An investigation into future energy system risks: An industry perspective

The energy system is highly complex and its future is uncertain due to unexpected changes and contrasting values. The complexity of the system may be defined by, for example, changing politics, technologies, finance and demographics. Under these conditions, decision-makers may struggle to confidently assess their future needs. However, decisions must be made so that organisational objectives are achieved, energy supply is secure and directives are met. For high-level decisions (e.g. strategic decisions reaching far into the future) it is unlikely that more time and better data will reduce uncertainty, and as a result, decisions must be made with existing information. Techniques like scenario analysis are useful for gathering this type of disparate information.

Deliberative techniques (e.g. scenario analysis) are used under conditions of high decision complexity and uncertainty. These techniques may interrogate multiple decision options under various future conditions, thus providing a first-step in understanding inherent risks and uncertainties. In this report we used scenario analysis to assess a set of risks under two plausible future energy scenarios. The studied scenarios included an energy system on a trajectory of development that did not deviate from its current projection (status quo) and a low carbon scenario whereby energy generation was largely provided by non-carbon (e.g. renewable) sources. Energy system experts were used to qualify the different risks and provide industrial insight.

The study analysed a suite of nineteen unique risks. These included political (international agreement, geopolitical issues, UK political issues), economic (project capital costs, investor trust in government, commodity pricing, electricity pricing), social (behavioural change, public perception, democratization of process), technical (rate of innovation vs implementation, energy supply chain, project risks, transport infrastructure), legal (end of life and stranded assets, pre/post operational governance, UK planning and licensing), and environmental (cumulative environmental factors, accidents and climactic events) issues.

The results of this study suggest that political and economic drivers pose the greatest risk, or barrier, to future energy system development. Though these two themes were perceived as being most risky, the character of the risks varied for each scenario. For example, political drivers (i.e. geopolitical) and the impact they may have on hydrocarbon prices posed the greatest risk to an energy system reliant on fossil fuels (i.e. status quo). This was in contrast toa low carbon scenario where the character of political risk (i.e. UK politics) focussed around long-term national policy-making, which in turn highlighted issues about investor confidence. Regardless the differences in character, experts perceived political consistency as being vital for improving confidence in their decision-making. Overall, experts consistently rated risks associated with a low carbon scenario higher than those for the status quo.

Our report provides a snapshot of current industrial thinking about the risks associated with different future pathways that the UK energy system may follow. In addition to identifying perceived risk priorities, this analysis also provides an indication of where gaps in knowledge and understanding about risk may exist. Strategies for addressing these gaps may include improved communication (e.g. between industry, government and academia) or targeted research. In either instance, the ultimate aim is to reduce uncertainty and improve conditions for long-term decision-making in the UK energy system.