Assessing and managing regulatory risk in renewable energy: Contrasts between Canada and the United States

Abstract

A challenge for energy firms when considering new investments is to balance expected financial gains against potential risks. However, while investment opportunities in different jurisdictions are often straightforward to identify, the policy or regulatory risks for investors are more difficult to accurately ascertain. Here, I provide a novel conceptual framework for how firms can assess regulatory risk that focuses on the institutional processes governing policy-making. Risks are lower - and policies will subsequently be more stable - in jurisdictions where regulatory agencies have greater autonomy from politicians and where policies are formulated through more 'rigid' policy-making processes. The contrasting development patterns of renewable energy policies in Ontario and Texas offer support for the framework. I further develop strategies for how firms can successfully manage regulatory risks in different types of environment. © 2012 Elsevier Ltd.