issue in renewable energy projects is their high cost in the early stages. For companies seeking to scale up investments, overcoming financial risks is one of the biggest hurdles, according to 76% of the survey respondents. They also have to contend with political and regulatory risk, cited by 62%; weather-related volume risk, mentioned by 66% of wind power producers; and various strategic and operational risks.

As projects grow in scale and complexity, operators of renewable energy installations must step up their risk management practices to reassure investors and secure the requisite funding. Risk transfer can make an important contribution, and a clear majority of renewable energy executives expect to use more of it in the future. Weather derivatives, insurance and hedging contracts are just some of the innovative risk transfer products available to them.

Download full report: Managing the risk in renewable energy (PDF, 1.54 MB)

Published 29 November 2011

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