Risk Management in Energy Transition

Risk management will make an important contribution if a successful energy transition is to be achieved and its role should not be underestimated. Put simply, it is the process of identifying risks and planning actions to manage them; the identified risks are assessed and prioritized and then, what might be termed the ‘risk management decision making’ process is applied to select or rank the best alternatives. An important application is evaluating and selecting the most appropriate or suitable technology to achieve ‘energy transition’ because it is widely recognised that technological innovation will be key in this transition and as described in so many articles, research papers and plans. Professor Ulf Moslenor of the Frankfurt School of Finance and Management has written a very pertinent article titled ‘The deep uncertainties that are stalling energy transition‘ and states it is the sheer number of ‘unknown unknowns’ which is deterring policymakers and investors from taking action. In emphasising that the energy sector creates a high proportion of the carbon dioxide emissions, he points out that the logical transition to clean energy by reducing emissions in power and transport is not a simple solution. Substantial investment is needed but better information is required on where and how to make such investment; specifically, neither policy makers nor market actors have appropriate estimates or probabilities. Professor Moslenor refers to this problem as a ‘deep uncertainty of unknown unknowns’ and risk management will play an important role in overcoming this problem.¬†