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Risk appetite and strategy
in the energy sector

Risk appetite and strategy in the energy sector

The energy sector is historically one that was very conservative, slow to change, and long term in nature.  This has shifted in a number of ways, primarily driven by the changing consumer, new market entrants, the energy transition, and a faster pace of change on the technology front.  All of this means that new technologies are emerging that emit less and are more efficient; are smaller and more distributed; managed by not only utilities but also the consumer and; that can be designed and implemented at a much faster pace than ever before.  This transition has stretched our human and organisational skills and competencies, as it requires different approaches and competencies such as:

  • Agile policy and regulatory framework development processes that intervene where there are market failures, but enable agility without compromising energy security
  • Risk appetites in business leaders that value an expanded set of issues and shift from a focus primarily on  operational issues and reliability to growth and risk and reward trade-offs
  • The appetite and bandwidth to include in strategy and planning processes contingency plans for high impact low likelihood risks, both positive and negative and deal with complex decisions
  • Consideration in decision making of options that may have to compromise on economies of scale but support decisions that reduce the risks associated with uncertain demand and technology shifts
  • Embracing the way energy companies work with consumers in a new and more collaborative way and providing a more diverse set of products and services
  • The ability to proactively manage multiple stakeholders with a variety of often conflicting needs and issues
  • Attracting skills that do not consider long term, secure employment as a benefit to them, but rather value environmental and social performance and want global opportunities to work in a variety of different countries

The question that needs to be asked is whether energy sector players are organised and have a culture that enables these approaches?  More often than not, strategy, risk, and leadership development in organisations are process-driven rather than people-driven.  In order to navigate the emerging energy sector, these issues need to be integrated to speed up response times, ensure effective implementation of strategy, and most importantly, drive the right culture.  Peter Drucker said, “culture eats strategy for breakfast”.  So why is it that we oftentimes consider people in change management processes to implement an already decided strategy, and not in the way in which people take decisions to develop that strategy and address positive and negative risk?

In the fast-changing environment, we operate in, we can no longer fail to fully consider individual mindsets and their impact on decision making.  Climate change is a global threat and the energy sector’s rate of decline in greenhouse gas emissions is therefore critical.  The energy market is fundamentally shifting and energy player business models also need to change.  This means that energy sector players all need to move to unprecedented levels of collaboration and innovation and changing mindsets and risk appetite is fundamental in achieving that.

  • Published: 28/09/2020
  • Service: Risk Strategy