The renewable power industry faces a growing range of risks and significant challenges in managing them as it grows, according to a study by researcher Economist Intelligence Unit Ltd. and reinsurer Swiss Re Ltd.

While 70% of energy and finance executives surveyed said they were successful in identifying the key risks their companies face, just 61% said they were successful at assessing the scale and the scope of risks, 61% said they were successful at mitigating risks and 50% said they were successful at transferring their risks.

The London-based EIU and Zurich-based Swiss Re surveyed 284 energy and finance executives at companies involved in renewable energy projects during July and August. Fifty percent were from Western Europe, 38% from the United States and 12% from Australia.

Barriers to effective risk management

The study released Tuesday identified eight main types of risk, said Aviva Freudmann, research director for Continental Europe, the Middle East and Africa at EIU in Frankfurt, Germany: financial risk, business/strategic risks, building and testing risks, operational risks, environmental risks, political and regulatory risks, market risks and weather-related risks.

The study asked respondents to name the three most significant barriers to more effective management of risks related to renewable energy plants.

Thirty percent cited a lack of relevant information on internal operations, 30% cited a lack of awareness of weather markets and 29% cited a lack of awareness of risk management. Twenty-three percent cited a lack of information on technical risks as a barrier to more effective risk management, while 22% cited a lack of funds for risk management, 19% a lack of commitment from top management and 17% cited a lack of a dedicated risk management function.

Insurance top solution

The most popular solution to manage financial risks associated with renewable energy projects currently is insurance, cited by 60% of respondents, while 55% said they expect to use insurance to transfer financial risks in three years time. Almost half—48%—of respondents said they use financial derivatives to transfer financial risks, while 38% said they expect to use this method to transfer risks three years in the future. Thirty-three percent of respondents said they use a captive to transfer financial risks, while 29% said they would use a captive to transfer this risk in the future.

For operational risks, 36% of respondents say they currently use insurance as a risk transfer mechanism, while 25% said they would use insurance as a risk transfer solution in three years time. Twenty-five percent said they currently use catastrophe bonds as a way to transfer operational risks, while 18% said they likely would use catastrophe bonds in three years time. And 23% said they have used self-insurance pools to transfer operational risks, while 17% said they would use self-insurance pools to transfer operational risks three years from now.