Risk Management Methods Applied to Renewable and Sustainable Energy: A Review

Abstract

Renewable energy policy has always been recognized as a major incentive to the growth of renewable energy and market. In particular, in the last decade, renewable energy sources are considerably increased due to the supportive renewable energy policy worldwide. Policymakers keep on updating and revising policies in response to market changes and advances in technologies. At the same time, policymakers have shifted their perspectives from cost and benefit to risk and return so as to align with investors’ perspectives. As a result, risk management has to be kept accordance with the changing policy of renewable energy. The dynamic process is important to make certain that major risks are not unattended and managed. The intent of the research is to provide stakeholders in renewable energy projects, including policymakers, financiers, developers and risk management instrument providers, a thorough review of risk management of renewable energy policy and to better define those risks so that they can be adequately mitigated to attract future investment. Five major risks which include market, credit, operational, liquidity and political risks associated with renewable energy developments and markets have been identified. Particularly, renewable energy policy risk is investigated and commonly used risk management tools are reviewed and proposed to address the associated risks and uncertainties faced by financers, developers and investors. It is also intended to setup a place for stakeholders to start, either when they want to replicate current, or are trying to develop new, workable risk management measures for renewable energy policy.