As emerging economies look to diversify and future-proof their revenue streams, renewable energy projects offer exciting opportunities.
Joined by colleagues from across the industry, we took a closer look at the challenges investors and developers face when working on energy projects in these markets, as well as discussing ways in which these risks can be mitigated.
The challenges and risks
Working in emerging markets brings with it a wealth of opportunities, but as with many other jurisdictions, it is not without its risks. These can include:
- Fluctuating currencies - while investors will traditionally deal in dollars or pounds, the local currencies used by contractors can be volatile and unpredictable
- Geopolitical issues - can lead to shifting national priorities and increased financial instability - although this can present as many opportunities as it does challenges
- Supply chain problems - both access to skills and transportation of materials can be difficult, leading to a less robust supply chain
What can investors do to mitigate these risks?
- Increased resource for project management - by engaging active and experienced project management, investors are able to keep a tighter control over projects, and are often more aware of potential disruptions
- Ensure transparency in contracts - all parties should be aware of their responsibilities prior to undertaking the project, as well as any actions which may be taken should contractual breaches occur
- Flexible approach – investors need to obtain as much visibility as possible to the challenges which may be happening further down the supply chain so that these risks can be managed during the life of the project
- Dispute resolution provisions – investors will want a form of dispute resolution with which they are familiar and which guarantees the fidelity of the process and which provides an enforceable decision in a reasonable time. International arbitration delivers this but a bespoke approach to the appropriate dispute resolution provisions should be taken in every case.
A cornerstone of the energy transition is the decarbonization of the electricity generation mix, away from fossil-fuel generation such as coal and gas. Instead, renewable sources of energy, or 'green energy,' will play a vital role in future energy systems.
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