Managing energy transition risks

Energy transition is a strategic shift to low-carbon or renewable sources to address climate change and ensure long-term energy security, but it is also fraught with multiple challenges. The authors believe that using an Enterprise Risk Management ERM) framework can help develop comprehensive Strategies to address such challenges.

Energy transition refers to the shift from fossil fuels to low-carbon or renewable sources. It I also involves decarbonising industries such as processing, manufacturing, transportation, utilities and construction. India has chosen an energy transition path to meet 50 percent of its electricity demand from renewables with an installed RE capacity of 500 GW by 2030, and achieve net-zero emissions by 2070.

Energy transition has to deal with technological limitations, capital availability, policy constraints, and social and workforce issues. The involvement of multiple stakeholders, whose interests often clash with the goals of energy transition, makes it even more complicated.

Energy and climate policy stakeholders include governments and international organisations focusing on energy security and climate goals, while companies seek profitability, sustainability, and compliance.

Investors prioritise financial returns and ESG risks, while consumers demand affordability. Other key players include environmental groups, workers, technologists, regulators, communities, academia, and the media.

Risks and challenges of energy transition

Economic and financial risks: Energy transition requires the adoption of renewable energy sources across all sectors, which requires significant upfront investment and may involve market risks, such as demand volatility, supply chain constraints, and cost escalations.

Policy and regulatory risks: Government policies can help attract financing and investments in clean energy and decarbonisation projects. However, subsidies on fossil fuels can threaten the competitive pricing of renewable energies.