Risk Assessment Approaches in Sustainable Energy Development

Laila Gazieva

and Timur Aygumov

Kadyrov Chechen State University, 32 Sharipov Street, Grozny, Russia

Dagestan State Technical University, 70, I.Shamyl Ave., Makhachkala, Russia

Keywords: Economics, risk assessment, sustainable energy development, carbon balance.

Abstract: Energy consumption is a growing factor in the economy in many activities such as food production, keeping

apartments warm, commercial use, lightning, manufacturing, and more. But all of these economic activities

depend on the production of conventional energy through the use of natural resources that emit large amounts

of environmentally harmful gases. Much of the country relies on fossil fuels for energy production and tries

to ensure economic growth as much as possible, but this has come at a huge price on two fronts. To meet

demand, they use a lot of non-renewable natural resources. When natural resources are used for energy

production, large amounts of environmentally harmful gases are emitted. As a result, we lose resources and

money to meet our energy needs. That’s why sustainable energy development has become a major concern in

recent years because of frequent environmental reactions and consistency in natural tragedy. In this article,

we have tried to conduct an overview assessment of the risks of sustainable energy development.

Technological advancements have brought opportunities to produce renewable energy, which has been widely

accepted around the world to eliminate negative impacts on the environment. Hence, the development of

alternative energy sources has sparked a revolution in sustainable energy development.

1 INTRODUCTION

There are many ways to produce energy from

renewable sources such as hydroelectricity produced

from water flow, solar energy produced from sun

radiation, tidal energy produced from tidal current,

bioenergy produced from biofuels or biomass, and

geothermal energy produced from temperature.

Hence, to produce sustainable energy from renewable

sources, producers have to face a lot of risks. One of

the most important risks is financial risk. Sustainable

energy development is more expensive than

conventional energy production. To this end,

although developed countries have undertaken such

renewable energy projects, developing countries have

not shown such courage to undertake such projects to

promote sustainable energy development. Suppose a

hydroelectric power plant requires a lot of investment

because of the complexity of the project. Thus,

financial issues are an undeniable risk to undertake

such a project (Rafiq et al., 2022).

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Correspondingly, development projects such as

hydropower, wind power, and biomass energy are

also at great risk, because such projects require a large

amount of data to be acquired and evaluated, and are

difficult to operate. Farm-based data cannot be

manipulated in developing countries due to resource

constraints. Suppose, a developing country, bought a

lot of machinery and technology to start a renewable

project, but it cost them a lot and made it more

difficult to operate. In fact, they don't have enough

risk assessment tools to identify risks, or even

technological advances to reduce them. Cyber-attacks

have recently become a major issue, which is also

considered the biggest risk in data-based operations.

Weekly regulatory regimes are also associated with

these risks. Most countries are not politically stable.

For this reason, they cannot undertake such projects

for a long time because the investors are unpopular

and unhappy with the political conditions.

The main concern is to assess the risks of the

project so that it can be easily managed without

interruption. The purpose of this study was to

extensively review the literature and assess the risks

274

Gazieva, L. and Aygumov, T.

Risk Assessment Approaches in Sustainable Energy Development.

DOI: 10.5220/0011570200003524

In Proceedings of the 1st International Conference on Methods, Models, Technologies for Sustainable Development (MMTGE 2022) - Agroclimatic Projects and Carbon Neutrality, pages

274-277

ISBN: 978-989-758-608-8

 2023 by SCITEPRESS – Science and Technology Publications, Lda. Under CC license (CC BY-NC-ND 4.0)

of sustainable energy development and find solutions

to reduce the risks. In the literature, various articles

and papers discuss energy development risks,

focusing on financial and management risks, and

looking for possible solutions to manage the risks of

renewable energy projects (Wall et al., 2021). The

research will explore multiple sources to identify risk

assessment techniques in sustainable energy

development projects and to find the best techniques

to maintain these risks. Therefore, the aim of this

study was to identify risk assessment techniques in

sustainable energy development.

2 MATERIALS AND METHODS

The methodology of the research is the procedure of

planning the research which comprises data

collection, calculating, and analysis on the basis of

the research objectives. The study then set out to

categorize various technologies to assess the risks

associated with sustainable energy development and

to find the best technologies to sustain those risks.

Then, the study will follow a PRISMA (Preferred

Reporting Item for Systematic Reviews and Meta-

Analyses) analysis to identify sources and evidence

for risk assessment tools (Page et al., 2021). Hence,

samples will be collected from published academic

literature, project reports, articles, research papers,

and management strategies for risk assessment.

Hence, in order to master the valuation tools, a

systematic scoping review will be conducted to

collect data. After collecting the data with a scoping

assessment, the study will systematically represent

the different risk assessment factors in energy

development from renewable sources. The

assessment will provide appropriate guidelines and

recommendations to the relevant authorities so that

they can assess the risks of sustainable energy

development from renewable energy sources. A

critical analysis will be conducted to detail each risk

assessment strategy.

With the recent increase in renewable energy

investment, the risks and uncertainties associated

with renewable energy development need to be

weighed throughout the planning, development, and

operation process. Investors, developers, and

policymakers will face numerous financial,

technological, and political uncertainties. Since the

risks of using fossil fuels are more severe than that of

renewable energy, it must be assumed that the

technological risks of renewable energy development

are much lower than those of conventional energy

development. In the energy sector, investors,

policymakers, and developers face financial risks

from the cost volatility habits of energy development

tools, oil price volatility, technology costing, and

more. Generally speaking, the risks of sustainable

energy development are multi-dimensional and

depend on the complexity of the company.

One study on the “Comprehensive Actuarial Risk

Evaluation – CARE” has produced by the

“International Actuarial Association (IAA)” which

revealed a comprehensive technique of risk

assessment faced by the enterprises (Ioannou et al.,

2017). The study has proposed a new strategy to

categorize non-statistical and statistical risks

associated with the energy firm. With this, the risk of

an energy project can be measured mathematically or

statistically called “stochastic modelling" of the

existing knowledge is not helping to find the

assessment strategy. The risks of sustainable energy

development depend on the different technological

factors and regulatory factors on the basis of

stakeholders’ perspectives.

Hence, the most critical risk may be an economic

risk, which includes many factors such as market risk

and financial risk. Market risk is related to

fluctuations in profits caused by fluctuations in

electricity prices and energy demand.

Correspondingly, financial risks may arise from

insufficient working capital and investment channels.

On the other hand, interest rates are fluctuating due to

the current pandemic. Sustainable energy

development requires many investment opportunities

and renewable energy development pathways. On the

contrary, due to the political situation, the possibility

of changing the national economy and having a huge

impact is high. Theta why political instability may be

a major uncertainty for sustainable energy

development. In fact, this risk may also lead to

changes in regulatory regimes, such as RPS targets or

tax credits. Hence, public awareness has become a

major issue as public acceptance is mainly related to

health issues. For this reason, the risk of project

acceptance can be high when citizens do not embrace

sustainable ideas. Technical risk is one of the most

concerning issues in energy development risk, which

can generate various risks such as project

development risk, construction risk, operation risk,

maintenance risk, and resource management risk (Jun

et al., 2020).

3 RESULTS AND DISCUSSION

Risk assessment and management include the

systematic process of identifying project risks, which

Risk Assessment Approaches in Sustainable Energy Development

275

includes a series of risk assessment processes and

developing strategies to mitigate numerous risks. The

analysis follows different dimensions of assessment,

such as institutional and contractual relationship

analysis, allocation risk assessment, and financial

modelling and estimation. Risk analysis includes two

techniques, the identification of financial risks and

thematic analysis of semi-structured interviews. The

risk assessment technique is not only related to

identification planning, analysis of the risks, and

mitigation strategies but also to monitoring and

controlling the risks (Dounavi et al., 2022). The

assessment technique will not only increase the

possibility of identifying the severe risks but also help

to mitigate the impact of each risk. Each risk has some

degree of impact, given its severity. The existing

literature from European countries has already shown

different kinds of risks on the basis of renewable

energy development projects. This literature suggests

three main risks associated with the sustainable

energy development project. First, financial risk

includes contractual risk, investment risk, credit risk,

and interest rate risks. Then, the second most

important risk is associated with technology which

indicates the uncertainty of operation and

maintenance. In the end, the ultimate risk has to do

with the price of fuel, electricity, and carbon dioxide

(Gielen et al., 2019).

Identifying systemic risks in renewable energy

development is worth assessing, as risks will become

more frequent in the coming years due to

technological and financial diversity. However,

governments can adopt strategies to mitigate these

risks. Technical risks can be mitigated through

investing in R&D through local or international

sources. Financial risks can be eliminated not only

through local and foreign investment but also through

initiating policies (Agarwal et al., 2022). In

renewable energy development projects, technology

and fiscal policy need to take the same priority as

other risks. Government policies are probably the

most important policies for developing countries to

attract foreign investors and can reduce financial

risks. In the field of sustainable energy development,

managing and minimizing risk is critical to achieving

goals. Therefore, risk should be measured from a

systemic point of view to take effective measures for

long-term (Mentsiev et al., 2020).

In the field of developing renewable energy

production, managing risk is a major concern in

achieving goals. As a result, investment in risk

assessment has increased significantly in recent years,

and risk management research has also made

significant progress (Mentsiev et al., 2020).

Developing sustainable energy from sustainable

sources is not an easy task due to the associated risks.

For developing countries, the risk may be more severe

than for developed countries, because developing

countries have fewer investment facilities and less

advanced technology. Consequently, lower

investment facilities create a significant financial risk

in developing sustainable energy. Likewise, technical

risks can lead to more complex functional and

operational activities due to weak data management

techniques. Finally, the two most serious risks we can

assess as the most important for the development of

sustainable energy development. There is an

opportunity to reduce and maintain risk by sharing

technology and enhancing investment opportunities

in both countries (Sovacool et al., 2022). Hence, it’s

only possible by taking risk assessment techniques to

reduce the risk and achieve success in energy

development from sustainable renewable sources.

4 CONCLUSIONS

In this paper, the study incorporates a process for the

identification, assessment, and mitigation of risks and

uncertainties associated with sustainable energy

development from renewable energy sources. This

risk could affect the profitability of the project and

could be at risk if energy development is successfully

completed. Therefore, the application of risk

assessment tools in renewable energy development

projects is the only possible way to successfully

develop renewable energy. Appropriate government

policy is the most important factor in risk

management. With appropriate policy support,

investors can invest with confidence, and developed

countries share technical support and continue to

provide data management support. Therefore, the

government. Implementing proper policies can play

an important role in proper installation and operation.

The work was supported by the Ministry of Education

and Science of the Russian Federation,

supplementary agreement dated April 21, 2020 No

075-02-2020-1529/1.

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