Risk Assessment

The array of various renewable energy, conventional energy, and energy efficiency options bring with them a wide range of both real and perceived risks. It is useful to categorize these risks as follows:

  • Technical risks — including errors in resource assessment or changes in resources over time, technology performance and maturity (or lack thereof), future maintenance requirements, and competing technology advancements that may make a technology obsolete.

  • Institutional risks — including changes in federal or tribal policies and challenges to the formation of legal entities (such as a tribal utility, energy service company, or business).

  • Environmental risks — including air, water, and land pollution; destruction of spiritual sites or native plants; harm to protected species, such as avian impacts; and contributions to climate change.

  • Financial risks — including potential cash flow difficulties and changes in the price of electricity.

These risks are often interrelated. For example, an overly optimistic resource assessment could result in a financial disappointment, or a change in federal policy could increase water pollution and result in increased fish kills.

Effectively evaluating risk mitigates unpleasant surprises, but different technical options bring with them different risks. Wind power development mitigates air pollution, but may impact endangered species if located in important flyways. Coal bed methane development may pollute rivers if the extracted water is not re-injected into the coal seam. And the list goes on.

The primary message at this stage of the strategic planning process is simply to recognize that different options carry widely differing risks. For a project to move forward smoothly and provide the expected financial results, it is important to evaluate and be aware of the potential risks, and mitigate them early.