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Volatile commodity pricing is the biggest issue keeping energy company chiefs aw ...

Volatile commodity pricing is the biggest issue keeping energy company chiefs awake at night, according to a global risk management survey by insurance broker and risk management firm Aon. It is perhaps unsurprising that regulatory and legislative changes feature as the second most worrying aspect of power companies’ risks. With new governments such as the US and Australia emerging around the world, and the UK set to go to the polls in 2010, rarely has there been so much uncertainty regarding policy in the power industry. For example, legislation on emission trading is due to be unveiled by the White House at a time when each new government is under increasing pressure to deliver renewable power and secure a green energy supply. Indeed, the power sector is the most concerned about climate change of any industry surveyed in the 2009 Aon Global Risk Management Survey. While facing unprecedented upheaval, the power industry is on extremely solid ground to deal with emerging risks, with 83% of companies having plans in place to deal with their top 10 risks, the second highest of any industry. Table 1: Top 10 risks facing power companies in 2009 Issue 2008 2009 Commodity price risk 1 New entry Failure to attract or retain top talent 2 3 Regulatory/legislative changes 2 Unchanged Business interruption 4 1 Political risk uncertainties 5 5 Climate change 5 Down 4 places Environmental risk 7 Down 5 places Natural resource scarcity 7 New entry Exchange rate fluctuation 9 New entry Damage to reputation 9 Down 9 places Hamish Roberts, CEO of Global Power Specialty at Aon, commented: ‘The power industry is currently in a position to reap big rewards if it is prepared to make bold moves such as investing in new yet unproven technology, such as wave energy and carbon sequestration. By addressing risks early enough in the evolutionary curve, power companies will find it easier to mitigate these exposures. Power companies face the unenviable task of finding finance for developing new technologies, while making the project pay dividends in the long term. Insurance and transferring the risk continues to be the “make or break” element of a new build that needs to be tackled in the early stages We were surprised that the ability to raise capital does not feature in the top 10 this year. Whilst the power industry has been a relatively strong performer during the economic downturn, it is facing the same lack of capital as all other industries that could stall the financing of new builds and hinder the development of technology.’

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