What’s energy risk management?

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Managing risks associated with the energy sector is becoming increasingly complicated due to factors such as government regulations, public policy, financial concerns and scarcity of energy resources. To address these issues, impacted companies often implement energy risk management strategies. Energy risk management involves the process of identifying, assessing and prioritizing risks associated with uncertainty in energy markets. Controlling energy risks can provide greater market assurance for companies such as oil and gas producers, electricity providers and utility companies. It can also give confidence to insurance companies, banks and manufacturers that work with these energy companies.

An energy risk management assessment usually involves several steps. The first step requires identifying all possible threats to energy. Once potential energy threats are identified, the risks associated with those threats are usually quantified and prioritized. The final step in an energy risk management assessment usually involves finding ways to deal with the risk. Solutions may include energy risk reduction, risk monitoring, or risk elimination altogether.

Different risks occur in different types of energy markets, and energy risk management strategies can vary depending on which sector of the energy sector is being evaluated. The electricity market, for example, can pose different threats to a company than the oil or natural gas markets. Other factors that often pose energy risks include climate change and environmental concerns.

Companies typically employ one or more methods to address energy risk. The chosen strategy is usually based on the type of risk in question. In some cases, a company may transfer risk to another party, such as an insurance company. In other cases, a company may avoid encountering the risk or find ways to minimize the negative impacts associated with the risk. Another frequently used energy risk management strategy involves accepting and accounting for the outcomes associated with the risk.

Companies in the energy industry can use the services of an energy consulting firm. These companies usually have high knowledge about the energy industry and can help companies create solid energy risk management plans. In addition, they can help companies assess the impact of energy regulations. They can also help purchase energy, assess energy costs and develop energy conservation plans.

Some energy consulting firms act as company ambassadors to government agencies. In this role, a company can help structure competitive energy markets or provide advice on energy tariffs. Some energy consultants also provide expert testimony to regulatory agencies or courts.

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