Risk Quantification and Risk Management in Renewable ...

1 It must not be partially or totally reproduced without permission of Altran GmbH & Co. KG or IEA - RETD. Risk Quantification and Risk Management in Renewable Energy Projects Risk Quantification and Risk Management in Renewable Energy Projects 2 Risk Quantification and Risk Management in Renewable Energy Projects This report was commissioned by the IEA Renewable Energy Technology Deployment. Authors: Altran Italy Jean Michelez Nicola Rossi Altran Spain Rosario Blazquez Juan Manuel Martin Emilio Mera Altran Netherlands Dana Christensen Christian Peineke Altran Germany Konstantin Graf Arthur D.

2 Little David Lyon Geoff Stevens Acknowledgments: David de Jager IEA-RETD Operating Agent, Louis Fananas Deutsche Bank, Eduardo Foz BP Solar,Carlos Montoya IDEA, David Jack Lux Energia Solar, Rafael Luna Naturener Solar, Jorge Castano Sunpower, Juan Carlos Sirviente Naturener Solar, Antonio de la Torre Abengoa Solar, Florian Klein Abengoa Solar, Van Gansewinkel Henk Eneco, Bos Tiemen Jan Eneco, Horst Max EWT, Buddenbaum Ed EZ (regulator), Jongkind Anne Nuon/Weom, Jongste Niels Green Giraffe, Stefan Hochbruck Bard Offshore Created: Checked: Approved: Released: Name: see above Name: Jean Michelez, David Lyon, Emilio Mera Name: David de Jager Name: IEA-RETD Contact: Altran GmbH & Co.

3 KG Konstantin Graf Veritaskai 3 21079 Hamburg Germany +49 (0) 40 797156-0 Risk Quantification and Risk Management in Renewable Energy Projects 3 This document has been prepared for the titled project should not be relied upon or used for any other project without an independent check being carried out as to its suitability and prior written authority of Altran or the IEA-RETD being obtained. Altran accepts no responsibility or liability for the consequence of this document being used for a purpose other than the purposes for which it was commissioned. Any person using or relying on the document for such other purpose agrees, and will by such use or reliance be taken to confirm his agreement to indemnify Altran for all loss or damage resulting there from.

4 Altran accepts no responsibility or liability for this document to any party other than the person by whom it was commissioned. To the extent that this document is based on information supplied by other parties, Altran accepts no liability for any loss or damage suffered by the client, whether contractual or tortuous, stemming from any conclusions based on data supplied by parties other than Altran and used by Altran in preparing this document. Risk Quantification and Risk Management in Renewable Energy Projects 4 Table of content Page 1 Introduction.

5 10 The Study .. 10 Report Structure .. 11 Report rationale: Challenges for Renewable Energy Projects .. 12 2 Conventional energy projects and related uncertainties .. 17 risks associated with conventional energy projects .. 17 Risk Management Approach in Energy Projects .. 25 Objectives of project Risk Management Approach .. 25 3 Uncertainties in RES investments .. 29 RES project Characteristics .. 30 risks associated with specific RES technologies .. 32 Solar Thermal technologies .. 34 Photovoltaic Technologies .. 38 Biomass Technologies .. 40 Wind Energy .. 44 Geothermal Plants.

6 46 Wave and tidal stream devices .. 47 Tidal barrages and lagoons .. 48 4 Recommended Risk Management Methodology in Renewable Energy Projects .. 50 project Definition and Requirements .. 51 Risk Identification .. 53 Risk Identification techniques .. 53 Risk Breakdown Structure .. 56 Risk Register .. 58 Check for Risk Identification: Consistency and Completeness .. 59 Risk Evaluation .. 60 Qualitative Risk Evaluation .. 61 Quantitative Risk Evaluation .. 63 Risk Control .. 74 Risk Follow-up .. 80 Risk Feedback .. 83 Risk Management Implementation in RES investment lifecycle.

7 84 5 Definition and assessment of support measures .. 87 Introduction .. 87 Measures to address political risks .. 88 Measures to address economic risks .. 90 Measures to address social risks .. 94 Measures to address technical risks .. 95 Generic interventions .. 97 Conclusions and outstanding barriers .. 98 6 Conclusions and recommendations .. 99 Risk Quantification and Risk Management in Renewable Energy Projects 5 Conclusions .. 99 Recommendations for innovative support measures .. 105 7 List of Figures and Tables .. 108 8 References .. 111 9 Annexes .. 114 Annex 1 Case Studies and Feedback from REN Players.

8 114 Annex 2 Background to Altran, Arthur D. Little and RETD .. 145 10 Glossary .. 146 Risk Quantification and Risk Management in Renewable Energy Projects 6 Executive summary: Risk Quantification and Risk Management in Renewable Energy Projects Renewable energy plays an important role in the transition towards a low carbon economy and the provision of a secure supply of energy. Many years of research and development have brought a number of Renewable energy technologies to a stage where they are technologically mature and ready for a more widespread market introduction.

9 However, perceptions of the associated risks have constrained the progress of Renewable energy; as a consequence there is still a gap between Renewable Energy Systems (RES)1 promoters and financing organizations: Venture capital and project finance gap. The further development of Renewable energy projects is restricted by the challenge of bridging the technology development and scale-up gap. This reflects the very different requirements of Venture Capital (VC) investing in emerging technology, and project finance supporting established technologies (often supported by a stable regulatory regime).

10 Availability of venture capital to sustain emerging technologies. Emerging technologies ( wave and tidal) need to raise working capital for both sustaining the operations of technology companies as well as the demonstration projects. Markets now recognize the high capital, high risk, long lead time involved with these technologies; unless venture capital firms are following their own previous investments, they are now pulling away altogether. A key challenge in obtaining financing at a reasonable cost is the ability to quantify and manage the different elements of risk ( organizational, political, technical, commercial) associated with RES projects.